Alistair's blog

I was prompted the other day to write down the overarching strategy of my investment vehicle. I thought this was a good exercise. So here we are.

The long-term goal of Bund Capital is to compound at a rate superior to the market. That is the most important goal. Other goals, that are not as important but still are, include to remain as a permanent capital structure and to own private businesses that produce exceptional goods or services.

Why do I think I can compound better than the market? And how am I going to do it?

My main investment strategy is to find asymmetric opportunities. I do not obsess as to why these opportunities occur. I just know Mr. Market operate in ways in which I do not understand, and that he is moody. Asymmetric opportunities mean limited downside and high upside. Sometimes the upside is large but uncertain, which is exactly the reason why the business is discounted, but I don’t mind uncertainty. If the payoff is correct, I ignore psychology.

There is a difference between a good investment and a good business. In the current stage, where my capital is small, good investments are my priority. As Bund gets larger, in Warren’s own words, it is much better to own a wonderful company at a fair price than a fair company at a wonderful price. From time to time, I will walk into the supermarket that is Mr. Market and find my favorite candy on sale; that is, sometimes a wonderful business can trade at a wonderful price. The only thing left to do then is to use enough of my capital to hit a home run.

Another pillar of my investment strategy is the importance of doing nothing. Life can be absurd and depressing. So, we distract ourselves with things such as work, exercise, food, alcohol, sex, or drugs. An important job of the investment manager is to recognize when the risk/reward odds in the market are even or not in your favor. And simply find something else to do. Patience is a virtue.

An underdiscussed aspect of investing that is utterly important is position sizing. Small positions don’t interest me. I am not a student of diversification. I am fine with holding only one or two stocks in my portfolio. When the odds are in your favor, bet big. When they are not, don’t bet. There is an opportunity cost to small opportunities that don’t interest me, and it takes a certain amount of conviction to bet big that I also lack. My position sizing will never be perfect, but the above is what I intend to follow.

Lastly: be guided by beauty. Beauty can be found in all things. Jim Simons found it in the quant machine that he built and in mathematical formulas. I am no Jim Simons. But I very much enjoyed his quote. I find beauty in exceptional business models, run by high integrity people, who provide an amazing product or service. I enjoy environments where there is a seamless web of trust, with no contracts needed between the participants. I like handshakes where you trust someone on their word; and I like win-win situations where self-interest leads to the greater good. I like people with virtues that you would want your children to have. Qualities like integrity, accountability, honest, hardworking, empathetic, kind, and being principled. There is beauty in how you run your firm or your fund. Warren charged no management fees and had a fair hurdle rate. Interests are aligned. No shortcuts were taken. In a world where meaning is already scarce, these decisions are what make life worth living.

I have a vision that I call the 1% Buffett rule. Let’s assume Warren’s net worth today to be 100 billion. I know for certain that I am not even half as capable as Warren. But I think I can manage 1% of what he does. That brings my long-term net worth goal to be 1 billion. Which is more than enough.

I am fortunate to start my compounding journey. Life has dealt me a great hand. The only thing left for me is to play them well.