Investing for the long term

THD Investments is an investment management company established to generate capital appreciation for clients through a fundamental value-oriented investment approach. The firm seeks to invest in a concentrated selection of publicly traded securities, primarily US, UK and Commonwealth equities, emphasizing capital preservation and risk control through price discipline and thorough research. 

Approach

At the core of our approach is the Grahamian notion that stocks are ownership shares of businesses, the market is there to serve not to inform, and a margin of safety is paramount. We determine the intrinsic value of each stock we own as the sum of all discounted future cash flows that the business will return to us, assessing the fair market value of its assets as well as its ongoing earnings power within the relevant industry context.

Through constant reading, searching and in-depth primary research, we look for businesses and capital market transactions to which we can assign a realistic monetary value and only consider buying when meaningfully discounted and where we perceive the causes of the discount to be temporary. This price discipline is intended to enforce a margin of safety that is our core risk mitigant - providing us with a buffer against any unexpected decline in the economics of a business or industry, and any incorrect assumptions in our valuation process. It is both a safety valve and a guard against hubris.

We utilize bottom-up fundamental analysis, with special emphasis on the balance sheet and cash flow statement through time, tuning out the noise of the zeitgeist to unselfconsciously pursue positively asymmetric opportunities. We view risk as permanent loss of capital and view volatility as opportunity. We firmly believe that diligence, patience, concentration and equanimity in the face of negative short-term volatility are all pre-requisites for long-term success in an active investing strategy. Our investment approach is based on the belief that differentiated insights, when supported by thorough analysis, contributes to attractive long-term outcomes.

Key characteristics of our approach include:

Personal alignment and investment in our strategy: This is the founders’ primary investment vehicle, and we invest a preponderance of our liquid net worth alongside our clients on the same terms. We eat our own cooking. This alignment also entails the core understanding and endurance required to weather the necessary short-term volatility of being different than the indexes.

Time arbitrage: Our 3-5 year average investment horizon enables us to buy long term performance from those who sell due to short term considerations

Smaller size: Our size enables us to invest in stocks that fly under the radar of sell side analysts and are too small for large funds to bother with, creating inefficiency and thus opportunity.

Noise minimization: We consciously avoid unnecessary schedule clutter, irrelevant macro stimulus and market noise to execute the core task of reading quietly at our desks and properly thinking through each investment opportunity.

Concentration: The majority of our portfolio is generally comprised of ~25 investments. This provides a conservative measure of diversification while enabling each security to really have a meaningful impact on returns.

Our Name

Our firm’s name is a nod to Carl Jacobi’s theory of inversion as adopted by Charlie Munger, wherein to solve for success one should first figure what would guarantee failure and reverse engineer a path to avoid it. As two of our founders came from the audio world, we named our company after an audio analogy of the siren song of current popular noise and unnecessary and distracting clutter we seek to minimize. Total Harmonic Distortion or THD is the unhelpful and destructive noise introduced along an audio signal chain that ruins a signal’s fidelity. It is our reminder to keep our research chain clear, accurate and focused on the key variables of an investment.