At Kennon Green Enterprises, we approach value investing using an opportunity cost approach. That means we don’t get hung up on the idea of owning stocks or bonds, real estate or gold. Instead, we look around at all available opportunities that fall within our “circle of competence” – the things we understand, are passionate about, and can analyze better than most other investors – and find that which we believe offers us the highest risk-adjusted return on our money. If the return exceeds our internal hurdle rate, we pull the trigger and add the asset to our collection of holdings.

Investing is the process of buying the most future earnings at the lowest price possible, adjusted for risk and factoring in time. – Joshua A. KennonWe don’t care what an investment does in the short-term. In fact, we plan on holding almost all of our positions for at least five years. As a private firm, we don’t have to worry about outside pressure if we bought a cheap stock that happens to get cheaper because other, less experienced investors are caught in the grips of terrified panic. In fact, it is no exaggeration to say that if we woke up tomorrow and the Dow Jones Industrial Average had dropped 50%, it would cause us no great hardship.

Part of this is the result of our business model. Our investments are supported by a stable of high-quality, cash generating private companies that do everything from sell varsity letterman jackets to fine jewelry. These businesses boast strong balance sheets, little or no debt, and high returns on equity, enabling us to use the cash flows to expand into other opportunities. We believe that if we act with discipline, focus on controlling costs, and reinvest all of our earnings, the power of compounding will do the heavy lifting.