Maintaining best-idea portfolios
Forced displacement triggers a sale when assets from an existing holding are needed to fund the purchase of a new, more promising investment opportunity. This policy reflects our appreciation for the time value of the assets entrusted to us. We also sell an existing holding when it reaches our price target, its fundamentals deteriorate or Wall Street becomes overly optimistic about its prospects.
Since we are valuation sensitive, our price targets can be more conservative when compared with aggressive growth investors who are willing to shoulder higher valuation risk. We seek companies with improving fundamentals, so we don’t hesitate to sell a company when it proves us wrong. Also, given that we want companies that top expectations, we move on when we believe consensus estimates overstate a holding’s potential.