AIC Business Principles (Buffet Style):
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By adhering to our strict investment discipline and philosophy, the AIC Group of Funds will continue to deliver long-term performance
AIC’s investment philosophy rests on a set of established investment principles that we follow everyday.
Our investment principles have a singular focus. The focus is to maximize the long-term after-tax return to our unitholders by owning a group of high-quality businesses – a group of businesses that generates significant levels of cash flows and consistently earn above-average returns on capital.
What does this mean to investors? It means that investors can expect consistency and conservatism in our investment approach. Our principles help us to determine what to invest in and, more important, what not to invest in.
We buy businesses not just shares
At AIC, we evaluate every investment opportunity as though we are buying the company in its entirety. Most shareholders and many market speculators see only a stock price. They look at stocks as pieces of paper to be frequently traded with the intention of minimizing volatility and generating capital gains.
Not AIC. When we invest, we see a business. We view each share as representing ownership in that business. We are investing for the long-term, not the short-term. We believe that this is the best approach to wealth creation.
At AIC, we believe that the best way to create wealth is to own a portfolio of excellent businesses over time. The fact is that the majority of wealthy people today are, in most cases, long-term business owners. To ensure that the long-term interests of our investors are well-served, AIC doesn’t follow speculative investment practices such as sector rotation or momentum investing.
In other words, we aren’t interested in owning a large collection of companies with the intention of turning them over repeatedly. At AIC, we prefer to buy and hold the best-of-the-best. It is this approach to wealth creation that is also followed by some of the world’s leading investors including, for example, Warren Buffett who is the third richest person in America.
We buy businesses we believe in
We don’t spend time watching, predicting or anticipating stock price changes of a company over which we have no control. We spend our time increasing our understanding of the company’s business.
We only invest in businesses that:
1) we understand completely
2) have honest and competent management
3) possess long-term competitive advantage
4) operate in industries with strong long-term economic fundamentals
5) can be purchased at attractive prices
We measure long-term success not short-term stock prices
Because of our buy-and-hold approach, AIC doesn’t engage in speculative investment practices such as sector rotation or momentum investing. At AIC, we don’t try to time the markets. Our investments do not have a predetermined holding period or selling price. We will continue to hold an investment as long as we expect the value of the business to increase at a satisfactory rate.
The wise investor would never use short-term stock prices to judge the success of a business. We follow this principle closely and measure the success of each business in which we invest by its economic progress. Among various measurements, we are acutely interested in each businesses’:
1)Return on shareholders’ equity
2) Capital expenditure requirements, changes in operating margins, and debt levels
3) Ability to generate future cash flows
4) In addition, we also monitor each business in which we 5) invest to ensure the following qualities have been preserved:
1) Exceptional management
2) Reputation
3) Diversification (product & geographic)
4) Market position
5) Top-line growth
6) Distribution channels
As long as these and other important investment considerations are improving, we are confident that the stock price will reflect this over the long run.
We believe external economic factors will not weaken our investment principles. At AIC, we are not influenced by political or economic forecasts. In fact, we see these as expensive distractions to many investors. We believe that the following quotation serves well to reaffirm our commitment to following this investment principle:
“Thirty years ago, no one could have foreseen the huge expansion of the Vietnam War, wage and price control, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8 per cent and 17.4 per cent. But, surprise! - none of these events made the slightest dent in Ben Graham’s investment principles. Nor did they render unsound the negotiated purchases of fine businesses at sensible prices. Imagine the cost to us, then, if we had let fear of the unknowns cause us to defer or alter the deployment of capital. Indeed, we have usually made our best purchases when apprehensions about some macro event were at a peak. Fear is the foe of the faddist, but the friend of the fundamentalist. A different set of major shocks is sure to occur in the next 30 years. We will neither try to predict these nor profit from them. If we can identify businesses similar to those we have purchased in the past, external surprises will have little effect on our long-term results."
(Warren Buffett, 1994)
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