8 Positions, 29.61% Returns: How We Beat the Market by 12% This Year
The Paradox of Quality: Why Simple Investing Beats Complexity
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Before we get to our philosophy, lets look at the numbers:
Annualised TWRR return of 29.61% since inception.
8 positions
12% outperformance this year
Most investors lose money not because investing is complicated, but because the simple approach is unbearably difficult to maintain.
I've watched brilliant people with advanced degrees and sophisticated models consistently underperform while constantly chasing the next hot sector or revolutionary technology.
At Schwar Capital, we've distilled investing down to what actually works for us.
The Paradox of Quality
"Price is what you pay, value is what you get." — Warren Buffett
The best-performing investments over time aren't the cheapest stocks or the fastest-growing companies.
They're the highest-quality businesses purchased at reasonable prices.
This sounds obvious, yet most investors consistently make the same mistake – they sacrifice quality for a bargain price or explosive short-term growth. Both approaches inevitably lead to disappointment.
The investment industry thrives on complexity – exotic products, elaborate theories, and endless commentary masquerading as insight.
Most of it is noise.
Our Three-Pillar Approach
Our entire investment framework rests on three fundamental pillars:
Quality First: We invest exclusively in businesses with sustainable competitive advantages, high returns on invested capital, and predictable cash flows.
Patience as Strategy: We're comfortable waiting months or years for the right opportunity, and even longer for positions to develop.
Concentrated Conviction: We hold just 8-12 positions at any time, investing substantial capital in our highest-conviction ideas.
This sounds deceptively simple – and that's precisely the point.
The difference is we actually stick to these principles when others abandon them for what's exciting, novel, or temporarily outperforming.
The Math of Asymmetry
Our search for asymmetric opportunities defines everything we do. We're looking for situations where:
If we're right, we make a lot
If we're wrong, we don't lose much
This favourable risk-reward dynamic appears rarely, which explains our concentrated portfolio.
The math of asymmetry is deceptively powerful.
By capping potential losses while leaving upside unconstrained, even a small number of successful investments can drive exceptional long-term returns.
When you own too many stocks, something subtle happens. Your best ideas get diluted. Your attention gets scattered. Your edge disappears.
These are our top three most asymmetric holdings right now:
The Triple Engines of Returns
The greatest returns we've achieved have come from a combination of three factors working together:
Earnings Growth: The fundamental driver of long-term value as a business increases its profits over time.
Valuation Expansion: The market's willingness to pay more for each dollar of earnings as perception improves.
Margin Expansion: A business becoming more efficient, extracting more profit from each dollar of revenue.
When these "triple engines" align, remarkable things happen.
A company growing earnings at 15% annually while expanding margins and seeing its P/E ratio increase from 10x to 20x can deliver extraordinary returns that far exceed what any single factor could produce alone.
Importantly, we don't need all three engines firing simultaneously to achieve excellent results.
Even one or two can produce outstanding returns.
But we're constantly searching for those rare opportunities where the potential exists for all three - creating the possibility for truly exceptional performance.
Paid subscribers will be the first to hear about them when we do.
Our Contrarian Edge
Being different is only valuable when you're also right. We develop well-reasoned convictions that may differ from consensus, but we never disagree merely to be different.
That's just being stubborn.
True contrarianism comes from seeing what others miss, not from rejecting what everyone sees.
In fact, we often welcome volatility that makes others uncomfortable. Market turbulence creates precisely the dislocations that patient investors can exploit.
When others are paralyzed by uncertainty or retreating in fear, we find our most compelling opportunities.
This isn't about seeking risk for its own sake – it's about recognizing that temporary price swings often have little to do with long-term business value.
The market's emotional overreactions in both directions create the very inefficiencies that make active investing worthwhile.
The Art of Selling
Selling is probably the hardest investment skill to master. Anyone in this business long enough will inevitably look back at previous sales with regret.
These opportunity costs won't appear on any statement but compound enormously over time.
While buying great businesses receives the most attention, our selling discipline is equally crucial to long-term returns.
At Schwar Capital, we approach selling through the same lens as buying, but in reverse.
The conditions that made an investment attractive initially – quality, valuation, and potential – provide the framework for when to exit.
We sell when:
The original investment thesis breaks down
Valuation becomes detached from business reality
Capital can be redeployed to significantly better opportunities
What makes selling particularly challenging is the asymmetric nature of information.
When buying, we have months or years to study a business before committing capital.
When selling, market developments often demand quicker decisions with imperfect information.
The most damaging selling mistake isn't missing the exact peak – it's allowing deteriorating businesses to erode capital that could be working harder elsewhere.
The Bottom Line
Nothing I've said here is revolutionary, which is precisely the point.
Investment success doesn't come from discovering some secret formula; it comes from consistently applying time-tested principles when others are chasing shortcuts.
As Howard Marks would say, the most important thing is recognizing there isn't just one important thing.
Want to see how we put these principles into practice?
What Paid Subscribers Get
Subscribers get complete access to my full portfolio holdings, all personal investment theses, the active watchlist, and (coming soon) the risk/reward matrix that drives my position sizing.
Annual plans are also 34% cheaper for those who appreciate good value.
If that sounds like something you're interested in, you can view everything with this link or at the end of the post:
No worries if not.
Thanks for reading,
Dom
Schwar Capital