Max Capital Corporation, a Registered Investment Advisor, is the managing partner of Braewick Holdings LP. Braewick is a private investment fund that buys stakes in businesses using a value-oriented approach. We don't believe that stock markets are efficient, and we aim to profit from their inefficiencies.
Braewick is more of a business holding company where we think of ourselves as owners. Our goal is to purchase pieces of these businesses for a fraction of their conservatively-calculated values. Research is performed on a bottom-up, fundamental basis where we pay strict attention to risk versus return. The "margin of safety" between the price and value of our holdings — along with sufficient diversification — should help to protect our assets from losses over the long run.
Our ultimate performance goal is to grow capital at an above average rate while avoiding permanent losses.
Rule number one of the fund, over the long term, is not to lose money. Only once that safety hurdle is cleared do we focus on beating inflation and other investment indexes. These aren't risk-free returns, but they are good risk-adjusted returns.
We believe that our advantage over other investors is both psychological and analytical. Psychologically, it takes a huge amount of discipline, patience and contrarianism to be successful. These are things that cannot be learned. Analytically, it takes creative methods for solving problems and finding situations with both low risk and high return.
How we think about risk
To us, risk is defined as the chance of permanent capital loss — not the volatility of market prices. Although risk cannot be pegged to a single number, it is clear to us that the future is uncertain. Therefore, anything that protects our downside from this uncertainty (while still being able to participate in favorable outcomes), lowers our risk and increases our risk-adjusted returns.
We have three basic views on risk that are not prevalent in either financial theory or practice. First of all, risk is defined as the chance of permanent capital loss. It has nothing to do with the volatility of market prices. Secondly, no business or asset is inherently risky. An asset is only risky or not risky at a certain price. Something that is viewed to be risky and uncertain can be safe at a low enough price. Something that is viewed to be safe and steady can also be risky at too high of price. Lastly, because the future is always uncertain, the only way to limit risk is to protect your downside at all times.
"An investment operation is one which, upon thorough analysis, promises safety of principle and a satisfactory return. Operations not meeting these requirements are speculative." — Benjamin Graham
Instead of viewing investments as a short-term bet on the direction of the stock price, we treat them as subsidiaries of our holding company. With a portfolio of these undervalued holdings, sufficient diversification, and opportunistic hedging, we believe that (should we do our job right) the risk of long-term capital loss should be minimal.
Unlike many investment funds, our interests are completely aligned with partners. Compensation is based solely on performance, not on assets under management.
- Preservation of capital (don't lose money!)
- Long-term outperformance of a majority of investment alternatives
- The purchase of stakes in businesses, not stocks
- Alignment of interests between managing and limited partners