AXIAM’s Investment Principles - AXIAM Capital Management

Any good investment plan is based on core investment principles that will guide the investor through the highs and lows of the market. At AXIAM, our investment philosophy is inspired by the wisdom of great investors like Warren Buffett, Charlie Munger and Howard Marks.

We have distilled our philosophy down to 11 investment principles.

Principle 1: Investing is essential to grow long-term wealth

Cash in the bank will erode in purchasing power over time. Investing for income and capital gain provides the opportunity to compound wealth and preserve purchasing power.

“I think sound investing can make you very wealthy if you are not in too big of a hurry. And it never makes you poor, which is better.”

Warren Buffett

Principle 2: Defining Investment Success is Vital

At AXIAM, we focus on converting our clients’ current capital into an annual dividend providing a growing income stream. Capital growth will also occur, but is a secondary consideration.

“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioural discipline that is likely to get you where you want to go. In the end, what matters isn’t crossing the finish line before anybody else but just making sure that you do cross it.”

Benjamin Graham

Principle 3: Investment Income is more important than share price growth

At AXIAM, we focus on dividends because they are the most determinable part of a share’s investment return. Shareholders are paid dividends on a regular basis and when reinvested, unleash the power of compounding.

“It is hard to believe that over the last 100 years the S&P 500 rose 273-fold, but adjusted for dividends it rose 18,520-fold.”

Morgan Housel

Principle 4: Understand your circle of competence

Our circle of competence is global companies that own the world’s best brands. We have spent many years analysing global brands and their ability to generate growing cash flows that deliver superior, long-term dividend growth.

“You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not important; knowing its boundaries, however, is vital.

Warren Buffett

Principle 5: Investing vs Speculation

We define investing as the purchase of productive assets (shares in a company) with the ability to pay income (in the form of dividends) to the owner of that investment. While investing also grows the owners’ capital (in the form of share price growth), this is a secondary function of investing. Productive assets are bought with the intention of never selling.

Speculating involves purchasing an asset with the desire to sell at a higher price in the future. The process is repeated with the hope of generating enough capital to buy an income- producing asset.

“In recent years, some people have attempted to expand the definition of investment to include any asset that has recently – or might soon – appreciate in price: art, rare stamps or a wine collection. Because these items have no ascertainable fundamental value, generate no present or future cash flow, and depend on their value entirely on buyer whim, they clearly constitute speculations rather than investments.”

Seth A. Klarman

Principle 6: Patient Buying and Long-Term Orientation

We patiently wait to buy when prices of our favourite companies decline due to temporary negative sentiment towards the company, or due to overall market decline. We continuously analyse the cash flow of the business behind the shares we own and are always ready to buy when prices decline.

“The big money is not in the buying and selling…but in the waiting” Charlie Munger

Charlie Munger

Principle 7: Don’t Lose Money

When an investment disappears that has existed for an extended period, the psychological damage is devastating as investors call all investment decisions based on the same belief into question.

To avoid permanent loss of capital, we continuously analyse our investments to ensure the brands and cash flow remain strong while debt remains manageable. As long as these factors remain intact, any share price declines represent an opportunity to buy more shares at a low price.

“Avoiding loss is the most important prerequisite to investment success”

Seth A Klarman

Principle 8: Investor Psychology and Emotion Drives Markets

Emotional control is fundamental to investing success. Without it, investors make irrational decisions like buying when prices rise beyond the future value of a company’s cash flows (like in strong bull markets and at the extreme, in bubbles) and sell when markets decline. Emotions of fear and greed cause irrational investors to “buy high and sell low”, the opposite of what they should be doing.

“The psychological factors that weigh on other investor’s minds an influence their actions will weigh on yours as well. These forces tend to cause people to do the opposite of what a superior investor must do. For self-protection, then, you must invest the time and energy to understand market psychology.”

Howard Marks

Principle 10: Buy when prices are low

Great buying opportunities occur when prices of great businesses decline below the present value of their future cash flows. These opportunities can rise when individual companies decrease in price or when entire markets crash.

“The beauty of stocks is that they do sell at silly prices from time to time. That’s how Charlie and I have gotten rich”.

Warren Buffett

Principle 11: Unlocking Compounding is the Way to Grow Wealth

Our primary responsibility to our clients is to unlock the power of compounding by reinvesting income from dividend-paying investments, while simultaneously avoiding significant and permanent loss of capital.

“The effects of compounding even moderate returns over many years are compelling, if not downright mind boggling.”

Seth A. Klarman

Our goal is to turn our clients’ current capital into an annual dividend over time by using these principles. We have spent many years growing wealth inspired by the wisdom of great investors. We buy shares in companies that pay regular, increasing dividends, that own great brands that are known, loved and used around the world daily. Our intention is to hold, and ideally never sell, the assets we buy. Sign up for our newsletter, follow us on LinkedIn or contact our fund management team to invest.