Examples of real-life investment philosophy statements

We propose three criteria for evaluating a manager’s philosophy statement:

  • It should be a statement of belief as opposed to process, objectives, etc.
  • It should avoid logical fallacies, such as non sequiturs and mythology presented as fact.
  • It should provide enough content about the philosophy itself to constitute a starting place for in-depth exploration.

Below, we evaluate three examples of active investment philosophy statements in terms of these criteria. We chose these three out of the many we looked at because they allow us to illustrate all three evaluation criteria. They are actual investment philosophy statements taken from investment managers’ websites. We modified them only to disguise the managers’ identities.


The cornerstone of ABC Capital’s investment philosophy is a commitment to protect and enhance our clients’ wealth over time in a conservative and prudent manner. Our objective is to achieve these results without taking excessive risk. We are especially keen to preserve capital in those periods when the markets are declining.

  • Evaluation

    This is not a statement of belief. It is a statement of the goals the manager aims to achieve; in particular, it places the manager on the low-risk end of the risk-return spectrum. It tells you nothing about how the manager views the opportunity set or how they exploit opportunities. It does not provide easy “handles” to open these topics of conversation.


We believe consistent earnings growth is the primary driver of intrinsic value and long-term price appreciation. Accordingly, our efforts focus on identifying and then investing in a concentrated portfolio of Mid-Cap companies that we believe are capable of delivering above-average earnings growth that can be sustained.

We seek to invest in businesses with exceptional earnings growth, driven by a sustainable competitive advantage, superior financial strength, proven management and attractive products. We think that such exceptional companies not only have the potential to contribute outsized returns but also are inherently less risky. Their superior earnings’ stability and strength serves as a ‘cushion’ that typically results in less volatility during declining markets.

  • Evaluation

  • This is a statement of belief, and it lends itself to further discussion, including:
    • There appears to be an implicit belief that either consistent earnings growth is undervalued or the firm is better able to identify it prospectively. Which is it?
      • If consistent earnings growth is undervalued, why? Is there any evidence?
      • If the firm has an advantage in identifying earnings growth prospectively, what is the basis for this advantage?
    • What is the basis for investing in a concentrated portfolio rather than a diversified one?
    • Does “less risk” also translate to lower returns? If not, what is the mental model that allows for higher returns to be associated with lower risk?
  • However, the statement seems sloppy to us, for the following reasons:
    • There seems to be a non sequitur regarding concentration and capitalization. The word “Accordingly” at the start of the second sentence implies that the belief in consistent earnings growth as the primary driver of intrinsic value is the premise for pursuing a concentrated mid-cap strategy. This does not follow.
    • The statement seems to conflate company performance with stock performance. It speaks of attractive characteristics of companies as if that automatically translates to superior stock returns, which is not true unless such characteristics are systematically undervalued or can be identified by this manager before those characteristics are widely known.


We believe that investing in small companies is the best way to generate superior long-term returns. The core tenets of our philosophy are:

Returns on Capital are Greatest Where Capital is Most Scarce – We believe that the best opportunities exist where expectations are the lowest. High expectations equal high risk.

The Importance of Risk Control – Our approach demands a margin of safety before we invest. We believe that preservation of capital is the essential component of durable long-term investment success. This is often a direct function of a manager’s ability to avoid investments where optimism is high and valuations are demanding.

Research Matters – There are no shortcuts to good small-cap stock-picking. Lack of attention and analyst coverage creates persistent pricing inefficiencies. We seek to build an information edge by performing thorough fundamental research.

Extreme Investor Behavior Creates Value – We are keen observers of investor sentiment and are constantly on the lookout for behavior that is short-sighted, emotionally driven or uninformed. When prices move to irrational extremes, opportunities develop for patient long-term investors.

Value Then Growth – We combine the discipline of a value investor with the imagination of a growth investor. This approach controls risk while capturing the significant growth potential of undiscovered small companies.”

  • Evaluation

  • This statement is not bad. There is a lot of meat to work with in terms of subsequent conversations. For example, an evaluator might want to ask questions such as:
    • How do you determine that capital is scarce in a given situation? How do you distinguish between capital being scarce for “good” reasons (return prospects are low) and capital being scarce due to the market failing to recognize good prospects? Would you walk me through some examples of investments you made where the scarcity of capital was a key part of your analysis?
    • When you say, “Lack of attention and analyst coverage creates persistent pricing inefficiencies,” we assume you are talking about sell-side coverage. If so:
      • Why does the lack of sell-side coverage matter? Isn’t buy-side coverage sufficient to make a market efficient?
      • How does one measure lack of sell-side coverage? A small-cap stock may only have one or two sell-side analysts covering it versus Apple’s 65, but how does one conclude from this that Apple is better covered? Apple has a market cap 1,000 times the typical small-cap company. Might it be that it takes more analysts to cover Apple?
    • What is your competitive edge in identifying investor sentiment? How do you identify short-sighted, emotionally driven or uninformed behavior? Can you discuss a security that was bought and a security that was sold because of these conditions?
    • Regarding fundamental research, how do you have an edge over other managers who also claim that thorough fundamental research gives them an advantage? What is the basis for your advantage?

If you would like to learn more about investment philosophy, please click below to read the Executive Summary of our paper, “Rethinking Investment Philosophy.


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