We are valuation-based investors at heart.
The mathematics is simple: owning assets at fair value will deliver fair returns. Owning under-priced assets (or selling overpriced assets) will deliver excess returns. While the mathematics is simple, the execution is not easy.
Sensible investing requires that sound judgement be implemented.
Determining fair value is an exercise in the application of judgment. As much as one may employ techniques to minimise human error in the investment decision-making process, investment decisions eventually reduce to individual judgement being applied to a set of facts and information. Delivering superior investment returns requires the application of sound judgement in circumstance where either the judgement of other market participants is wrong, or where other market participants are constrained from implementing their correctly-held views. Given the depth and efficiency of most modern asset markets, this is a daunting challenge, to say the least.
Delivering superior investment returns requires the ability to take a contrarian stance.
Despite the enormity of the task, our belief, based on historical evidence and personal experience, is that there are situations in which the market misprices assets, and that it is possible for sensible investment managers to exploit these mispricings. This requires an approach and mindset that is, by definition, different to that of most other market participants – some would call it contrarian. But this does not mean being contrarian for its own sake – public markets are by and large very good at pricing assets accurately. Only in the rare instances where true mispricings occur is a contrarian stance justified – and necessary.
Investing in a different fashion to the market creates psychological pressure.
This requirement to be somewhat contrarian in allocating capital can sometimes create almost untenable pressure on investment professionals to compromise sensible investment decision making in favour of other interests. Such pressure typically arises either from clients who are misaligned with the investment philosophy of the firm, or from conflicted superiors placing their own or the firm’s interests above that of their clients. Avoiding the contamination of investment decision making by such other interests is key to generating superior long-term investment returns.
Structuring Rozendal Partners correctly allows us to mitigate psychological pressures.
By creating a close alignment between clients, owners and employees of Rozendal Partners, we believe we are in a better position than most to minimise psychological pressures that may distract us from the goal of delivering superior long-term investment returns. As a team, we have first-hand experience of the kind of pressures that often lead investors astray. We believe this equips us better than most to deal with such pressures in future.