INVESTMENT RISK

Bitbondsinvestmentltd INVESTMENT RISK

CREDIT RISK

In order to help investors assess the credit worthiness of an obligor, independent nationally recognized statistical organizations, also called rating agencies, offer appraisals of the financial stability of a particular issuer and its ability to pay income and return principal on an investment.Moody’s, S & P and Fitch are the better known rating agencies that assign a specific rating indicating the degree of risk an investor acquires by owning debt in a particular obligor’s name.

DEFAULT RISK

We view risk as the possibility of permanent capital loss. We look for competitively entrenched, well-managed, publicly traded businesses selling at discounted prices to help drive our goal of generating superior long-term absolute returns and minimizing the risk of permanent capital loss. Risk Management Process

br> Risk Management Process

Step 1
Security Selection
Managing against capital loss is deeply embedded in our investment approach, beginning with our bottom-up investment criteria.
* High quality, financially sound, competitively advantaged Businesses
* Capable, shareholder-oriented People
* Discounted Price trading at 60% or less of intrinsic value

Step 2
Portfolio Construction
Portfolio construction is 100% bottom-up and benchmark agnostic, with strict portfolio guidelines.
* 18-22 best ideas
* 5% target position; ~7.5-10% max
* 15% max industry target
* ~10-15% max company ownership
* Hold cash when securities do not qualify

Step 3
Ongoing Monitoring
We actively monitor our portfolios to manage risk at both the individual stock and portfolio level.
* Add/trim positions to improve margin of safety
* Continually update appraisal values and business cases
* Devil’s advocate case review if price declines over 18 months
* Ensure compliance with portfolio limits and guidelines

INTEREST RATE RISK

Occurs as interest rate changes occur. The yield offered on bonds is based upon a collaboration of all associated risks evaluated, coupled with a market determined spread over a similarly traded riskless transaction (historically measured versus a similar maturity Treasury bond). As interest rates fluctuate, the yield on most bonds will be adjusted accordingly. Generally, as interest rates rise, the price of a bond will fall and conversely, as interest rates fall, the price of a bond will rise.

REINVESTMENT RISK

Timing of reinvestment of returning interest or principal can cause an investor’s return to fluctuate. In a falling interest rate environment, an investor will likely benefit from higher coupons and longer maturities as this prevents the need to reinvest into a lower, less favorable interest rate environment. If interest rates are rising, higher coupon and/or short maturities allow an investor to take advantage of rate increases and put their money to work at improving interest rates.