Axial: https://linktr.ee/axialxyz
Axial partners with great founders and inventors. We invest in early-stage life sciences companies such as Appia Bio, Seranova Bio, Delix Therapeutics, Simcha Therapeutics, among others often when they are no more than an idea. We are fanatical about helping the rare inventor who is compelled to build their own enduring business. If you or someone you know has a great idea or company in life sciences, Axial would be excited to get to know you and possibly invest in your vision and company. We are excited to be in business with you — email us at info@axialvc.com
Successful investing requires focusing on buying undervalued securities - those trading at a discount to their underlying business value. This provides a "margin of safety" that buffers against errors in analysis, unforeseen events, or short-term stock price volatility. Seth Klarman advocates a risk-averse, long-term, fundamental value investing approach centered on avoiding losses first and seeking gains second.
Margin of Safety
A margin of safety is necessary because valuation is an imprecise art, the future is unpredictable, and investors make mistakes. Value investors aim to buy at a significant discount to conservatively estimated intrinsic value, ensuring a cushion against possible adversity. The margin of safety comes from only committing capital when bargain prices prevail.
Downside Before Upside
Avoiding loss should be the primary goal of every investor. Protecting capital should take priority over seeking speculative gains. The surest path to investment success is avoiding mistakes made by others. Compounding even moderate returns over time leads to outsized wealth, but losses can negate years of gains.
Contrarian, Independent Thinking
Out-of-favor securities tend to be underpriced while popular securities almost never are bargains. Acting against the investing "herd" often leads to the best opportunities. Most investors overemphasize short-term expectations rather than long-run business value. Rigorously estimating intrinsic value and insisting on a margin of safety distinguishes value investors.
Analytical Rigor, Not Market Timing
No one can predict market swings. Values ultimately depend on underlying business fundamentals - cash flows, competition, balance sheet, management quality. Conduct rigorous analysis of these to estimate intrinsic value. Insist on buying at a significant discount to create a margin of safety. Tune out short-term market noise.
Risk Defines Reward
Higher volatility does not necessarily mean higher returns. The price paid determines the actual investment risk and potential reward. Avoid overpriced securities even if they could generate speculative gains. Insist on adequate compensation for the risks assumed. Diversify across investments. Hedge when appropriate. Maintain liquidity to capitalize on new opportunities.
Absolute Returns
Value investors focus on absolute returns aligned with their goals rather than benchmark relative performance. They will hold cash when bargains are scarce rather than overpay. Cash provides liquidity to deploy when better bargains emerge. Define risk as potential for permanent loss of capital from an underlying business declining, not temporary mark-to-market stock price volatility.
Specialized Investment Approaches
Value investing encompasses securities selling below liquidation value, companies undergoing reorganization or restructuring, and asset conversions like spin-offs. Conduct specialized analysis tailored to the situation. Almost all investments have a catalyst that helps surface underlying value. Catalysts reduce risk by closing the price-value gap quickly.
Being Contrarian Is Difficult
Acting against consensus often means short-term underperformance. Controlling emotions during these inevitable periods requires discipline. Gather enough information to make a variant judgment, but don't overanalyze. Taking a small position sizes leaves room to average down if the price continues lower. Let underlying value determine appropriate position size.
Managing Risk
Diversify across 10-15 unrelated investments, not hundreds of holdings. Overdiversifying simply diworsifies knowledge about what you own while not reducing portfolio risk much more. Match position sizes to risk-reward profile. Set thresholds that trigger adding or selling based on price moves rather than emotion. Maintain some portfolio liquidity - cash provides flexibility to buy new bargains. Hedge when prudent.
Investing Is an Endless Process
Managing liquidity and reacting to security price changes with discipline is essential for long-term compounding. Portfolios should include some cash for flexibility and some illiquid investments offering higher expected returns for bearing illiquidity. Skilled investors sell infrequently, replacing a holding only when substantially better bargains emerge.
Value investing requires uncommon discipline, analytical rigor and patience to buy bargains with a margin of safety and hold for the long term. Avoid losses, not seek big speculative gains. Remain absolute return focused, ignoring benchmarks. Define risk as permanent loss, not volatility. Diversify properly. Hedge prudently. Maintain adequate liquidity. Follow this approach to earn excess risk-adjusted returns over time.
