Our investment philosophy
The Chester High Conviction Fund is based on 10 principles, all of which underpin our portfolio construction process
Take a high conviction approach
For active managers to outperform over the long term, the fund has to be truly different than the benchmark. This strategy has had an active share above 80% since inception. Don’t follow the crowd.
Back owners of capital
Allocating capital to management teams that think like owners alleviates the principal-agent problem. “Show me the incentive and I’ll show you the outcome” Charlie Munger.
A contrarian view?
Backing ourselves in unloved, underappreciated or undiscovered stories has been the most consistent alpha generation of this strategy.
Stay curious
Fresh ideas or unique insights is critical to ensure the portfolio stays invested with conviction. To consistently generate outperformance we seek to test the investment thesis behind each decision. This requires discipline and a repeatable process in company visitation schedules.
Mid cap bias
Broadly speaking, we find more interesting opportunities outside the large cap universe. Exposure to mid and small caps is essential for long term outperformance.
Concentration in few ideas
We keep a tight watchlist of stocks that are deemed suitable for investment. Focusing the research effort into fewer ideas provides more opportunity to gain higher conviction views. Too much diversification becomes counter productive.
Keep it simple
Ultimately, we allocate capital to sectors and companies we understand. The investment thesis needs to be easily articulated out for a high conviction idea.
Cash flow growth
We seek to invest alongside companies that either generate predictable cash flows in high quality industries, or determine an appropriate margin of safety where valuation support is paramount, which is in more cyclical sectors of the economy.
Focus on insights
Do we have a different view than the prevailing wisdom of the market? High conviction often comes from a granular understanding of where the markets expectations are wrong.
Invest with humility
All fund managers make mistakes, it’s part of the profession. Our tightly knit culture accepts these, tries to learn from them, and keeps making decisions. It is a profession where humility is absolutely essential.
