At the heart of our investment process is risk management, a hallmark of our work put into practice by Chuck Royce more than 40 years ago. To this day, mitigating, controlling, and thinking about risk continues to guide our seasoned staff of investment professionals and to inform our long-term portfolio decisions.
Francis Gannon: We have a very defined investment process here that has held us in very good stead for a long period of time. How do you apply that process on a daily basis?
Livermore Strategic Opportunities February 2021 Update
Livermore Strategic Opportunities, LP performance update for the month of February 2021. Q4 2020 hedge fund letters, conferences and more Many of you are witnessing first hand that our country, economy, (and now stock market) are all very fractured and becoming extremely challenged. Therefore, our hedge fund's theme remains focused on specific sectors and companies. Read More
Jay Kaplan: It starts with mitigating risk, managing risk, and thinking about risk. So we think about balance sheets and financial strength. That’s where we start, and that is everything we do within the fabric of our DNA.
When you get past that, and when I think about how we apply the process, I think about buying stocks that have very low expectations so that if something goes wrong, the stock price is low enough where I don’t get hurt all that badly, and if I’m right, things will go much better than the marketplace anticipates, and if that happens, the stock will go higher just because of that because the earnings will probably be higher than what people expected. But almost more important than that is the stock will get a different valuation.
So the stock that I bought at a very low valuation—and my stocks tend to have very low valuations—people price them often like they’re going out of business, but they’re so strong that they’re not. When things go well, they get priced like really good businesses again, so we’ve made money two ways. We’ve made money from higher earnings and we’ve made money from a multiple revaluation.
FDG: Your personality, your investment personality, how would you describe it to the investors in your fund?
JSK: It’s a very conservative personality. It’s a very patient personality. It’s a low turnover kind of personality. I think of myself as owning the business. When I make an investment, is this a business that I want to own for a long period of time, and do I think that my upside is far greater than my downside? So if I’m wrong, I don’t want to get hurt very badly, but if I’m right, I want to be able to make a lot of money, and sleep well at night, and I sleep pretty well at night.