Investment Philosophy and Principles of SAVA Capital Inc

1. INVESTMENT
PHILOSOPHY

2. I DON’T KNOW HOW TO
MAKE YOU RICH FAST
2
“Compound interest is the eighth
wonder of the world. He who
understands it, earns it … he who
doesn’t … pays it.”
Albert Einstein
Neither one knows. Perhaps those who think
they do know don’t know that they don’t
know, or they are simply ignorant or dishonest
or both.
We are the wrong “church” for those who
want to be rich fast it is better to stop reading
further and leave.
We don’t know how to find a needle in a
haystack and win 1 out 10000 jackpot.
But we believe that there are two approaches
to get 1000x the first one is to win a “lottery
ticket”, and the second(ours) is boringly and
continuously “compound” over a long period
of time to make 2^10=1024x, or 1.5^17= 985x,
1.26^30= 1025x or so…
“

3. THE DEEPEST RIVERS
FLOW SLOWLY
3
“Fast is slow, but continuously,
without interruptions”
Japanese wisdom
Good country, good company, partnership,
family, good Scotch, or true wealth are built
through decades.
“Successful Investing takes time, discipline and
patience. No matter how great the talent or
effort, some things just take time: You can't
produce a baby in one month by getting nine
women pregnant” – Warren Buffet
We do admit only those partners who are
ready for a long-term commitment.
“

4. DIRECTION OVER SPEED
4
“Principles outlive tactics”
We do believe that it is critically important that our
prospective partner deeply understands and shares the same
principles we stand for. Because only that approach can be a
strong basement for a long-term productive partnership.
Tactics provide the “what” and the “how.” Sometimes that
can be enough to get a result. But if you want results no
matter how the landscape changes, you must also
understand the “why.” By understanding the principles that
shape your reality, your “why” will more accurately guide your
thoughts and actions.
“

5. PRICE vs VALUE
5
“Price is what you pay, value is
what you get.”
Warren Buffet
PRICE not necessarily means VALUE. Price alone doesn’t
determine the value. Most people during their lifetime
chase the speculative short-term price volatility(Bitcoin,
worthless stocks, etc.), our way is to chase and
accumulate the true value even though the short-term
price could doesn’t reflect it and we can underperform
or look stupid.
“

6. We do invest and don’t speculate
WHAT WE DO
Unconstrained
Our strategy is unconstrained by asset class, industry,
sector, security type or geography. We rather
differentiate assets by quality and management
excellence rather than by industry or asset class itself. We
do believe that high quality equity investment can be
safer than bullshit managed companies' bonds.
Vigilant
Whether in times of stability or volatility, in good markets
or in bad, there are always strategic opportunities for
those with the skills and talent to see what others don’t.
Windows of opportunity open and close without warning.
We respond dynamically, moving with conviction,
judgment and discipline to capture opportunities that
less equipped investors miss.
The primacy of risk control
Our goal is not just superior investment performance but
superior performance with less-than-commensurate risk.
Thus, rather than merely searching for prospective profits,
we place the highest priority on preventing losses.
6

7. THE DIFFERENCE BETWEEN
SPECULATION & INVESTMENT
It’s true that with both investing and speculating your
intention is to make a profit. With both you incur some
risk. But beyond that, there’s a big difference in the
process and reasoning behind a decision to invest or
speculate.
When we invest in stocks for our partners, we are indeed
investing. That’s because we are buying an asset, having
determined after careful analysis that it is of good value
and therefore worth holding on to. The asset has value
because it produces earnings over time.
It’s common to speculate with stocks, too, focusing too
much on price instead of the underlying business. This
could explain a lot of the volatility that we’ve been
experiencing.
This volatility allows us to purchase a much more value for
a less price.
There’s nothing wrong with speculation. It’s just a different
game and different from what we do for our partners.
We’re investing – focusing on the worth of a business.
7
If you’re an investor, you’re
looking on what the asset is going
to do, if you’re a speculator,
you’re commonly focusing on
what the price of the object is
going to do, and that’s not our
game.
Warren Buffet
“

8. THE DIFFERENCE BETWEEN
SPECULATION &
INVESTMENT
Investment Speculation
Meaning Purchase of an asset/security
for securing stable returns.
Executing a risky financial transaction
with the hope of profit-making.
Time horizon Long term. Short-term, generally less than a year.
Deployment
of funds
An investor using funds of self. Borrowed funds.
Investor attitude Cautious and Conservative. Aggressive with an element of carelessness.
Risk levels Moderate. High.
Expectations of
returns Modest but continuous. A high rate of return.
Decision criteria Fundamental and Basic factors, i.e.,
Financial performance of the
company/sector.
Technical charts, Market psychology, and
individual opinion.

9. SKIN IN THE GAME
9
"It is hard to imagine a more stupid
or more dangerous way of making
decisions than by putting those
decisions in the hands of people
who pay no price for being
wrong.“
Thomas Sowell
Our partnership is built on these principles:
§ “To put your money where your mouth is”
§ “Don’t tell me what you think, tell me what you have
in your portfolio.”
§ “No person in a transaction should have certainty
about the outcome while the other one has
uncertainty.”
§ “How much you truly “believe” in something can be
manifested only through what you are willing to risk
for it.”
§ “Taste your Own Cooking”
We do invest a significant amount of personal wealth
with our partners and in case of loss, we lose our wealth
first.
“

10. OUR
INVESTING
APPROACH

11. OUR APPROACH
Asset light: Business must have high ROE, low maintenance
CAPEX, ability to grow with a low capital burn
Debt: Very conservative balance sheet with a small or no debt
and high cash reserves
Capable management: Ability of management to reinvest and
allocate capital wisely and frugally
Predictable: Long historical streaks of no EPS losses, positive FCF
in most years, low volatility in margins, low volatility in returns on
capital, very few year-over-year sales declines, low cyclicality
Solid Industry: Low competition / market structure = monopoly,
duopoly, or oligopoly / high retention rates / low market share
volatility / price not main competitive factor / low foreign
competition / localized markets
Solid Competitive Position in the Industry: Good absolute market
share, good relative market share, brand competitive with
market leaders, costs competitive with market leaders, margin
volatility not higher than industry
Shareholder friendly: Dividends return and share buybacks by
reasonable price
11
We are focused on identifying high-
quality companies for a fair price and
low risk to lose capital.
Our targets usually have several or all of
the following criteria:

12. BUSINESS DURABILITY
12
Our approach is very much
profiting from lack of change
rather than from change.
Warren Buffet
We are looking for Durability is about the
product and the product economics of the
industry.
Durability is about the relationship between
the customers and the firm we are looking at.
More durable that relationship more stable
business and underlying cash flow.
The industries with a high level of changes
requires more capital for that changes and
have a less predictable cashflows.
“

13. PRICING POWER & DEMAND
13
We do like to invest in businesses with inelastic demand to its price or customer income. That
means the company should be able to increase the prices of its goods or services and
maintain the same demand over time. And demand shouldn’t shrink too much when
customers' income decrease or during inflationary periods.

14. STRONG MOAT
An economic moat is a metaphor that refers to businesses being able to maintain a
competitive advantage over their competitors in order to preserve market share and profits.
Any method that a company uses to maintain a competitive edge can be considered an
economic moat. Moat is about limiting rivalry between firms.
14
Economic franchise
– Product/service that is needed or desired
– Thought by its customers to have no close
substitute
– Not a subject to price regulation
1
Does the business enjoy any competitive
advantages?
– Supply: Proprietary technology/cheap resources
– Demand: Habit/switching costs/search costs – customer captivity
– Economies of scale: Purchasing/production/marketing/distribution etc.
– Network effect.
– Government intervention: Licenses/tariffas and quotas/authorized
monopolies/direct subsidies/various kinds of regulation
– Other: Brands, high capital costs/entry barriers 2

15. BARRIER TO ENTRY
A profitable industry will attract more competitors
looking to compete for those profits.
If barrier to entries are low, then this poses a threat
to the firms already competing in that market.
More competition without concurrent increase in
consumer demand means less profit to go around.
Barrier to entry is high when several factors are
required at once so that entrants need not only
money but also time to compete well.
15
EXAMPLE.
Warren Buffet approach.
«You give me a billion dollars and tell me to
go into the chewing gum business and try to
make a real dent in Wrigley’s. I can’t do it.
That is how I think about businesses.
I say to myself, give me a billion dollars and
how much can I hurt the guy? Give me $10
billion dollars and how much can I hurt Coca-
Cola around the world? I can’t do it. Those
are good business».

16. THE SMILING CURVE
16
We do like to invest in businesses on the right or left side of the smiling curve because they
usually tend to be less capital intensive, have strong customer bonds, and have the ability to
price control. We look to companies with high-level intangible assets(brand owners) that don't
require a high maintenance CAPEX, have low fixed costs, and ability scale without burning
extensive capital. Or we do like marketplace-style businesses that have strong network-effect
moats.
In business management theory, the smiling curve is a
graphical depiction of how value added varies across
the different stages of bringing a product on to the
market in an IT-related manufacturing industry. The
concept was first proposed around 1992 by Stan Shih, the
founder of Acer Inc., an IT company headquartered in
Taiwan. According to Shih's observation, in the personal
computer industry, the two ends of the value chain –
conception and marketing – command higher values
added to the product than the middle part of the value
chain – manufacturing. If this phenomenon is presented in
a graph with a Y-axis for value-added and an X-axis for
value chain (stage of production), the resulting curve
appears like a "smile".

17. 17
HARNESS THE POWER OF
DIVIDENDS AND COMPUNDINGS
and have them working for you
• Reinvesting dividend payments allows the money to
continue grow
• Compounding can make am exponential
difference over time, compared to stock price
appreciation alone
An initial investment of
$10,000 in the S&P 500
over the last 20 years
Return,
price only
Return with
dividends reinvested
$114,272 $208,215
Dec.2021 Dec.2021

18. CONCENTRATION
We usually highly concentrate our bets. Investment business is
a very competitive field and most of the time there are just no
right targets for superior returns for a fair price. So, good
opportunities appear very rarely, and we have to seize them.
We don’t believe in the diversification concept not because it
doesn’t work but rather because it is almost unachievable
without sacrificing quality and a great return. We do believe in
quality more than quantity which means- small amounts of
high-quality assets for a fair price work better than overvalued
mediocre 50 investments.
The concentration strategy which we employ shouldn’t be
treated as our arrogance or “hubris” but rather than our
humility and acceptance of a competitive reality: we can't
find a lot of good opportunities.
18
"Diversification is a protection
against ignorance. It makes very
little sense for those who know
what they're doing."
Warren Buffet
“

19. BET SIZE/Kelly Criterion
19
As we bet only highly probable bets, heavy concentration justifies by Kelly Criterion. The Kelly criterion is
a mathematical formula relating to the long-term growth of capital. It is used to determine how much
to invest in a given asset, in order to maximize wealth growth over time. 𝑓 =
!"#$
"
where is
f is the fraction of the current bankroll to wager.
p is the probability of a win.
q is the probability of a loss
b is the proportion of the bet gained with a win.
For high p~ 0.95 and b>2 it is ok to be concentrated up
To 93%. (usually we do less)

20. THE THREE SIGMA
To get a superior return in the market you inherently have to
bet only to some kind of "extremes", saying no to 99% of
pitches: It should be something incredibly cheap, incredibly
durable or incredibly new or with an incredibly high margin or
ROE, exceptionally high-quality management, enormous
market opportunity, unique technology, distribution chain,
power of brand, business model or so on.
20
“The difference between
successful people and really
successful people is that really
successful people say no to almost
everything”
Warren Buffet
“

21. HOLDING PERIOD
21
We prefer durable long-time compounders, accepting the reality of “scarcity” of good assets
for a good price. Future Value = Present Value x (1 + Rate of Return) ^ Time
What excites most of investors in this formula is the "rate of return". This is despite that the only
variable in this formula is tentative and most uncertain, and beyond our control.
The two variables that are under our maximum control are "present value", or the initial
investment, and "time", or the amount of time the money is allowed to compound. And these
two variables, especially "time", most of investors choose to ignore in the race to earn the
maximum return. There weren’t and won`t be much opportunities in the future to deploy cash
taken from one investment to another thus creating reinvestment risk. Reinvestment risk- refers
to the possibility that an investor will be unable to reinvest cash flows received from an
investment, at a rate comparable to their current rate of return.
Thus, we would prefer smaller rate return but for the long time period. Other words we would
like 1.26^10 years =10x more than 1.35^2 years= 1.82x
1.26^10>>1.35^2 = That’s why “BUY RIGHT SIT TIGHT” works.

22. One of our investment already was able gain from this concept
recently – it had a lot of free cash and has acquired a very good
business from Russians because the Russia –Ukraine war.
ANTIFRAGILITY &
PRUDENCY
The nature of capitalism is a cyclicality which almost
guaranties some kind of a “bad thing” happens every 5-10
year or so and destroys and wipes out weak imprudent
businesses and their shareholders, like a bad built houses in the
“The Three Little Pigs“ fable. Those who going to neglect and
trade quality for a short-term gain will pay the price when the
bad time comes.
The concept of “Antifragility” is beyond resilience or
robustness. The resilient resists shocks and stays the same; the
antifragile gets better. Transferring this concept to the
companies to get better – firstly you have to survive, secondly
you must have a pile of cash(be prepared) to be able to
acquire your less prudent competitor's business or buy other
depreciated assets. You can’t immediately improve long-time
mismanaged business or clean overleveraged balance-sheet
when crises comes. That’s why we like cash-gushing
companies with a pristine balance sheet and high ROCE.
22
“Only when the tide goes out do
you learn who has been swimming
naked”
Warren Buffet
“

23. RISK CONTROL
23
Generating superior return compared to benchmark with the similar risk nature is a good performance ...
… but a good value addition is generating a return which is like the benchmark return with the lowest risk &
with proper controlling of the risk
Value
Added
Benchmark
Portfolio
Risk
Return
Higher Returns
Value
Added
Benchmark
Portfolio
Risk
Return
Lower Risk

24. ASYMMETRY OF LOSS
• The negative asymmetry of loss starts quickly, losses more than -
20% decline start to compound against you exponentially: with a
greater magnitude loss is needed more growth to recover.
• If your investment portfolio experiences a -90% loss, it needs a
900% gain to get back to the breakeven value it was before the
loss. That’s why we prefer buy very, very conservatively even we
will underperform others during bubbles and irrational
exuberance. We don’t care, we believe that over the long-time
period that works better for us.
24
“Rule No.1: Never lose money.
Rule No.2: Never forget rule No.1.”
Warren Buffet
“

25. IMPORTANCE OF RISK MANAGEMENT
25
“Conservative investment is most likely to conserve(maintain) purchasing power at minimum of
risk. Over a full career, most investors` results will be determined more by how many losers they
have, and how bad they are, than by greatness of their winners. Skillful risk control is the mark of
a superior investor. Return alone—and especially return over short periods of time—says very
little about the quality of investment decisions.” Howard Marks
Let's assume there are two funds:
(1) FUND A maintains a more aggressive approach with
a 35% return for 4 years and a 40% loss in the 5th year,
(2) FUND B generates a more conservative but steady
return of 25% without losses during the whole 5-year
period.
The second FUND will outperform the first one by almost
more than 50% even though the first one will collect more
fees and will be more favorable by investors' during the
first 4 years.

26. CONSERVATISM^10
26
We prefer to bet only on a very “sure” bets here is why: Many people confuse skill with a luck and usually underestimate
how low was the probability(or how high was the risk 1-𝑃%&') of previous successful outcome. Return alone—and especially
return over short periods of time—says very little about the quality of investment decisions, it could be very risky with very
small probability, like wining once an American roulette bet with odds 1/37 or so. But in the long-term betting so can't be
sustainable strategy and trying to replicate it will just kill you.
Let's assume that to get “rich” during your lifetime you need 10
consecutive reinvested bets where each one doubles your
wealth 2^10=1024x. Each bet(investment) is an “Independent
Event” so the probability to do these ten successful bets in a
raw will be= P(𝐴! ∩ 𝐴" ∩ 𝐴# … ∩ 𝐴$)=P(𝐴!) ∗ P(𝐴")* P(𝐴#)…*P
(𝐴$) Where is P(A) is the probability(-agresivness) of each bet.
(1) FUND A maintains a super aggressive approach and
confused luck with a skill and bets on very improbable
bets which should double initial bet with a probability 0.05
or 5%.
(2) FUND B bets an average with probability of success 0.5 or
50%
(3) FUND C bets more conservatively and probability of
wining is 0.7 or 70%
(4) FUND D bets very rarely in a super conservative manner
but almost for sure their bet will double money with a
probability 0.97 or 97%
It is almost impossible to replicate success relying on a luck
long term, and aggressive strategy can only be justified when
payouts of “rare” success differentiates by an order of
magnitude N= a*10%
to improve math expectation
substantially, what almost impossible in stock market
environment.
Probability to
replicate bet n
times in row FUND A FUND B FUND C FUND D
1 5% 50% 70% 97%
2 0.25% 25.0% 49.0% 94.1%
3 0.0125% 12.5% 34.3% 91.3%
4 0.000625% 6.3% 24.0% 88.5%
5 0.00003125% 3.1% 16.8% 85.9%
6 0.0000015625% 1.6% 11.8% 83.3%
7 0.000000078125% 0.8% 8.2% 80.8%
8 0.00000000390625% 0.4% 5.8% 78.4%
9 0.0000000001953125% 0.2% 4.0% 76.0%
10 0.000000000009765625% 0.1% 2.8% 73.7%

27. RISK VS VOLATILITY&FOMO
27
Opposite to many investors we don’t consider the price volatility alone of our investees as a clear risk measure. That
means we don’t sell asset if we strongly believe in the future ability to generate cash relative price paid of our investments
even if the price itself falls down or stays flat for a long time. That means also that we aren't going to “catch” any new “hot
stock” with no or miserable future economic value or “bitcoin-style” creatures even if their price skyrockets while crowds
and pundits around the world stay horny about it. Price nothing to tell us about economic value or/and sustainability,
durability, profitability, management capability of underlaying business. We are comfortable to stay with a crowds or
against the crowds, FOMO(fear of missing opportunities) or other instincts such a fear, greed, jealousy are not what
dictate us the deal.
"Volatility is not synonymous of risk but – for those who truly
understand it – of wealth." Francois Rochon .
“There are many kinds of risks .. But volatility may be the
least relevant of them all.” Howard Marks
“Pick any Company you want – the price is very volatile
over short periods of time. It does not make sense to me
that their values are nearly as volatile as the prices and
therein lies what should be a great opportunity.” Joel
Greenblatt
"Because we focus on value instead of price, we do not
consider short-term stock market volatility a risk. Instead,
we define risk as long-term value destruction. For today’s
investors, the potential loss of purchasing power on the
dollars they save is one of the largest value-destroying
risks they face." Chris Davis
buy

28. HOW DO WE MEASURE RISK?
28
We measure risk as an ability permanently lose the capital or value of our investees. Value= Multiple*Earnings(cash flow)
so we define risk as the probability and scale to go “south” of these two components of “Value”. So, we always try to
minimize acquisition multiple and buy companies with excellent economies and extremely strong “Earning power” and
minimal negative statistical dispersion in sales, gross margins, net margins, debt level, CAPEX, and ability to reinvest
retaining profits at satisfactory rates if dividends are not distributed. All these measures should be stable or improving in a
positive direction during a long period of time and reluctant to inflation and other forces stressing the company.
(1) We define “Earnings” as =reported earnings + depreciation, amortization +/- other non-cash charges – average
annual maintenance capex +/- changes in working capital.
(2) Reported earnings = Sales*Gross margin-OpEx-Tax. Different companies have different abilities to control the
negative magnitude of dispersion of these components. Thus, we consider less risky those investments which have
growing or stable Sales, the ability to increase or maintain prices to the customers, control suppliers(bargaining power),
and OpEx. Otherwise, we are trying to predict how OpEx/Sales*gross margin= ratio will develop over time.
(3) We look carefully at maintenance CAPEX which can play a very bad game, especially during a high inflationary
period. We prefer service like businesses with no or low CAPEX relatively to Operational cashflow.
(4) We consider inability smartly deploy earned capital by management(if it retained) as the same risk as a lose profit.
Because stupid acquisition, bad planned new projects or crazy buybacks can cost shareholders same bad as a profit
deterioration. It doesn’t matter if “Joe” lose the “salary” or gets a salary and then gamble it, the result is the same “Joe”
gets lesson but shareholder “pays tuition”(lose capital). The wrong acquisitions can cost company not just paid cash for
acquisitions itself but long run expenses to maintain this project afloat.
(5) Leverage level or Debt and its structure(secured, unsecured, fix rate or variable rate, currency, maturity etc.)

29. Right Price
After all things should come for the right price:
• Investment success doesn’t come along from «buying
good things», but rather from «buying things well».
• The smartest side to take in a bidding war is the losing
side.
• «Investors must keep in mind that there's a difference
between a good company and a good investment.
After all, you can buy a good car but pay too much
for it».
29
If only one word is to be used to
describe what Baupost does, that
word would be: ‘Mispricing’.
We look for mispricing due to over-
reaction.
Seth Klarman
“

30. 30
INEFFICIENT PRICING IS OUR
MONEY-MAKING MACHINE
Small caps/Micro Caps
Spin-offs
Small liquidity stocks
Foreign markets
Inefficient pricing is the key component of
successful investment:
We are focused on identifying high-quality
companies in the places of the market where
large pools of capital (mutual funds, hedge
funds, pension funds, etc.) cannot or will not
consider because of bet size or institutional
constraints.
Or we buy when others selling
We believe fishing in this “overlooked” pond
presents an opportunity to earn outsized returns
for our investors.

31. THE LONG TAIL
The stock market is an emergent system with a long-tail distribution of valuation.
So, 80% of herds look for the same obvious places and move valuations sky-high
(Tesla, FAANG) By definition, if you make the same investments as everybody else,
you’ll have the same performance. That’s not a way to distinguish yourself. If you
want to have great, outstanding great performance, you must do something
different, idiosyncratic.
31
Notes:
§ Long tails distribution creates great opportunities for
value seekers
§ You can get 5x more value “fishing” in the right ponds
§ The ultimately most profitable investment actions are by
definition contrarian: you’re buying when everyone else
is selling (and the price is thus low) or you’re selling when
everyone else is buying (and price is high).
Popularity/Valuation
Stocks

32. LOWER PRICE = LOWER RISK
In the financial markets, however, the connection
between a marketable security and the underlying
business is not as clear-cut.
For investors in a marketable security the gain or loss
associated with the various outcomes is not totally
inherent in the underlying business; it also depends
on the price paid, which is established by the
marketplace.
The view that risk is dependent on both the nature
of investments and on their market price is very
different from that described by beta.
32
Risk is not inherent in an investment;
it is always relative to the price paid.
Uncertainty is not the same as risk.
Indeed, when great uncertainty –
such as in the fall of 2008 – drives
securities prices to especially low
levels, they often become less risky
investments.
Seth Klarman
“

33. THE MOVING PARTS
33
In stock market you compete in three “dimensions” to maximize return
𝐭 𝐅𝐕
𝐏𝐕
− 𝟏 = 𝒓 thus, you are trying to minimize t- time,
maximize FV -future value, minimize PV- present value or price paid now. Where is the FV= 𝐌𝐟𝐄𝐟; 𝐏𝐕 = 𝐌𝐩𝐄𝐩 where M-
multiple; E- earnings.
𝐭 𝐌𝐟𝐄𝐟
𝐌𝐩𝐄𝐩
− 𝟏 = 𝐫, so the best scenario is expanding profit with an expanding multiple at minimum time. Ability to play these 5
variables properly is what determines you a profit.
So, there are 3 types of possible mispricing:
a) “Multiple mispricing”-
&$
&%
which usually occurs during the economic downturns, political events, some bad news
related to sector or company, and you bet on possible revaluation multiple to what supposed to be normal.
b) “Time mispricing”- t very rare form of mispricing when positive changes in cashflow comes faster than expected.
c) “Earnings mispricing”-
'$
'%
usually occurs in boring industries, countries with a negative overall outlook or perception
(“smell”), or companies where temporary unprofitable incremental changes or investing CAPEX going to mature near
time. Also, it can occur in commodities sector or industries where gross margin, or demand(cyclical) can change
dramatically.
Because it is the relatively easy to see “multiple mispricing” and rarity of the “time mispricing” and difficulty to forecast it,
there is single way to outperform market substantially is focusing to slow but durable “ earnings mispricing” occurred
because of superior qualitative characteristics of the company economics and management sustained over – long
period of time, which speculators and short minded investors usually underestimate. Sum of cashflows accumulated from
the stable durable asset even with a small or moderate growth reinvested properly could create huge “snowball” in the
future S= 𝑏!
(!)*&)
(!)*&)
.

34. HYPERBOLIC DISCOUNTING
By taking advantage of hyperbolic discounting, we can purchase more
intrinsic value than the price paid
Discount
factor
Time from present
34
Notes:
§ Hyperbolic discounting is a human inclination to choose
immediate rewards over rewards that come later in the
future, even when these immediate rewards are smaller
§ Short-term behavior and impatience of the average
investor creates opportunity to purchase significantly
more intrinsic value than price paid, if you buy it 2-4
years earlier of the value realization date
§ As it mentioned in previous slide people poorly estimate
how profit can compound in long t period especially if it
has nonlinear economics

35. Inheritably dominated short-term speculative
approach in the markets allows us to avoid costly
price competition for the long-term bets.
There’s a human tendency to weigh the most recent
piece of information as opposed to trying to put
that into a longer time horizon. I’ve often thought
that one of the simple advantages we enjoy is that
we’re trying to arbitrage a longer time horizon. We
try to be more reflective as opposed to reflexive.
Everything is reflexive today in the world
Capital isn't scarce. Vision is.
Strategy is a commodity, execution is an art.
LONG TERM VIEW
35
If everything you do needs to work
on 3-year time horizon, then you’re
competing against a lot of people.
But if you’re willing to invest on a 7-
year time horizon, you’re now
competing against a fraction of
those people, because very few
companies are willing to do that.
Jeff Bezos, CEO of Amazon
“

36. 36
Market Cap: $236M & EV: -$998M
Shareholders equity: $2.21B
Cash&Equivalents: $1.25B
POTENTIAL UNDERVALUED ASSETS DEAL
EXAMPLE #1
1
2
3
2
3
1
Typical “Asset Play”:
The “Target” Company worth less than
cash and liquid assets on the balance
sheet.

37. 37
POTENTIAL UNDERVALUED ASSETS DEAL
Growing Lending Company
The “Target” Company makes a hefty 31.66% ROE on loan portfolio,
3-year EPS Growth CAGR%= 20.26%
and trades just 0.75 to Book value and 2.6 PE ratio and 1.15 Price/Cashflow!
1
1
2
2
3
3
EXAMPLE #2

38. 38
“Growing online
marketplace”
The “Target” Company with:
an annual sales ₤350M
EV= ₤55M.
Price/Sales= 0.3 and
negative debt and pristine
clean balance sheet
POTENTIAL UNDERVALUED ASSETS DEAL
EXAMPLE #3
3
2
1
1
2
3

39. THANK YOU!