Owner’s Manual

  1. Most institutional money, mutual funds, etc. are managed as closet index funds.  These funds try to emulate the stock market averages.   In all the cases I have known, the manager of these funds runs fund different than he runs his own investment account.  Target 3 is not managed to correlate with the stock market averages.  Target 3 is different. I own the same things you do, as an owner of Target 3, we are partners in every investment.  We try to buy a select few very good businesses run by able and honest managements.
  2. Don’t expect Target 3’s results to correlate with the markets and the results may not for long periods.  If that is concerning to an investor, index funds are the other option.  There may be periods that index fund does better than Target 3.
  3. I have yet to earn any kind of a substantial return trading stocks in the short term. There is great allure to this idea, seemingly you can buy a piece of paper one day and sell it the next for a smart profit.  I have yet to see anybody last at this game.  The biggest profits Target 3 has earned is by buying a very good business at a good price and holding it for long periods.
  4. Low interest rates mean low returns for all asset classes.  I wouldn’t be surprised if the stock market was unchanged 10 years from now. Stock selection will be key. I believe Target 3’s results will be acceptable in the coming years.
  5. We own very few stocks. It is rare that we find a good investment that meet our criteria. We are looking for the following in a business:

a.    An easy to understand and enduring competitive advantage that                  has above average returns on capital.
b.    A CEO that we admire, who is honest and able, returns money to               shareholders, accepts calculated and measured risks.
c.    A one-time solvable problem that provides a discount to the long                term value.

Truth’s in These Quotes That Guide Our Investment Process

“Investment is most intelligent when it is most businesslike.”
–    Ben Graham – 1949 (Warren Buffet’s Professor)

“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.” – Charlie Munger

“‘If you have formed a conclusion from the facts and if you know your judgment is sound, act on it—even though others may hesitate or differ.’ (You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.)”
–    Ben Graham – 1949 (Warren Buffet’s Professor)

“Shares are not mere pieces of paper. They represent part-ownership of a business. So, when contemplating an investment, think like a prospective owner.”
“If you don’t feel comfortable owning something for 10 years, then don’t own it for 10 minutes.”
–    Warren Buffett

“Traditional value investing strategies have worked for years, and everyone’s known about them. They continue to work because it’s hard for people to do, for two main reasons. First, the companies that show up on the screens can be scary and not doing so well, so people find them difficult to buy. Second, there can be one-, two- or three-year periods when a strategy like this doesn’t work. Most people aren’t capable of sticking it out through that.”

–    Joel Greenblatt

“It’s not given to human beings to have such talent that they can just know everything all the time. But it is given to human beings who work hard at it who look and sift the world for a mispriced bet that they can occasionally find one. And the wise ones bet keenly when the world offers that opportunity. They bet big when they have the odds. And the rest of the time, they don’t. It’s just that simple.” (Outstanding Investor Digest May 5, 1995.)

–    Charlie Munger

“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”

– Warren Buffett