How we invest

Main objective of AtlasCapital is to seek capital appreciation by dynamically managing the asset allocation between equity and fixed income/cash based on the relative valuation of equity and debt markets. Hedge element can be added occasionally to minimize downside risk. Since investors, on average, fare better in less volatile funds, we will try to lower volatility to a level where trade-off between return and risk is optimal. However, there can be no assurance that the investment goal will be realized.

We hope to achieve our objective by investing in undervalued stocks with economic moat: companies earning consistently good returns on capital due to sustainable competitive advantages. The term "moat" was originally coined by Warren Buffet who said:

"It is far better to invest in wonderful companies at fair prices, than in fair companies at wonderful prices."

What does it actually mean? It's much better to pay a fair price for a company with economic moat, instead of buying at low price companies with average returns and vague prospects. A company with an economic moat can fend off competition and earn high returns on capital for many years to come. We wish to go beyond that - by purchasing wonderful companies at wonderful prices. Market price and intrinsic value often follow very different paths, but eventually they meet. The wider the difference between the two - the higher margin of safety of investment. Our task is to find such discrepancies. 

While the goal is to exceed market return over long-term by at least 5%, in no sense is any rate of return guaranteed to investors. Whether we do a good job or a poor job is not to be measured by whether we are plus or minus for the year. It is instead to be measured against the general experience in securities as measured by the S&P index. If our record is better than that of this yardstick, we consider it a good year whether we are plus or minus. If we do poorer, we deserve no compliment. While we much prefer a five-year test, we feel three years is an absolute minimum for judging performance. It takes time for market price to adjust to intrinsic value. If any three-year or longer period produces poor results, we all should start looking around for other places to have our money.

Let us express few thoughts about diversification. S&P 500 is very well diversified portfolio, however, if you invest in ETF tracking this index, you will have a broad basket of stocks, but you won’t have any chance to beat the market. At AtlasCapital we are following a policy regarding diversification which differs markedly from that of practically all public investment operations. We don’t mind to have concentrated portfolio with 8-10 positions instead of wide diversification. While we do agree that there is sometimes high uncertainty (don’t confuse uncertainty with risk) in any individual position, these uncertainties compensate each other when combined in one portfolio. Stated simply, we are betting against efficient-market hypothesis, widely taught at famous business schools.

Nevertheless, we believe certain level of diversification is a requirement, and to achieve this we will manage risk by actively balancing the portfolio and diversifying by asset classes, geographies and sectors. 

Since we have no interest in any activity that could pose the slightest threat to our wellbeing, leverage is generally avoided.