Real Versus Perceived Risks

Kopernik views risk as a permanent loss of purchasing power rather than as near-term under-performance versus an index or versus other investment programs more closely aligned to indexes. We believe our emphasis on value naturally lessens downside volatility and that our global perspective naturally acts as a portfolio diversifier.

Critical to risk management, we think we understand the businesses we own. We only take positions when we think we are paying significantly less for businesses than our estimate of their intrinsic values. (And, in the case of shorting shares for the Global Unconstrained strategy, selling shares at significant premiums over their intrinsic values.) This investment philosophy implies ongoing contrarian asset positioning, which in turn implies that the performance of Kopernik holdings are less reliant on the prevailing sentiment of market investors.


As one would expect with such asset positioning, the performance of Kopernik strategies tend to have little correlation to common benchmarks.  Because we view risk as the permanent loss of purchasing power, we do not view market volatility as risky. Rather, we view market volatility quite opportunistically. What may be considered “risky” to short-term investors (i.e., a drop in an index or unrecognized decline in a fund’s net asset value), presents opportunity to patient value investors. As value investors, Kopernik views the potential for an increase in market volatility and the temporary market illiquidity that usually accompanies it as return-enhancing propositions. During these times, Kopernik seeks to be liquidity providers, purchasing businesses at distressed prices in the public markets. In short, we seek to profit from the inability of those with shorter investment horizons to remain invested.

We address real risks by understanding the companies we own, paying less than our estimate of intrinsic value and actively managing well-diversified portfolios.