Long Term Investment Management, what is risk?

Dear Reader and Fellow Investors,

We define risk as the uncertainty of future cash flows arising from an investment.

The future is simply not known with precision.

So we do not pretend to make our valuations with precision.

We use a margin of safety and make investments that meet certain conditions where we feel we reduce the number of assumptions we have to make, and hence reduce our possibility of error. In this way, we attempt to reduce risk.

Uncertainty is always present. Sometimes the world ignores it, sometimes they focus on it excessively. In the latter condition, we find opportunities to invest where we have above average possibility to make above average returns. It is in those situations we feel most comfortable as investors.

The markets perception of uncertainty between those two above mentioned ranges have a great affect on the valuation of risk assets. In those extremes, sentiment plays a greater than normal role in the markets price. As far as we are concerned, uncertainty varies considerbly less than market volatilty . Hence, more or less investment opportunities can be found depending on how uncertainty is perceived in general by the market.


Yours sincerely,

Alessandro Sajwani