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Investment Philosophy

Highly Motivated Manager

We eat our own cooking! 

"I cannot promise returns, but I can promise common destiny"
-Warren Buffett to his partners in BLP in 1964*

The principal reason Tonus Capital was established was to provide an investment vehicle where the managers could invest the vast majority of their own liquid net worth and make it grow overtime by making sound investments.

Investors who made the decision to invest with Tonus Capital are therefore assured of the manager's total commitment and dedication. While this does not guarantee that the value of the fund will increase, it does mean that we share a common destiny.

*This quote was taken from one of Warren Buffett's letters to his partners in Buffett Partnership Limited, in which nearly all of Warren Buffett's net worth was invested at the time.

Investing for the long term 

We analyze companies in terms of long-term return potential and invest in them only when their stock is trading at a discount to intrinsic value. This approach allows us to minimize transaction fees and contributes to reduce the tax impact of capital gains.

Fundamental research 

Investors who enjoy the greatest success over the long run are those who focus their energy on gaining a solid understanding of the companies that they invest in, instead of speculating on the market’s or the economy’s movements in the short term.

At Tonus Capital, all our efforts are focused on ferreting out companies whose stock is trading at below intrinsic value. Our time is spent reading through the financial reports of companies, analyzing their historical performance, their balance sheet, the quality of their management team and their capacity to generate strong cash flow over the long term with an acceptable return on capital.


We firmly believe that the best way to outperform the market over the long term is to concentrate our portfolio in 15 or so holdings that we have analyzed rigorously and whose business environment, valuation and potential we understand well.

Permanent value destruction and margin of safety 

As investors, the biggest risk that we run is that of value being permanently destroyed. This is something that can occur for a number of reasons. For example, a product that accounts for a large portion of a company’s sales can become obsolete if a competitor introduces a superior product.

The best way to protect against this sort of risk is to invest in sectors where barriers to entry are high and where companies have a solid earnings track record. Moreover, we consider a margin of safety essential, that is, stock should be purchased only when trading at below intrinsic value.

A margin of safety is critical because most of the analysis of a company hinges on estimates of future profitability. As our ability to predict the future is less than perfect and rests on assumptions that can vary over time, a margin of safety affords added protection in the event that initial hypotheses prove overly optimistic.


We are extremely disciplined investors. We invest in a company only when we believe it is trading at below intrinsic value. Our goal is to grow value over the long term but without taking needless risks in the process. It is important to be patient, as certain periods are more propitious than others to finding opportunities on the market.

In times when it is well nigh impossible to find enough companies trading at a discount to intrinsic value to invest all our capital, we place any excess liquidity in treasury bills or very-short-term bankers’ acceptances. We will invest this surplus liquidity wisely and patiently only when new opportunities arise.

In addition, we avoid investing in companies still at the development stage and with no track record, even though others might see extraordinary potential there. To our eyes, this would constitute a speculative investment based on a future promise difficult to quantify rather than on the company’s present tangible value.


Our firm is entrepreneurial and dynamic. We are constantly on the lookout for new ideas and investment opportunities that might arise. The very vast majority of our investments are in quality, well-managed companies.

From time to time, we will be opportunistic and invest in companies that are experiencing temporary difficulties or whose management team is not performing entirely to our satisfaction. However, we do so only if the companies hold exceptional assets, carry little debt, and are trading at far below intrinsic value.

What is particular about investments of the sort is that they are weakly correlated with the market. In other words, the stock’s performance is more contingent upon the resolution of a company’s internal problems than upon general market movements.

Not afraid of volatility 

Many firms assess risk by comparing the volatility of their funds against that of their benchmark indices. What they seek to do is diminish the volatility of a fund by investing in hundreds of stocks and allocating their capital across all the sectors that compose the index.

We are of a mind that investing in this manner more often than not generates mediocre returns over the long term, without even the trade-off of risk reduction. On the contrary, such a strategy increases risk as it is impossible for the manager to understand, analyze and keep track of hundreds of stocks at the same time.

At Tonus Capital, as our portfolio is concentrated in some 20 holdings at most, it may experience some volatility over the short term relative to a benchmark index such as the S&P/TSX. However, the real risk that an investor faces is not volatility but rather permanent value destruction, as mentioned above. A solid grasp of a manageable number of ideas and diligent monitoring reduces the risk of error stemming from inadequate knowledge of an excessively diversified portfolio.

Size of assets under management 

A major obstacle to performance, and yet one of the easiest to overcome by investment firm managers, is the size of assets under management.

When assets under management in the same strategy grow considerably, it becomes harder and harder to outperform the market in terms of return. Indeed, it is a lot easier to make $100 million appreciate than it is $1 billion. The bigger the size, the rarer good investment opportunities become. Small caps are a case in point.

Tonus Capital’s mission is not to manage the largest amount of assets possible. On the contrary, the firm is controlled by the manager who has invested the better part of his own wealth in the Portfolio--not by managers who are compensated as a function of the size of assets under management. Our emphasis is on investor returns and if we deem that asset size has a negative impact on these, then we would quite simply cease growing our investor base.