We manage one Fund and our sole objective is to ensure it outperforms the global equity market. We are focused on long-term investment outperformance and our objective gives us a sense of purpose and justifies our existence.
We believe focus is vital for success and this is why we will never manage the investments of more than one fund or any segregated client accounts because this would distract us from our sole objective. We will not dilute our time across competing priorities at the expense of investment performance. We also believe that a lot of choice doesn’t necessarily help you make better investment decisions.
All of our investable net worth is in the Fund alongside the interests of all shareholders. So if we underperform, it hurts us just as much as it hurts you.
The first question you should ask any investment manager is: “Are you going to be invested in the fund that I’m going to be invested in?”. Many managers don’t invest in the fund(s) they manage, or they only invest a small portion of their net worth.
At Global Rational Capital, we don’t simply try to avoid conflicts of interest, we eliminate them, and we start by being fully and solely invested in the Fund so that it is impossible to put our interests against yours. We are all in this together.
Our fees are more sensitive to investment outperformance than to assets under management. Which means that you only pay over-and-above a minimal fee of 0.5% per annum when we outperform the benchmark over all periods to date. And the outperformance fees we earn must be reinvested back into the Fund.
Our fee structure forces us to prioritise long-term investment outperformance over short-term profitability and it provides a powerful incentive against gathering assets under management at the expense of investment performance. It’s very different from the traditional “heads manager wins, tails clients lose” fee structure.
If we can’t beat the benchmark, there is no reason for our existence. The fee structure is designed so that if we don’t outperform, we will not profit, and we will not benefit by simply idling on a rising market tide.
Our efforts are focused entirely on the Fund’s performance because the long-term success of Global Rational Capital is dependent on our ability to outperform. We have the courage to design the compensation structure in this unconventional manner because we believe we have the ability to outperform and will continue to prove it.
We look for good businesses we can understand and buy at a price below intrinsic value. The approach is simple, but it requires a lot of time, effort and emotional intellect.
Intrinsic value is an estimate of the discounted value of the cash that can be taken out of a business during its remaining life. The lower the price of a share as compared to its assessed intrinsic value, the higher the margin of safety, and the more attractive we consider the share.
We view each stock investment as if we are the owners of the entire underlying business. This enables us to invest intelligently in a business-like manner and helps us avoid contagious irrational market emotions. We avoid the popular opinion and have the courage to foster contrarian insights.
We know that in the short-term, share prices are affected by market psychology; but over the long-term, share prices are determined by the economic progress of the underlying business and that is precisely what we pay attention to. We believe that market prices are there to serve us, not to instruct us.
Our investment research is focused on understanding businesses, estimating intrinsic value, and seeking undervalued companies with excellent potential. A key component of our research process is direct contact with company management through calls and face-to-face meetings.
We believe that successful investing is 90% hard work and our annual goal is to have over 100 company meetings and to read over 400 financial statements.
We view all shareholders as owner-partners who have entrusted their capital to us for the long-term. Having shareholders with a long-term orientation is the most important factor in enabling us to take a long-term time frame while the world puts disproportionate pressure on short-term results.
We put our clients’ interests first and treat them as we would want to be treated if our roles were reversed and we believe our promises to manage the investments of only one fund and to be fully invested in the Fund are important commitments that will benefit you and us over the long-term.
The Fund is suitable for those investors who:
• Seek exposure to listed equities globally to provide long-term capital growth
• Are comfortable with stock market fluctuations, i.e. short- to medium-term volatility
• Are prepared to accept the risk of capital loss
• Have a long-term orientation and an investment horizon of at least five years
• Understand that we generally assess investments using a five-year time horizon
The Fund is available to long-term investors globally and while we may not be the best fit for everyone, we can help you decide if we are the right partner for you.