Practically speaking, this philosophy requires that we approach our clients, suppliers and indeed everyone that we voluntarily interact with like a partner.  

In implementing this philosophy, we make an extra upfront effort to make sure that clients and potential clients understand our beliefs, our goals, and our approach.  In this regard, we attempt to educate clients and potential clients in a variety of ways including presentations and seminars as well as occasional articles, speeches, and letters to clients

Our approach borrows heavily from the philosophies and methods of a number of outstanding investors, and Warren Buffett (as influenced by Benjamin Graham and Phil Fisher) in particular.  In essence, we are value and growth at a reasonable price investors.  We will, however, also take advantage of special situations in which the catalyst is an expected corporate event rather than underlying business performance.  

Some additional points related to the way we like to operate are explained below and we would recommend that you read these carefully and ask us if you have any questions:

1.  Whatever the legal or formal structure of our relationship, our attitude is that of a partnership.

   We like to work with people who we like, trust and admire and who feel the same way about us.  We would like to attract clients/partners who share our long-term goals and values.  Like good partners, we try to be  fair and equitable to everyone with whom we have a relationship and create win-win relationships.

2.    We try to invest in outstanding businesses when we find them.  We spend most of our time reading about businesses and looking for the outstanding ones.

   There are a number of characteristics that outstanding businesses and investments share.  We have a disciplined approach that seeks to find these exceptional businesses and/or investment opportunities and invest in them if the price is right.  However, outstanding businesses/investments are rare.  It takes time and effort to find and qualify them and good ideas are valuable and scarce.  However, on one point we are clear, we would rather do nothing than make an investment that does not meet our criteria.

3.    We are value investors and believe that price matters.  However, this orientation is not to be confused with an approach that avoids investing in growth companies, which are sometimes outstanding long-term investments.

      We believe that it is critical to assess the quality of the businesses and franchises that we own.  As value investors, we also believe that the price we pay is often just as important in determining the ultimate outcome of a particular investment.  Consequently, we consider ourselves value investors, i.e. we seek to purchase assets when the price is favorable and represents a discount to the value of what we are getting in a way that provides us with a significant margin of safety.  This does not mean, however, that we avoid investing in outstanding growth companies that are likely to deliver excellent compounding over time with an acceptable risk profile.  In fact we love to own quality business with outstanding prospects - as long as we do not have to overpay (and ideally when we can get a bargain) at the same time.  

4.    We have a contrarian orientation and have found that the best investments are often in places that others may be avoiding.  We tend to invest in businesses when it goes against the crowd and conventional Wall Street "wisdom."

    In this regard, we heed Warren Buffett's advice to "Be fearful when the world is greedy and greedy when the world is fearful."  A good number of our best investments arise when short-term disappointments create an attractive buying opportunity in a business which has long-term merit.  However, the values created by these short-term company, industry, or market issues do not necessarily disappear quickly.  Our contrarian approach requires that we and our clients take a patient long-term view towards investment success.  Companies that we find attractive could even continue to decline in the short-term if the conventional assessment of the near-term outlook remains gloomy.

    Counter intuitively, this also means that for those investors who are net savers in the intermediate term- a period of market declines or market pessimism may be a wonderful opportunity to increase their long-term wealth.  This will be so even though market declines will also negatively impact existing portfolio quotations, because we will get to buy attractive bargains with excess cash.  In contrast, a period of generally rising securities prices may feel good based on short-term portfolio appreciation, but could ultimately detract from the long-term value of our investments if bargains become hard to find as cash is available to invest.  This difference will not usually be apparent immediately, but the wealth effect will become increasingly obvious in the long-term.

5.    Our goal is to optimize the long-term results from our investments.  As we think about it, long-term means rolling three to five years periods, on average.  In practice, longer or shorter periods will also arise with respect to individual investment commitments.

    Our goal for ourselves and our investors is to compound our capital consistently and with low risk. Our plan to do this is to rely on the crucial distinction between investing and speculating.  We have no ability to predict the short-term market fluctuations of securities prices in a 12 or even 24 month period since short term prices are driven by a number of difficult to predict factors including investor psychology and supply and demand.  Consequently, we try to knowingly avoid speculation - i.e. purchasing, selling, or avoiding securities based on guesses regarding near-term price expectations or the enthusiasm/pessimism of other investors.

     As investors, however, we know that in the long-term the prices of our investments will converge towards and be driven by underlying business performance as reflected in metrics like owner earnings and book values.  Consequently, our energy is focused on confirming those factors that we can assess, i.e. the quality of the businesses that we buy, the long-term outlook for these businesses, and the price that we pay.  In short, we try to buy partial interests in businesses when the price we can pay gives us confidence of a good result 3 to 5 years out with a good margin of safety. 

    The margin of safety is important in that it gives us a chance to preserve our capital over that same time frame in case we make inadvertent mistakes about the outlook.  This focus on margin of safety is a conscious effort to reduce the risks associated with our investments.  By risk, we mean permanent loss of capital as contrasted with temporary stock market price fluctuations.  For example, we are happy to see an increase in intrinsic value accompanied by a short term price drop (which we can take advantage of) in one of our investments.  The opposite, however, while it can sometimes lead to an acceptable outcome in the short-term, would generally be a sign that we have made a mistake.  No matter what we do, you can be assured that we spend significant time and effort paying attention to and avoiding potential losses (the permanent kind).  As the philosopher said, "Don't lose money!"

    This approach to investing for the long-term requires patience and discipline.  It also means that our portfolio performance over the long-term will tend to benefit from low turnover of securities, low trading costs, and reasonable tax-efficiency.  In order to succeed, our approach requires that we work with clients and partners who take a similar long-term view towards investment success and who have the patience and discipline necessary to stay the course though the inevitable periods when our approach is temporarily out of favor, prices decline after we invest, or other approaches seem momentarily more exciting or rewarding.  In our experience, this patience is the price that investors must be willing to pay to reap the benefits of investing.  However, your reward is likely to be the ability to compound your capital at a good rate over the long-term through partial ownership of good businesses bought at good prices.  This performance, in turn, can eventually enable you to pursue those things that give your life meaning, unencumbered by money worries.

6.    We cannot promise results, but we can promise that our results will closely mirror yours over any given period of time to the extent of our investments that are also managed by The Ridgewood Group.

    As investors, we are imperfect beings attempting to take calculated risks based on imperfect information.  Mistakes are inevitable - though we do try to minimize them (or at least their impact on our capital) through superior execution of a disciplined and proven approach. 

    Despite our best efforts, we cannot guarantee results, especially over the short-term.  However, we can guarantee you that we will remain focused on those factors within our control that are likely to lead to a good result and that we will continue to take both the easy and difficult actions that should help us reach our long-term objectives.  This is important to us not only because we want our clients to succeed, but also because our owners have invested substantially their entire net worth in many of the same securities and investments that we buy for external clients.  Or as Warren Buffett has more eloquently stated, "we eat our own cooking." 

    Moreover, we are motivated by our long-term goal that our firm's mission is to make a meaningful contribution to thousands of clients by managing their money more intelligently.  Our dream for each of our clients is that they increase their capital as a means to achieve and maintain financial freedom with the hope that they might use this freedom to live lives of joy, purpose, achievement and meaning.

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