It was great to receive a host of comments in both the public forum and private messages after responding to Howard Marks' (Trades, Portfolio) memo on capitalism. A common theme in many of these comments centered on Nintai’s approach to operating in the investment management field and our corporate ethics. So today I will publish the company’s “Statement of Investment Approach.” This document was created after our first board meeting as a framework that will drive all of Nintai’s future actions. We share it with any potential investor and will include it with each annual report. I hope this will give readers a better understanding about how we see Nintai Investments as a corporate entity, investment partner and community supporter.
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Nintai Investments LLC
Statement of Investment Partnership
When we began Nintai Investment’s, we knew we wanted to create an investment management business with a unique perspective, strategy, and organizational structure. From locating the business far from of Wall Street to structuring compensation, Nintai Investments operates as a separate species from the traditional investment management firm. To help potential - as well as existing - investment partners, we have created this “Statement of Investment Partnership” to outline the core values that drives our business.
We Measure Success By Our (and Your) Performance
In the final analysis it doesn’t matter how glitzy our reports look, or how many folksy phrases we use, or even how wise we may come across in our writing (if we do at all!). We will ultimately succeed or fail based on your portfolio’s performance. Unless we meaningfully outperform the general markets and meet your investment goals, you should seek out a new investment manager. No amount of discussion of general market trends, economic issues, or interest rates should deflect you from the only thing that matters – your satisfaction in your portfolio’s performance.
Our Own Unique Investment Methodology
We are value investors with our own investment process and system. We trade rarely, seek companies with high returns on capital, equity, and assets, have little or no debt, a deep competitive moat, and trade at a significant discount to our estimated intrinsic value. This type of investment strategy isn’t for everyone. We spend a great deal of time looking for investors whose values align with ours. There are an unlimited amount of strategies and investment managers offering their services. We look for long-term investment partners, not customers.
Your Own Unique Investment Goals
Whether your portfolio outperforms the S&P 500 Index is irrelevant if the performance doesn’t meet your financial needs. We often tell the story of several retired golfers discussing their investments. The first two discuss how their investments are sometimes beating the markets and sometimes underperforming. When they ask the third how his portfolio is doing, he replies. “How the hell do I know. I just know I get to golf every day and see my grandchildren whenever I want. What else do I need?” Our partners use their portfolios to fund retirement dreams, pay for tuitions, and endow charities. As your investment partner, our goal is to make those aspirations possible.
We Will Never Makes Purchases (or Sales) Because the Markets Say So
Occasionally cash will take up a significant percentage of your total portfolio or a holding may represent a large percentage of your total holdings. This type of situation may arise because we find few opportunities to deploy capital into companies offering an adequate margin of safety or we believe a holding – though large in size – still trades at a reasonable price. The solutions to these will be dictated by our calculations based on our market and corporate valuations – not the markets. As Christopher Hitchens said, “The essence of the independent mind lies not in what it thinks, but in how it thinks.”
We Will Make Sales When Management Fails in Its Fiduciary Responsibility
Over the last 20 years, the average holding time of a portfolio holding at Nintai Partners was over 8 years. We expect it to be roughly the same at Nintai Investments. As long as the company continues to generate free cash flow, has little or no debt, and we see an opportunity for the situation to improve, we will likely continue to hold the company in the portfolio. We will, however, act immediately if management neglects or fails in its fiduciary responsibility. We define this as capital destruction through mergers and acquisitions, breaking legal or regulatory guidelines, or poor moral judgement.
Compensation is Long Term Driven
Nintai Investments LLC’s compensation is built to reward long-term success. This is done in two ways. First, if a holding has outstanding returns then compensation is accordingly greater. For instance, compensation for a stock that has been in a portfolio for 10 years and generated 15% annual returns will create greater compensation than a stock that was held for 5 years and generated 10% annual returns. Second, compensation is a blend of stock in Nintai as well as cash. For individuals who do well for our investment partners and choose to remain long term, we hope to make them both financially successful as well as substantial owners in the firm. Our entire compensation structure is based on adding long-term value to our investment partners.
Honest and Steady Communication
Whether good or bad times, outperformance or underperformance, up or down markets, we will write to you with information we feel relevant to helping you making judgements about either your portfolio or our judgement. We prefer overcommunication to under-communication. If – for whatever reason – we don’t communicate information in either enough detail or frequency, please don’t hesitate to reach out. That said, we are investment management company, not an investment research shop. We don’t discuss stocks that our investment partners are interested in and looking for our thoughts. Nor do we investigate companies that partners are seeking information about for their own personal needs.
Our Company Is a Community Steward
At Nintai Investments, we will take our social responsibility seriously. The company currently gives 10% of net income to charitable causes that are making a difference in our communities. Each annual report will highlight an organization that Nintai Investments has supported that year. As a corporate citizen, Nintai Investments has an equal – if not greater – responsibility to make a difference in our society. The charities we give to are generally organizations with the expressed purpose of helping those in our community (both human and animal) who need a helping hand. Nintai is blessed to operate in a nation and community that provides all the essential services that makes a successful business possible. As much as we have a fiduciary responsibility to our investment partners, we have a moral responsibility to our community.
This Statement is as much a moral guideline as an operations guideline to Nintai Investments LLC. We believe strongly that if the company takes care of its investment partners, its employees, and its community, then we are providing a value to our most important stakeholders. We thank you for the privilege of managing your assets and look forward to long-term and prosperous relationship.
Disclosure: None.
Disclosure and Performance: A Toxic MixÂ
Would You Loan Me $20? Character in ManagementÂ
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