INVESTMENT PHILOSOPHY

“One-view investing”
Although Unio is in two businesses which operate in functionally different ways – a business that acquires and operates, and a business that invests – it uses one investment philosophy for both. “One-view investing” is the term we use to describe this single philosophy. What it means is that we use the same basic set of investment criteria to evaluate both an acquisition and a publicly-traded security.

“Knowledge exchange”
We also believe that the operating company side of the business has much to teach the investment management side and vice versa. We call this mutual cross-education “knowledge exchange”.

Operating company managers can provide investment managers with an education on the realities of business economics and management. Investment managers in publicly-traded securities can provide business managers with intelligence on macro, cross-industry, and company-specific realities.

“Direct understanding”
As an investor, Unio’s primary rule is “own what you directly understand”. “Directly” refers to understanding by our own lights, independently of third party opinion and received wisdom. “Understand” means feeling comfortable that we know clearly, simply, and comprehensively what we need to know about a prospective investment decision including what would cause us to undo it.

“Dynamic long-run vision”
Our vision is long-run, not short-run. We are investors, not traders. We will wait for results and tolerate variability to get them. But “long-run” does not mean static. We view the long-run dynamically. It is reviewed and adjusted daily, weekly, monthly.

We will change as our long-run view changes. These changes are typically incremental. But they may be large if conditions warrant. It is through this “dynamic long-run vision” that we aim for long-run returns greater than the market averages.

“Spectrum of asset classes”
We believe that investing soundly is partly about capital having a “spectrum of asset classes” through which to find opportunity and lower risk. For publicly-traded securities, we divide this spectrum into six categories: equities, cash & fixed income, short-positions, unique investment opportunities, real estate, and real assets.

“High liquidity”
We place great importance on having a high level of liquidity for the totality of our holdings across this spectrum of asset classes. Liquidity is a major advantage of publicly-traded investments and we want to keep that advantage.

“Equity-weighted”
Because our interest is long-run appreciation, Unio’s publicly-traded holdings will be weighted toward equity or equity-like securities rather than securities like bonds with fixed return characteristics. There is no free lunch in investing. If one seeks higher returns, one must be in equity or equity-like securities.

“Equity risk-attenuation”
Our general orientation toward equities, however, does not in any way preclude using cash, fixed income or any other available instruments, including short-positions, to attenuate equity-weighted risk or to reduce it substantially.

“Building-block investment ideas”
At the basis of our approach to investing are three building-block ideas: “cash-flow-centric investing”; “macro-to-micro vision”; and “value-to-price discovery”.

• “Cash-flow-centric investing” means that Unio focuses principally on cash flows – on the long-run cash flow production power of an asset and risks associated with that cash flow power.

• “Macro-to-micro vision” describes the continuous back-and-forth sweep between a macroview of global financial, economic and political realities, comprehensive asset allocation, and a uniform evaluation of the individual securities that produce cash flows.

• “Value-to-price discovery” refers to the gap between a security’s economic value and its price and Unio’s effort to quantify that gap and exploit its investment potential.

The complete value of these ideas lies in applying them together in a highly integrated way.

“Risk-awareness”
Risk is the most important word in the investor’s vocabulary. Consideration of risk stands behind every investment activity – every decision to act, every decision to reject, every decision to put on hold. At Unio, “risk-awareness” is at the core of what we do and rests on seven experienced-based observations about risk.

•  “Risk” is comprised of multiple elements. It is not just one thing.

•  Investors must choose which risk elements to emphasize. Managing all elements maximally is impossible.

•  Decisions about risk are inseparable from decisions about time horizon.

•  The paradox of risk is that its danger is highest when least visible and lowest when most visible.

•  “Diversification” and “non-correlation” are valid, but over-relied on, risk management tools.

•  Understanding risk is about historical continuity and discontinuity, not just the former.

•  Managing risk requires the element of judgment at all times, but especially in non-routine times.

“Maximizing ‘one-view investing’“
Why investment management at all? Why not just one business of acquiring and operating companies?

To us, the answer flows from our basic investment mindset. Since we have one way and one set of resources to look at all companies (and other securities) through the lens of “one-view investing”, it makes investment and business sense to find opportunities where they lie.

If they lie in buying majority stakes in companies, capital should flow there. If they lie in publicly-traded securities, capital should flow to this part of the investment spectrum.

Having two investment domains in which to make choices not only increases the range of available opportunities, but decreases the risk of “asset-class-favoritism” whereby investors tend to put capital where they can, rather than where it would make most sense if they could.

And, as we mentioned earlier, in addition to maximizing the effectiveness of “one-view investing”, having these two businesses provides the dividend of mutual “knowledge exchange” which makes each of these businesses better than it would otherwise be.