But I realized that I was just looking at lines going up and down on a screen. How are deals made at Obvious? For all of our deals, two or three members of our seven-person investment team, who ideally have intimate yet diverse knowledge of the business and category, work on each one before bringing it to the full committee for review. When it comes to how we apply our investment power, we tackle three primary categories: Sustainable systems, where we reimagine resource-intensive industries; healthy living, where we focus on click care approaches to physical and mental health; and then people power, investing crunchbase we enhance the way people learn, work and earn. Q: After the initial pitch, how does your diligence process proceed? A company must be presented to our full team in order to reach the final decision. Q: You mention physical and meerkat, as well as financial health.
It also helps me assess the matching of talents with a business situation. I start with the premise that people make a difference. Even the change of a single person can have a dynamic impact on the culture of an organization, which can have a dynamic effect on the results of an organization, which often has a significant effect on the stock price. Wall Street, I think, tends to the view that a business is a business is a business.
Which means that it often overlooks how much a business' value could be changed dynamically by the right sort of change in senior management. When it isn't getting carried away, that is, by the "star value" of certain celebrity CEOs — That does happen, too. Every investment decision I make is case by case.
Someone could describe his investment style exactly like mine and still chose a totally different portfolio. But that was something I avoided. Partly because I manage risk by not investing in companies with overly leveraged balance sheets. I also avoid situations where I feel there is a management credibility issue. How long are you willing to wait for other investors to recognize the value in your picks? My winners, I tend to hold for two to five years and the losers, I tend to sell in less than a year.
In fact, in no year in the last five have my investors had to pay ordinary income taxes; percent of the capital gains that the fund has taken cumulatively, since inception, have been long-term. We've paid zero short-term capital gains taxes cumulatively. I'm very proud of the fact that our compound annual net return to investors averaged over 24 percent from and over 30 percent from If you compare our returns with a lot of other funds' on an after-tax basis, they look even better, given our tax efficiency.
I'm also very proud of the fact that those returns weren't produced with tons of leverage or exotic instruments; they were all the result of our bottom-up stock selection. Just look at Not a year remembered fondly by many investors. But our net return to investors was almost 30 percent, and even in our net return was positive, while almost all the broad U. That's part of being a professional investor. Sometimes you have to deal with short-term irrationality. But that's why I prefer to invest on a longer horizon.
How are you doing this year? The problem with the last six months or so is that we have had neither fear nor greed. So I am trying to anticipate an increase in fear that isn't here yet. If that fear materializes, given my expectation that will actually be a pretty good environment for stocks, I will be looking to take advantage of fear-depressed prices, as that panic subsides.
But I take it that 's first nine months weren't wonderful for MLT? Let's just say, if you must, that we're up in the mid-single digits. Not up spectacularly, like last year, but very nicely, on a two or three-year basis. You must have been pretty bullish at the end of , to put up the numbers you did in ' You weren't shell-shocked by the bear? Among the things that helped my performance in was that in late , I researched some Internet-related stocks that were cash flow positive and had more cash per share on their balance sheets than the stocks were then trading for.
It was a period of incredible fear, when people were embarrassed to admit they even owned an Internet stock. That's what created the opportunities. So I visited some companies and found a few great situations in an exceedingly unpopular industry. But our returns weren't the result of simply loading up on Internet cheapies. I mean, last year 12 of our 24 stocks were up over 90 percent; these were stocks in oil exploration, software, retail, finance and the media, as well as the net.
Actually, the fall of was the only time that I have ever written to my investors — other than at the end of a quarter. I sent them a letter in the middle of September '02, urging them to add to their investments. Happily, a number of them did, that October, within weeks of the market's bottom. So I entered '03 at percent net long. By contrast, I entered this year 10 percent short, 65 percent net long.
Quite a change. And I ended the most recent quarter with 55 percent cash, the most cash that the fund has ever had. The fund is 45 percent long, 0 percent short, so it's 45 percent net long. That doesn't sound bullish, yet you're not short? Well, historically I have not done a lot of shorting. That doesn't mean that I won't, at some point, get net short. I probably would get net short if I thought we were going to have a severe, sustainable, consumer-led recession.
But other than that, it is just not my style to short momentum, or to short stocks just because they are grossly overvalued. Some very smart people lost a lot of money that way in the bubble period. Just because something is irrationally priced, doesn't mean it can't become insanely priced. The other time I might get significantly short would be if I felt that the market was susceptible to a panic. Since inception, we've done well in bull markets.
I think the average hedge fund was up around 15 percent last year, and we were up 70 percent plus. We have also done well in neutral markets, as well as in gradual bear market declines. The quarters when we haven't done well included short-term panics. And during those, it doesn't really matter what you own, almost everything goes down.
As my cash position indicates, I think the chances are higher than normal that we'll get one of those very soon. You have no intention of starting more funds and running billions? It's not my intention to start an overseas fund or a second fund or to expand the fund to investors.
I've seen a lot of people do that, raise a ton of money and then implode. Or they take hot money that's chasing short-term performance and their attention gets diverted. I don't want that. My idea is that if I get high-quality investors, they'll add to their investments, and the fund's performance will take care of most of the growth. The book was called "Enquire Within Upon Everything. Your brain doesn't need elaborate programming commands.
Instead the brain easily makes connections between different bits of information. In Berners-Lee submitted a proposal to the powers that be to use existing tools such as hypertext linking to create the system that would help CERN's scientists easily share all kinds of information. Naturally, the powers that be thought it was a dumb idea. But with the help of a creative boss Berners-Lee persevered to develop the initial version of what became the World Wide Web.
The Finnish Technology Award Foundation isn't the only group that's recognized him for his invention. Last year Queen Elizabeth knighted him. Time Magazine called him one of the greatest minds of the 20th century. He's received the Japan Prize and a Macarthur Foundation "genius grant. The Finns are giving him over a million bucks. The Macarthur grant is worth a million. Between them and what he's paid for his work, Mr.
Berners-Lee and his family are probably quite comfortable. But he would have been rich beyond counting if he'd chosen to patent his invention. He didn't. His reasons sound simple and even corny. He has no desire to amass great wealth. He wants to make the world a better place. So, in effect, he gave all of us his invention and it's changed our lives. What do you do for an encore when you invent the something like the Web and you're still in your thirties?
Berners-Lee is doing what he loves to do. He's teaching at MIT. He's the Director of the World Wide Web Consortium, the body that coordinates Web development and technical standards around the globe.
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