Philosophy 

Benjamin Graham

Warren BuffetT

Charlie Munger

Silver Silks Trusts investment process is based on the value investing philosophy. Which has been pioneered by Benjamin Graham and evolved by Warren Buffett with the help of Charlie Munger. Value investing is based on the principle of acquiring a business’ equity for less than the estimated intrinsic value of the business. This is due to the fact that common stock represents fractional ownership in the business, therefore we believe a business’s intrinsic value determines of the value of the stock. This is achieved through valuing a business’s earnings power, which is derived from understanding and analysing the business model, economics and financial aspect of the business through public security filings such as annual reports and financials statements, and publicly available information, allowing for an analysis of the business model and financial strength. By understanding the value of a business, we can understand how much the equity of the business is with and try to invest into the equity with a good margin of safety when the price is right. In other words, we try to value the productivity of a business with a long-term time horizon and determine how much to pay for that future productivity.

In the long-run investments financial markets appropriately value companies according to their intrinsic value, in the short-run however there are a lot of mispricing of businesses due to short-term decisions and reactions. This sentiment can also be stated as saying that most of the times markets are somewhat efficient, and sometimes they become quite inefficient. Therefore, in the long-run the share price of a business will reflect the businesses value, which is determined by its earnings power.

The margin of safety is an important concept that helps us mitigate investment risk, the risk of paying too high of a price. It is the current market price discount to intrinsic value. The bigger the discount the better, because that hedges and protects us from being wrong in our analysis by reducing our margin for error. As paying too high a price is often the biggest risk when it comes to investing. Because more has to go right when the price paid for an investment is too high. As Warren Buffett states, “when you pay too high a price you have to wait for the businesses value to catch up”. Therefore, we remain neutral to facts and developments, allowing us to rationally analyse businesses based on their fundamentals. We take a conservative approach with our assumptions because this allows us to benefit more so from positive developments and factors that we did not account for in our valuation, therefore we end up doing better than intended.