Watermark believes successful investing requires the following skills:

  • An ability to evaluate the true worth of a business and the capability of management charged with running it;

  • An understanding of how and why a company’s shares come to be mis-priced; and

  • An appreciation of the risks that can undermine the investment case.

Employing these skills, we believe the best investment opportunities arise when shares in strong, well managed companies can be purchased on attractive terms. These companies typically exhibit the following characteristics:

  • A history of superior returns through the economic cycle;

  • Management with a track record of creating and distributing value to shareholders; and

  • Businesses with a capacity to grow.

Consistent with these basic principles, in selecting the best securities to short sell, we look to sell the shares of companies with weak fundamentals for more than they are worth.

Watermark follows a disciplined investment process which facilitates the identification of leading Australian  public companies that are undervalued or overvalued by the share market.

While the market is generally efficient at valuing companies, it is by no means perfect. From time to time mis-pricing of shares occurs, providing opportunities to acquire good companies below their fair value, or to sell short the shares of weaker companies above their value.

By conducting deep fundamental research on companies and industries, our investment process looks to identify mis-priced securities by taking advantage of some important shortcomings of the share market:

  • Investors are often myopic looking for short term rewards. The value of a business on the other hand should be considered in the context of its longer term potential;

  • Investors are unduly influenced by sentiment, overreacting to good or bad news. This often causes the price of shares to deviate from fair value;

  • While the price of shares generally reflects the conventional thinking of investors, experience suggests conventional wisdom is often wrong; and

  • The likelihood of mispricing is greatest during periods of significant change as investors are often slow to interpret the full consequences of transformational events.