Conservative Expectation on Rate of Return

We shall have a more conservative expectation on our rate of return, limiting it and not being excessively optimistic in our prospect than what our underlying held companies, in their operational and financial capacities as real businesses, can realistically achieve.

This is Part 3 of a Series. Go to Part 2: Business Perspective Attitude and Owner Mentality

Note: The following is a portion of a letter addressing my partners which states, clarifies, and addresses the operating principle behind that private investment partnership (i.e. hedge fund) I began. I would recommend that you start your reading at the beginning.

Consequently, we shall have a more conservative expectation on our rate of return, limiting it and not being excessively optimistic in our prospect than what our underlying held companies, in their operational and financial capacities as real businesses, can realistically achieve.

When we acquire shares in an enterprise, two major factors we look at are the qualitative economic prospects of its products/services and the business’ quantitative fundamental performance (e.g. return on equity), and not so much on its historical price yield. That being the case, we only anticipate down-to-earth, decent and economically-grounded returns. Such disposition is healthier, in my opinion, and shall save us from frequent frustrations or disappointments. Personally, I’d be content with consistent, satisfactory returns, rather than rare one-time, big-time performances (which is riskier and more prone to getting bust, anyway). Continue to Part 4: Accounting as the Language of Business