The All-Terrain Portfolio You Need for Any Economy

Our mission is to make sure your portfolio can grow while riding out whatever financial terrain lies ahead – including the worst. To do this, we built IMA on value investing principles outlined by Benjamin Graham and popularized by Warren Buffett. Of course, we added a twist of our own.

Built on the 6 Commandments of Value Investing

We don’t trade – we invest.

Traders have the short term in mind, so they treat stocks more like widgets than actual businesses.

The problem is rooted in the instant liquidity of US markets. This seduces many - an investor (including fund managers) into acting like a trader and focusing on the short term.

We take Warren Buffett’s approach by asking ourselves, “Would we want to own this business if the stock market was closed for 10 years?”

This makes factors like valuation, cash flows, competitive advantage, return on capital, balance sheet, and management extremely important in our analysis.

Built on the 6 Commandments of Value Investing

I. Treat stocks as businesses, not widgets

We don’t trade – we invest.

Traders have the short term in mind, so they treat stocks more like widgets than actual businesses.

The problem is rooted in the instant liquidity of US markets. This seduces many an investor (including fund managers) into acting like a trader and focusing on the short term.

We take Warren Buffett’s approach by asking ourselves, “Would we want to own this business if the stock market was closed for 10 years?”

This makes factors like valuation, cash flows, competitive advantage, return on capital, balance sheet, and management. Extremely important in our analysis.

OUR INVESTMENT PROCESS

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II. Have a long-term time horizon

It’s impossible to predict how a stock will be priced in the short run. However, the flow of money into mutual funds and hedge funds is driven by recent performance, so Wall Street is obsessed with the short term.

This punishes stocks when their immediate future looks unattractive, and creates an opportunity to buy them at a cheaper price.

This gives a competitive advantage to those who look at the long term.

At IMA, all of our models focus on what the company will be worth in 3-5 years, based on its earnings power and cash flows. We then bring that future value forward to today at a discount rate, to see what we want to pay for this company right now.

HOW AND WHY WE BUILD MODELS

OUR INVESTMENT PROCESS

III. The market is your servant, not your master

The market prices stocks on a daily basis, but it doesn’t value them on a daily basis. It only values stocks in the long run (a matter of years, not months or days).

If you know what a business is really worth, stock fluctuations are your friend.

For example, if our research shows a stock is worth $1, then if its price falls from 50 cents to 30 cents, the company can now buy back a lot more of its stock at lower prices, and we have an opportunity to increase our position.

That’s why spending a lot of time doing research helps us understand what a stock’s value is and enables us to rationally and calmly take advantage of price fluctuations.

HOW AND WHY WE BUILD MODELS

OUR INVESTMENT PROCESS

IV. Leave room for error in your buy price

At IMA, we build models of businesses and stress test them to arrive at a worst-case scenario valuation.

But unexpected things still happen. That’s why our valuations include a margin of safety, in case we’re wrong.

External events have more impact on lower-quality businesses than higher-quality ones. So our margin of safety will fluctuate depending on business quality.

OUR INVESTMENT PROCESS

V. Fear permanent loss of capital, not volatility

Value investors don’t view volatility as risk; they embrace it and try to take advantage of it.

Volatility is only scary for those who don’t know what a company is worth. For those who do, the difference between business value and price provides an opportunity.

In determining a business’s value, we estimate its long-term future cash flows and convert that value into today’s dollars. This gives us an approximation of what the business is worth now.

We then build models so that we can try to “kill” the business. We look at known risks and try to imagine unknown ones; we try to quantify their impact on cash flows.

This process helps us to determine the margin of safety that the business requires. Combining it with our valuation, we arrive at our target buy price for the stock.

HOW AND WHY WE BUILD MODELS

OUR INVESTMENT PROCESS

VI. Expect stocks to revert to fair value

If a stock is significantly undervalued for a long time, this undervaluation eventually gets cured.

It could happen through share buybacks or by the company’s paying out its earnings in dividends, thus creating yields that the market will not be able to ignore.

The company’s competitors could also realize that it is cheaper for them to buy the company than to replicate its assets on their own.

This reality that undervaluation will not last forever is paramount to value investing. If we do a reasonable job at estimating what the business is worth, then, at some point, the stock market will price it accordingly.

VII. Active Value Investing

We have added to the standard value investing approach with the following principles:

We are not traditional buy-and-forget-to-sell investors. We have strict sell criteria in order to remain “active” buy-and-sell investors.

Given elevated market valuations and fragilities in the global economy, our margins of safety are even higher.

We value stocks based on what they’re worth, not what they used to trade at in the past.

We don’t time the market, as this strategy largely relies on luck and can’t be put into a repeatable process.

We’re not afraid to hold cash if we cannot find stocks of sufficient quality.

OUR CORE VALUES

No second-rate investments

If we can’t find a high-quality company (in the US or internationally) that fulfills our rigorous valuation criteria and is incredibly cheap, we will simply hold more cash.

No hands behind our backs

If we find a stock that we think would be great for your portfolio, why reject simply because it doesn’t fit a particular box? We set no restrictions on style, size, or geography. It’s hard enough to find good stocks as it is.

No chasing fads

We protect your portfolio by sticking to rational research-based decisions. With clear, strict guidelines for the kinds of businesses we’ll invest in and specific sell criteria, we won’t buy or sell simply because everyone else is buying or selling – unless our research concludes that it’s good for your portfolio.

No conflicts of interest.

Built to align with what’s best for you.

Our only source of income is our fully disclosed management fee. We built IMA so that our profits correlate to changes in your wealth, ensuring we always make investment choices that are only in your best interests.

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But we took one more step to align our interests with yours: we own the same stocks as you.

In fact, our CEO Vitaliy Katsenelson’s entire family’s portfolio is invested with IMA (including retirement funds for him and his wife and college funds for his three children).

So rest assured: we eat our own cooking, so we only select stocks that we think are best for your portfolio.

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