The investment universe is huge and there are great companies in all countries and sectors. The challenge lies in knowing which ones to invest in for the long run. The way some investment funds do this is by narrowing the number of companies they look at by focusing on certain geographical areas or business sectors. But that’s not the way we do things.
At Sifter, we have a global scope, because we can. We’re not blind to any new opportunities because we’re not wedded to any specific sector and we include all geographies.
The following businesses have certain qualities that increase our risk, so we avoid them.
- Financial companies that use their balance sheet as an operating means, such as banks or insurance companies, which makes it hard to assess their financial situation.
- Commodity-related businesses that often lack differentiating capabilities and competitive pressure squeezes margins in the long run.
- Raw material related businesses relying on too much speculation with raw material price fluctuations.
- Politically high risk countries or companies which force us to take speculative risk.
- Companies with high debt burden with too high a risk of destroying value, especially when using debt leverage in acquisitions.
- Businesses in sectors with lasting over capacity.
As a managed fund, we believe that following a consistent investment process can outperform the index. You see, some index funds have thousands of companies in their portfolio. As a passive fund, they invest in a bit of everything. They’ve got it all. They’ve got the best but also they include poor performing companies.
High performing businesses are able to gain consistent returns no matter what the market condition. This is especially apparent during a downturn, when the best businesses are able to gain market share and become even stronger in their industry.
Market timing succeeds only by luck. Getting market timing right is a skill we don’t claim to possess. That’s why we’re fully invested all the time. When investors place their assets on Sifter, they know that it will be invested in businesses that give us a high yield on the investment. We don’t attempt market timing. We buy business returns and will consider selling these businesses when the anticipated yield on the investment is no longer attractive. We believe that buying and holding quality businesses at attractive yields is the most reliable long-term asset class. And we’re sticking to it.