Laying out an investment philosophy in a few lines is a challenging endeavor, yet one I believe worth attempting. For this reason I’m going to share some key principles that guide my thinking.

I aim to buy pieces of businesses at prices substantially below what I judge them to be worth. Not businesses that are popular, or growing fastest, or easiest to explain at a dinner party. Just ones where the gap between price and value is wide enough for me to feel comfortable.

One test I apply before buying is whether I’d be comfortable holding if the market closed for five, ten, or fifteen years and I couldn’t sell. That rules out most speculation. It also changes what I look at: instead of asking where the share price goes next quarter, I’m asking what the business earns for its owner over a long period of time, what its assets would cost to replace, and whether anything durable protects those earnings.

I define risk as permanent loss of capital, not volatility. These are not the same thing, though many industry professionals do not see it that way. A stock that falls 30% has not become riskier; it has become cheaper, unless the business itself has changed. I expect the things I own to decline 20% or 30% from time to time. That is a feature of owning equities, not a sign something has gone wrong.

Concentration by design. I hold between six and twelve positions. Past a certain point, diversification is a substitute for knowledge,  a way of hedging against not having done the work. I’d rather do the work.

Cash is a default position. If I can’t find businesses that meet the criteria, and I don’t find the compelling opportunities, I hold cash and wait. Capital being available is not a reason to deploy it. I also avoid leverage, shorting and derivatives, other than in very rare cases where prudence allows it.

I don’t forecast markets. I have no view on where the index goes this year and no method that would produce one. Everything here rests on business analysis, not macro calls.

I judge myself and others over long stretches of time, with a minimum of five years. Anything shorter is noise. Value-oriented approaches routinely lag during manias, and a bad three-year stretch that coincides with a speculative boom tells you very little.