What is required for active management to create the potential for long-term outperformance?
Everyone would like to have outstanding performance. The real questions are whether you are willing to be different and willing to stay committed. You cannot look and act like everyone else and expect to outperform.
Further, we do not believe a winning strategy is simply built on rigid tactics, mathematical formulas or risk reducing rules. Success demands constant analysis, open mindedness, and perseverance. Therefore, NS Capital always looks for investment managers that have the intellectual skill & emotional courage to stray from the crowd and to efficiently digest data as it presents itself. Ultimately, we are looking for the following characteristics:
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Employ an approach to security selection that focuses on company-specific characteristics.
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Allocate and deploy capital in both undiscovered and misunderstood companies.
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Assemble a high conviction, concentrated portfolio of companies they know well.*
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Focus on the quality of corporate operations rather than speculative stock price movements.
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Understand that mindless diversification is not a substitute for intelligent thought.
Successful investors know that significant long-term returns will never be made by asking for certainty. In order to succeed, you must be willing to fail from time-to-time and you must be willing to withstand the discomfort that comes with the possibility of loss. Periodic failure is an inescapable consequence of trying to do well. Thus, a winning strategy cannot rely on complete risk avoidance. To eliminate risk is to limit return. For us, the key is not to be risk adverse it is to be risk aware.
The mantra for the retail asset management business is that it is better to fail conventionally than to attempt to succeed unconventionally. We disagree with this wholeheartedly. What you do is should be the proof of what you believe, and the Alpha Ring portfolio is our proof statement that NS Capital is committed to succeeding.
* Concentrating on a small number of companies you think will deliver exceptional performance because a huge bonus of a concentrated portfolio is that you can buy a lot of what you like.