We are reimagining the investment processes of capital allocation and professional services to portfolio companies to be value-creating and long-term focused.
We focus on investment opportunities that meet our key criteria:
Our management team and CIO have extensive experience in commercial and investment banking, private equity investing and managing assets in our areas of focus.
When it comes to investment results, many investors focus on short term / near term results. They might compare quarterly or annual results to an index or to the results of other funds. Financially sophisticated investors may talk about the search for alpha (a fancy way of referring to above-average returns) or the pursuit of superior risk-adjusted returns. I was taught by my mentor Ted Weschler to pay as little attention as possible to these metrics because they can distract an investor from the true task at hand.
The only metric I find useful is thinking of long-term increases in net worth, or getting the miracle of compound interest to work in our favor. The table below illustrates the point that seemingly modest differences in the annual rate of return can generate profound differences in the ultimate gain over long periods of time. In the investment world additional factors that impact this are investment costs (managers, trading, etc) as well as taxes. This is where the C-corporation aids in compounding over time. Our goal with all investments at VFGH Inc. is to compound wealth at a high rate, while minimizing the risk of permanent losses of capital
The partners associated in this Principle covers a broad range of types – including partners in our projects and investments, vendors to our firm and our investments, as well as investors who we look at as our partners as myself and my family have a significant amount of our net worth invested alongside our shareholders.
Whether it’s our deal terms with our co-investors in deals or projects, our agreements with our vendors or the bylaws of our corporation, we strive to to align interests and promote value creation over the long term.
One of the hardest things for me to learn and truly internalize has been to see the public and private markets as a pari-mutuel system, much like betting on horses or sports. At the races, it’s not that hard to identify the fastest horse that will most likely win the race on any given day. However, that horse is unlikely to be the best bet, since the probability of its winning will typically already be factored into the odds offered by the bookmakers. The same goes for betting sports against the Las Vegas lines. The real skill is to find the mispriced bet – the horse whose chances of winning are much greater than the odds suggest. This is much harder, and the opportunities to place such bets are much rarer than most people think. The good news is if we maintain our discipline to i) make these bets selectively; and ii) find markets where the odds are mispriced more often than not.
As mentioned before, I spent the beginning of my career in the epicenter of the world of finance – Wall Street in New York City. From there I went to Charlottesville which is very far both geographically and metaphorically. However, over my three years there I found the Charlottesville location was part of our firm’s competitive advantage which seems counter-intuitive, but let me explain.
Charlottesville and, now Coppell, TX (a suburb of Dallas), provides environment for someone like me to think and invest rationally. Coppell is a small town with limited distractions and brokers and dealers shopping deals or investments. Furthermore, the city of Coppell provides excellent realworld intel on businesses and consumers both. Being detached from Wall Street makes it easier to maintain my independence and go against the crowd to find those mispriced bets so critical to investment success.
The right environment isn’t just the office location compared to NY; it’s also the office itself. It helps me to work in an environment that is serene and even slightly boring. My immediate work surroundings encourage me to think, read, act calmly, instead of reacting impulsively to the short-term movements of the public markets. We don’t have a Bloomberg and we don’t watch the financial news networks in our office. It’s quiet and that’s the way I like it. Remember, I was an only child so spending time alone reading and thinking is my second nature and I am very comfortable in that space.
In addition to creating the right physical environment I’ve come to realize that it’s even more important to nurture the right relationships as a means of constructing a stable emotional environment. Nothing matters more than having a happy relationship with my wife, my kids, my parents, my closest friends and colleagues. They play a crucial role in supporting me during difficult times, and Penny in particular helps me logically think through problems as they inevitably arise in the business world. I constantly look to improve my own personal governance by ensuring I keep the right people in my environment. Nurturing these relationships is a vital component of building a successful business and successful life.
Adversity in investing, as in life, is a certainty. As I learned studying liberal arts at Columbia, the real question is how one handles adversity. Amid the turmoil of the financial crisis, my training, education and athletic career were constant companions, reminding me that until adversity comes along, our virtues are theoretical. It’s only when we actually have to act courageously and honorably that we get to prove that we have those virtues in reality, instead of merely aspiring to have them. We would all prefer not to deal with adversity. But if and when it comes, it’s an important opportunity. As much as possible, I enjoy embracing it. As I tell my kids – you have to prepared to eat obstacles for breakfast because they will be served often.
It helps to have powerful role models and examples. There’s too many from the sports world to cite here. In the world of inventing and business, Thomas Edison is a great example. He clearly made a virtue of his setbacks, famously stating: “I have not failed 700 times. I’ve succeeded in proving 700 ways how not to build a lightbulb.” Nobody likes to fail, any more than they like to be tested by adversity. But people who learn their lessons, who pick themselves up and keep going, have earned the right to consider themselves truly successful. This a lifelong pursuit of embracing adversity is something I enjoy participating in.
Many people in business and finance in particular approach life as a kind of gladiatorial fight to the death, convinced that there must always be a winner and a loser. The assumption that his model is the most viable strategy for success was reinforced in our school years: students were graded on a curve, and there was intense pressure to scramble to the top so we could win one of a limited number of places at an elite university and could then land the most desirable job.
There’s no question that the business world is fiercely competitive. But that doesn’t mean that we should approach business as a zero-sum game in which everyone else must be vanquished or trodden on for us to succeed. On the contrary, the greatest success tends to come from being part of a team that seek to help one another. Many of the world’s most successful and admirable businesses got that way by creating win-win situations for all of their stakeholders. This is how my family did and continues to do business. This is how Warren Buffett does business. This is how VFGH does business.
The constant movement of asset prices can provide a seductive call to action. The brain also experiences an emotional storm when we see that assets or markets are falling. I try to detach myself as much as possible from the market’s short-term gyrations, so that I can invest in a more rational, measured and patient way, buy assets that we can hold for years to let the power of compounding take hold.
As Buffett teaches, investors need to make the market or servant, not our master. That means using it to our advantage by buying bargains when pessimism reaches extreme levels by reducing our risk exposure when the crowd is overly exuberant. The key is not to be swept up in the crowd’s bipolar mood swings.
VFG's Five Core Values are the back-bone for investing pursuits. They are:
We are dedicated to value investing. When we invest, we insist that our assessment of the intrinsic value of the particular asset exceeds the price we pay by an amount that provides a reasonable margin of safety. At all times we maintain a focus on minimizing the probability of permanent capital impairment.
We seek to provide leading risk adjusted rates of return, compounded over a long-term time horizon. We recognize and accept that we will periodically underperform indexes and other managers, as poor relative performance for shorter periods is an inevitable part of achieving our longer-term goal.
Solid research is the foundation of our success. We depend on an accurate, timely, and deep understanding of our investments. We are committed to gaining this understanding based on fundamental research, hard work, and intellectual rigor. We will remain open to alternative views and new information. We aim to prevent biases from clouding our judgment.
We form opinions and build conviction based on our own proprietary efforts. We do not rely on validation from the broad investment community to justify our point of view and may, at times, hold investments that are contrary to general opinion, widely unloved, and possibly deeply disliked. We are willing to embrace a non-conforming point of view.
We are committed to excellence in all endeavors. We believe that hard work, preparation, effort and diligence promote long term success.
We are unconstrained; following our strategic process to deliver results regardless of the direction of the herd. Our track record and transparency build trust with our portfolio companies and investors.
For more information:
Varsity Financial Group Holdings, Inc.
870 S. Denton Tap Rd
Coppell, TX 75019