What You Can Learn From KIS Capital Partners

Investing is simple. You want to buy something for less than its worth. But once you start putting the definitions into practice, that’s when things get hard. The problem many investors run into lies with determined value and price.

A company jumping into a new market with a highly demanded product is likely on its way to grow. But how do you value such a business? Future revenues could be anywhere from $10–100 million. You also have to factor in how competition might affect the company’s sales. You’d probably also have to think about how scalable the business model is. Meaning, how much does it cost to increases sale by X?

As you can see, there are many variables. I’m not saying you won’t be able to come up with an estimated value for the company, but how confident are you when you have to assume so much?

Surely a better way would be to focus on more predictable outcomes. For example, you might look at a stock that has missed its earnings guidance, but, over the past 10 years, the company has averaged steady, reliable income and regularly pays dividends out to shareholders. The only reason it might have missed its earnings guidance was due to wider economic factors.

The keep it simple principle

In the wake of the 2008 financial meltdown, Josh Best and Mike Surridge were brainstorming names for their new hedge fund. It probably wasn’t the best time to start asking investors for money. They had just lost thousands, if not millions, as the market turned down.

As of October 2009, their fund had around $5 million in capital and a name — KIS Capital Partners. The name comes from a phrase everyone knows: Keep it simple. And that’s exactly how the fund invests — in simple investments the partners understand.

As reported by The Australian Financial Review:

‘…Best likens the approach to “hitting singles” in cricket with most positions limited to about 2 per cent of the portfolio and lasting a matter of months. At any given time, KIS has more than 40 active positions.

“These trades might make us 10 or 20 bips [basis points] but we are only trying to make 1.2 per cent a month, which turns out to be 15 per cent a year,” says Best.

15% may sound boring. But within five years, 15% annually can more than double your money. And within 10 years, with 15% annually you can quadruple your money.

How does the phrase go? Slow and steady wins the race?

Regards,

Härje Ronngard,

Junior Analyst, Markets & Money

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Harje Ronngard is a Junior Analyst at Markets and Money. With an academic background in finance and investments, Harje knows how simple, yet difficult investing can be. He has worked with a range of assets classes, from futures to equities. But he’s found his niche in equity valuation. It’s not good enough to be right on average when it comes to investing. The market is volatile and it only takes one bad day to ruin your portfolio. You don’t want to end up like the six foot man that drowned in the river that was five foot deep on average. It’s why Harje is constantly reminding investors of their downside risk here at Markets and Money. He does so by simply asking just two questions.  What is it worth? And how much does it cost? These two questions alone open up a world of investment opportunities which Harje shares with Markets and Money readers. Right now Harje is focused on managing research and investments over at the Legacy Portfolio. An investment publication designed to significantly grow investor’s wealth over time with deeply undervalued businesses. Harje also contributes his insights in Total Income, headed by income specialist Matt Hibbard. Harje loves cash-rich businesses, so he feels right at home amongst Matt’s high yielding income plays.


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