Philosophy
A share represents a fractional ownership of an underlying business and a bond is a loan to a business. Therefore, in the medium to long term, the performance of shares and bonds strongly correlate with those of the underlying businesses.
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We invest in undervalued securities instead of betting on the development of the market as a whole. We do not believe in timing the market as this would be speculation. Neither do we believe in overweighting certain countries or industries simply to beat a certain index. We avoid leverage and try to minimize complexity in order to provide better protection from permanent capital loss.
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Our goal is to generate annual returns greater than 10% with a few select investments in what we consider undervalued securities. It is difficult or near impossible to exactly predict when our holdings appreciate in price – in some cases the progression could be very fast, but in many cases it could take years. With the words of Warren Buffett: "We would much rather earn a lumpy 15 percent over time than a smooth 12 percent."
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In our mind, a long-term track record of at least five years is required to draw conclusions about the quality of a portfolio manager. Financial markets are very volatile and what may appear to be a trend, even over a couple of years, can sometimes be misleading.
"Compound interest is the
eighth wonder of the world.
He wo understands it, earns is...
he who doesn't... pays it."
Albert Einstein
Investing Style & Edge
iolite looks to buy ownership interests in good businesses run by good people at what we consider attractive prices for long-term owners.
In other words, we seek to invest in asymmetric situations where the upside is a multiple of the downside.
iolite’s valuation work routinely focuses on these questions:
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Do we sufficiently understand the business model?
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What is the visibility into the company’s ability to generate positive cash flow going forward?
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What is the liquidation value of the company’s assets?
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Is management allocating capital efficiently and in the interest of minority investors?
When we find an opportunity with an attractive risk / reward profile, we rank this opportunity with existing positions in the portfolio and those that we see in the wider market before making an investment decision.
The portfolio is highly concentrated, and five stocks frequently make up 80% of the assets.
“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”
Charlie Munger
"Figure out what something is worth and pay a lot less."
Joel Greenblatt
Unique Value Proposition
iolite’s founder, Robert Leitz, is strongly aligned with the company – he has substantial skin in the game and he only gets paid if he performs for his clients.
Robert carefully selects investors for iolite to ensure they share his long-term philosophy and hold fast even as markets get frothy. This gives iolite a stable and patient capital base, and allows him to pursue an unconstrained investment approach – he is free to invest wherever he finds attractive opportunities.
Joel Greenblatt
"You will not be right simply because a large number of people momentarily agree with you. You will not be right simply because important people agree with you. You will be right, over the course of many transactions, if your hypotheses are correct, your facts are correct, and your reasoning is correct."
Warren Buffett
A Word of Warning
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Aspects of iolite’s investment process may lead some investors to rule out an investment
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One man show: the investment manager believes this structure avoids conflict and frees him to focus all his energy on capital allocation rather than managing staff. There is no risk committee and there is no formal process for investment decisions. If you require a more institutional setup, iolite is not for you.
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High concentration: the portfolio is highly concentrated. At iolite, we are believers in Mark Twain’s dictum: “Put all your eggs in one basket, and watch that basket!” Most business schools teach that diversification is the highest goal. If that is your view, iolite is not for you.
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Volatility: given the high concentration, the portfolio is subject to high volatility. If you cannot stomach large swings in your net worth, iolite is not for you.
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Quarterly liquidity: some investors would prefer monthly or even daily liquidity. If three months is too long a time horizon for you, we are not a good fit.
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Social prestige: iolite doesn’t have fancy offices, clients don’t get free tickets to exclusive events, and we often invest in truly obscure and unloved businesses. If you are looking for excitement and social prestige, please look elsewhere.
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Copycats & cloners: If you like the portfolio, please invest via iolite, as this gives iolite the possibility to approach companies with more weight. While imitation may be the sincerest form of flattery, it often fails in investing.
