Tsai Capital seeks the long-term growth and preservation of capital. We pursue a value-oriented investment approach to identify undervalued or misunderstood investment situations, preferably in high-quality businesses, on a global basis. Primary attention is given to finding individual securities that offer significant upside potential and a margin of safety at the time of purchase. The factors that differentiate Tsai Capital are as follows:
In choosing individual securities, Tsai Capital ignores short-term volatility and instead focuses on long-term potential for capital appreciation. This approach broadens the universe of our investment opportunities as other market participants, generally operating under institutional constraints, have a much shorter time horizon.
Focused on Preservation of Capital
Preservation of capital is paramount to long-term investment results as illustrated by a simple mathematical principle: while a 50 percent loss reduces $1 of capital to 50 cents, a 100 percent gain is then necessary to recover the initial $1 of capital. Moreover, this phenomenon expands in a non-linear fashion: for example, a 400 percent gain is required to offset an 80 percent loss. Accordingly, we focus principally on preservation of capital and define risk as a permanent loss rather than mere changes in market quotations and period-to-period performance.
Knowledge, acquired through intensive research, is a critical element in minimizing risk. Tsai Capital follows a well-honed, time-tested research process and has an extensive network of fellow investors, analysts, executives, and business owners who help in idea generation and due diligence.
Our capital allocation strategy is market agnostic. Rather, allocation among different businesses is a function of their long-term characteristics and potential risk/reward profile at the time of purchase.
Tsai Capital believes that a portfolio comprised of a small number of well-researched investments provides a superior risk-adjusted return potential when compared to a widely-diversified portfolio in which every position is less researched and less understood.
Tsai Capital does not employ any asset allocation model that specifies what percentage of a portfolio should be invested in each asset class. Since we believe that periods of excessive optimism and despair are a primary source of wealth destruction, cash & cash equivalents are our default choice until an attractive investment opportunity is identified.