We believe that the very best investment opportunities often go overlooked by the majority of investors. Market participants tend to move as a herd, but we look purposefully in a different direction—for great ideas that have yet to be recognized. This unconventional approach can feel uncomfortable at times, but clients choose us because they believe—as we do—that such investments may hold a lower loss potential and greater promise for market-beating returns.
The price paid for an investment has a big influence on its return. We believe that buying under-valued companies offers the potential for outperformance. We are comfortable investing in unpopular or misunderstood companies if our analysis indicates that a major discrepancy exists between price and our assessment of fair value.
Over our long-term partnership, there may be times when you question why we’ve invested in a particular company. Companies that are out of favor can stay that way for extended periods. At times, we will be out of sync with the market and will get some investments right and some wrong. The goal is to build a portfolio that in aggregate produces superior, long-term investment results.
Markets are fairly efficient so individual investment decisions must be held to very high standards. From a universe of 500-1,000 investment choices, each Poplar Forest portfolio is generally comprised of our 25 to 35 best ideas. Each company is carefully selected for its unique return and risk profile over a three to five year time horizon. Because we know these companies well, we possess great confidence in the long-term potential of our portfolios. Our deliberative process and our contrarian philosophy translate into true “active management.”
It may take time for public opinion to migrate in our direction, but we strive to make the rewards worth the wait. We make investments with a multi-year investment horizon, and our portfolio turnover rate is consistent with our long-term orientation. In an environment in which many market participants focus on daily or quarterly returns, we believe our patience differentiates us from the pack. We consider ourselves owners of businesses, not renters of stocks.
Cycles of fear and greed appear throughout the history of investing. Our mindset helps us remain firmly focused on the thoughtful evaluation of companies for the long-term—no matter what the markets may be doing in the short-term. As a result, we think differently about both bear and bull phases. We believe that one of our most important responsibilities is to help you remain calm during periods of over-confidence or investor anxiety. We strive to separate emotion from decision-making.