Portfolio
Long River blends active (Mississippi strategy) and passive investing (Hudson strategy). The strategic split is determined by both the relative opportunity and a client’s risk tolerance.
Mississippi Strategy
The Mississippi strategy consists of 10 to 25 high-conviction individual stocks.
Long River believes that concentrating capital in its very best ideas is the path to superior investment results. As Warren Buffett wrote in his 1965 partnership letter: “There is one thing I can assure you. If good performance is even a minor objective, any portfolio encompassing 50 stocks in not being operated logically.”
Long River aims to invest in companies it would be pleased to own if the stock market closed for 10 years; companies with sustainable competitive advantages, understandable business models, consistent operating histories, rational and transparent management, strong profit margins, high returns on invested capital, and healthy balance sheets.
Long River employs independent fundamental analysis and seeks to purchase securities at a minimum 20% discount to intrinsic value. This provides a margin of safety against bad luck, the possibility of being wrong, and the vicissitudes of the business cycle. Long River does not invest predicated on everything going perfectly.
Long River’s investment perspective is broad, avoiding unnecessary sector, geographical, and market capitalization constraints that may reduce performance. Long River’s mandate is to invest in the highest quality companies at attractive prices.
Long River maintains a research ideas library of companies that meet most of its criteria but are not selling for the right price. A great company can be a bad investment at the wrong price.
Hudson Strategy
The Hudson strategy invests primarily in ETFs to capture globally diversified returns in a cost-efficient, tax-efficient, and balanced manner.
Long River favors low cost ETFs that screen for high-quality companies.
The average American’s portfolio is 79% invested in U.S. companies (a behavioral bias observable across the world known as “the home country bias”) even though the U.S. comprises only 51% of the world equity market capitalization and 24% of global GDP. While the average investor is perpetually underweight the rest of the world, Long River invests according to the best relative value at the time.
When Berkshire Hathaway is undervalued, Long River uses the stock as a discounted U.S. index fund substitute. Long River believes Berkshire Hathaway is a superior alternative as it has no annual expense fee, is broadly diversified across more than 200 high-quality companies of all sizes, investments are made by arguably the greatest investor of all-time (Warren Buffett), and provides no fee private equity exposure as Berkshire Hathaway acquires both large and smaller companies.
Out of nearly 7,000 actively-managed funds, Long River believes only a relative handful are capable of producing superior long-term after-fee returns. Long River may selectively use best-in-class actively-managed funds.
Long River prefers stocks to bonds over a long-term time horizon ($100 invested in the S&P 500 in 1928 would be worth $787,019 today versus $7,279 for 10-year Treasuries), but may own fixed income when it is attractive.