Our Philosophy
- Bottom Up” Stock-Pickers. We analyze and invest in stocks on their individual merits. We do not use “top-down” or macro-economic trends to determine our positions.
- Know What You Own Well. We invest in stocks that are ‘knowable’. We know our stocks in depth. With concentrated portfolios, we emphasize depth over breadth.
- Sleep Soundly. We want to sleep soundly at night. We want our investments to make that easier. We want to avoid downside risks.
- Valuations Matter. Markets tend to dismiss valuations. While we are not ‘value’ investors strictly, we do believe low valuations can protect against downside risks.
The Lightwater Approach
- Independent Thought. We march to our own drummer at Lightwater. We do not rely on external sources for ideas or analysis.
- Rigorous Analysis. We believe in financial modelling and we have spent 17 years building our library of models, customized for each company. We utilize a variety of valuation metrics.
- Concentrated Portfolios. We do our homework so we want to earn a good return on that investment in research. We are not afraid to hold large positions in our highest conviction names.
- Investors, Not Traders. We have a patient approach to investing.
Tweaks to Our Strategy in 2023
- Less Shorting of Mid-cap Stocks. Less risk of short-squeezes.
- Lower Hedging Overall. We want to make clear that we still have portfolio hedging at all times. Looking back, we believe we were over-hedged in the past, owing to the naturally low correlation of our holdings.
- More Upside Participation. The funds should now ‘make more hay when the sun shines’ and should rise higher when the tide is rising.
- Greater Use of Beta Hedging. This will reduce stock borrowing costs while still lowering beta exposures.
- Modified our Ban on Resource Stocks. We relaxed our self-imposed ban on oil stocks due to their compelling long-term fundamentals. We still avoid all other resource stocks.
The Fund Post-Changes
- Funds will still be hedged at all times.
- Funds should retain low correlation with market indexes
- We will remain focused on Canadian mid-cap stocks (on long side)
- Funds should make money when markets do. We aim to eliminate the historical performance drag when markets are frothy.
- Low beta nature of long positions will require less hedging. Gross exposure will fall, net exposures will rise.
