What’s too complex to understand is too complex to invest in.
This is one of the big lessons from the global financial crisis – if you don’t understand an investment, you can’t understand the risks. Some of the financial instruments that were exposed to sub-prime loans were so complicated, and the underlying assets so obscured, that it will take years to unravel what’s left. That’s why it’s vital for us to understand the nature of an investment before we even consider it for our investors.
For investments to be selected in our portfolios, we need to be convinced they have clear business models that work, and credible and experienced management, as well having strong financial fundamentals.
Find out more about our investment philosophy
We once received a letter from a Queensland farmer asking for a wife to be chosen and sent to him. He was very specific, listing the required attributes in some detail.
While we couldn’t help him with that particular request, we certainly understood his desire for thoroughness. It won’t guarantee a long marriage, but it’s a perpetual truth of sound investing.
