Our Approach — Pernas Capital

First Principles

Markets rarely price assets accurately. Even though market prices are generally wrong, they should always be respected.
“Risk” to owning a stock is not volatility; it is the likelihood of impairment to the earnings-generation ability of the underlying business.
The “price” and “value” of an asset are fundamentally different and can diverge. Barring certain frictions, price converges toward intrinsic value.
The value of a business equals the sum of its future cash flows, discounted at a rate linked to risk and opportunity cost.
Finding mispriced assets and profiting from them is repeatable with the proper research and decision-making process.

Intrinsic value derived from earnings power is preferable to value composed predominantly of cash or other assets.
A quality business is one whose earnings-generation potential grows stronger over time — what we call “long theta.”
The less mature a business is, the more important the management team.
The forces that affect demand for a product or service can be characterized as faddish, trend-driven, or cyclical.
Good corporate governance guards against malfeasance, but no amount of checks and balances can mandate ethical behavior.
Company-level change variables — earnings growth, sales growth, margins, ROIC — have little correlation from one period to the next.
Porter’s five forces are not of equal importance; the potential for new entrants is the most important.

Disciplined portfolio management is more important than being a good stock picker.
Investing is a blend of art and science; it cannot be fully replaced by computers, and the human element is critical.
A 70/30 blend of intellectual humility and intellectual confidence leads to better investing.
Absolute valuation models are superior to relative valuation models.
Overconfident, single-scenario thinking is the most harmful trait an investor can possess.
Self-awareness of the behavioral biases inherent to every investor is necessary to avoid pitfalls.
Investing demands an objective view of the real world, devoid of “hope investing.”
Risk can be defined and strategized around. Uncertainty is unanalyzable, and should be treated differently or avoided.
A process that limits outcome bias and keeps an open feedback loop is critical.
Mispricings are greatest in asset classes with less coverage that are inaccessible to sophisticated investors.

Where private property is protected and effort and creativity are rewarded, an index reflecting the underlying economy trends higher over time.
Markets function best under proper, enforceable laws with little intervention — letting capital flow to the most productive ideas.
Fear and greed move in cycles: excessive fear gives way to greed, and excessive greed gives way to fear.
Markets are non-linear dynamic systems in which fear and greed drive prices away from equilibrium.
Feedback loops are behavioral and technical; knowing when they dominate is essential to spotting fragility and opportunity.
For the intermediate-to-long term, the developed world is in a regime of interventionist policy and high fiscal spending that distorts markets.