Our investment process seeks to protect against the risk of permanent capital loss

Risk Management

We view risk as the possibility of permanent capital loss. We look for competitively entrenched, well-managed, publicly traded businesses selling at discounted prices to help drive our goal of generating superior long-term absolute returns and minimizing the risk of permanent capital loss.

Risk Management Process

Step 1

Security Selection

Managing against the potential for permanent capital loss is deeply embedded in our investment approach, beginning with our bottom-up investment criteria.

  • High quality, financially sound, competitively advantaged Businesses
  • Capable, shareholder-oriented People
  • Discounted Price trading at 60% or less of intrinsic value

Step 2

Portfolio Construction

Portfolio construction is 100% bottom-up and benchmark agnostic, with strict portfolio guidelines.

  • 18-22 best ideas
  • 5% target position; ~7.5-10% max
  • 15% max industry target
  • ~10-15% max company ownership
  • Hold cash when securities do not qualify

Step 3

Ongoing Monitoring

We actively monitor our portfolios to manage risk at both the individual stock and portfolio level.

  • Add/trim positions to improve margin of safety
  • Continually update appraisal values and business cases
  • Devil’s advocate case review if price declines over 18 months
  • Ensure compliance with portfolio limits and guidelines

Margin of Safety

We purchase stocks at a deep discount to our appraisal value. We demand a wide margin of safety to minimize the risk of permanent capital loss and maximize return potential, as illustrated in the example below.

Margin of Safety Example: Purchase business at $24/share with an appraisal value of $40/share (60% P/V)

Components of 5-year Compounded Annual Return

Value growth driven by strong business moat and skilled management

12%

Growth as Price/Value gap closes

12%

Total Return

24%

This illustration does not reflect performance of any particular security. Actual investment performance and returns are not guaranteed. “Margin of Safety” is a reference to the difference between a stock’s market price and Southeastern’s calculated appraisal value. It is not a guarantee of investment performance or returns. The P/V ratio represents a single data point and should not be construed as something more. P/V does not guarantee future results, and we caution investors not to give this calculation undue weight.