About Titanium Strategy
Many people have asked me what differentiates BlackBird from the multitude of investment partnerships/hedge funds that supposedly operate in a similar manner, yet never match our results. The answer boils down to three key factors:
1. We look to the underlying business to ascertain its value, not the stock price. In other words, most of Wall Street is engrossed in the short-to-medium-term price movements, momentum traders will be interested in a stock at the upper end of a 52-week range, contrarians will prefer those at the lower end of said range, and academic types will seek low price volatility because they use beta (a security’s price volatility in relation to the general market) as a risk gauge. Whichever their perspective, their buy-sell decision is heavily influenced by Mr. Market’s recent mood swings. BlackBird, in contrast, does not heed price fluctuations. Instead, we concentrate solely on the underlying business and whether it can be acquired at a discount to its intrinsic value.
2. We hold a concentrated portfolio. Many managers have come to believe that the more widely you spread your investment capital, the lower your risk. In reality, this approach results in a diminished understanding of each position, which elevates risk! Additionally, investing capital in your fiftieth best idea instead of adding to your first is not an intelligent practice. In contrast, we are extremely selective in our acquisitions. We would rather own a handful of businesses with wide economic moats, a conservative capital structure, high returns on invested capital, and an investor-friendly management team all for a bargain price than 100 commodity-type businesses with mediocre management, low returns on capital, and at a high price.
3. We take a long-term approach to investing. Here is an example to illustrate the distinction: “Headline risk” is a term often used by Wall Street analysts. Traders are concerned that headlines in the near future will adversely impact stock prices. To demonstrate what a fallacious mindset this is, let us imagine you were offered a pristine apartment complex in a safe, growing community with strict limits on new supply, providing current annual income of $25 million, all for a meager $100 million. You would work very hard to quickly consummate such a transaction. Certainly, one would need to be an ignoramus to turn down the offer simply because there may be a critical headline next week! Why, then, should businesses be any different? Maintaining a long-term view enables us to concentrate on the underlying business without being distracted by the ample noise found on Wall Street.
These three points can be summarized as a businesslike approach. As Ben Graham writes in Chapter 20 of the Intelligent Investor, “Investing is most intelligent when it is most businesslike.” That is at the very foundation of BlackBird. We will never waiver.