In keeping with our philosophy, we apply a bottom-up approach to security selection, focusing on the fundamentals of each company we hold rather than market movements, which we view as generally less predictable.

Our process begins with the universe of domestic equities, which is divided amongst the research team by sector. Within each sector, our analysts generate ideas from a number of sources, including company filings and investor materials, occasional quantitative screens, industry or trade publications and conferences, 13-F filings, and insider activity.

We evaluate investment opportunities as if we are going to buy the entire business and strive to buy businesses with the following characteristics:

• Favorable long-term business prospects,
• Balance sheet strength,
• Owner-oriented management teams, and
• Incentives aligned with long-term owners.

For each company that meets our investment criteria, we use a five-year model
(at minimum) based on expected cash flows and/or book value to estimate the
intrinsic value of the business.

For every share purchase, we seek a sufficient margin of safety relative to our
estimate of intrinsic value, which we feel not only provides the greatest potential
for strong investment returns but also is our greatest protection against loss of
client capital.

After a company is added to the portfolio, we review our investment theses and estimates of intrinsic value on a regular basis as we continue to gather new information.

We sell shares of a business when:

• The stock price exceeds our estimate of intrinsic value,
• We feel that we can redeploy capital into more attractive opportunities,
• Fundamental results do not support our thesis, or
• Our confidence in management has deteriorated.

In that spirit, both investment successes and missteps are evaluated on an ex-post basis and learnings are shared across the firm.