Having talked about taking on a diversified versus concentrated portfolio, this interview with Joel Greenblatt shared some great insights that we believe is useful regarding capital allocation – Cheapness vs Quality.

My largest positions are not the ones I think I’m going to make the most money from. My largest positions are the ones I don’t think I’m going to lose money in.

— Joel Greenblatt

The quote essentially drives home the key idea about value investing. It is never about the upside potential but rather limiting the downside risk. There is nothing wrong buying companies that are more complex or may seem like a seven foot hurdle, but the key would be keeping these positions small. The “bread and butter” portion of our investments should be allocated to companies that we see limited downside and if we every so happen to see that one company where all the stars are aligned, we ...