Process
We are fundamental, bottom-up investors.
We employ our time-tested process to identify companies with long-term competitive advantages in high return businesses that are trading for temporarily cheap prices. We eschew the style-box approach embraced by many, and are sector and cap agnostic. Our process is one of collective engagement intended to surface qualms and anomalies relevant to the companies we examine. Our six-person research team is led by four principals of the firm who work on a consensus basis.
Qualitative Analysis
We analyze the corporate culture, leadership capacity, value creation engine, and competitive positioning of every potential holding. We believe that it is these qualitative attributes that give a company its resilience and long-term capacity for growth.
Quantitative Analysis
We seek companies with high returns on invested capital that demonstrate care in using that capital. A high caliber balance sheet and high quality earnings are essential. Free cash flow is also critical, as is the predictability of those cash flows over a number of years. The ultimate objective of our quantitative analysis is to establish a conservative estimate of a company’s intrinsic value, which we use as a point of reference in determining both our substantially discounted buy price and our materially “overvalued” sell price.
Assessment
If a company of significant interest emerges from our initial financial and qualitative screens, we use “checklists” — simple, yet critical tools — to determine whether we wish to add it to our buy list and to ensure that we’ve left no stone unturned. We are highly selective, adding to our list only the very best ideas.
Price
We require a “margin of safety” — a discount off of our internally generated estimate of intrinsic value — when either adding a name to a portfolio or supplementing an existing position. Similarly, our price discipline dictates that we trim or liquidate a holding when it is trading at the high end of our estimate of possible intrinsic values.
7
Analysts on the research team, four of whom are principals
80-100
Number of companies we talk to per year
16-20
Desired number of stocks in our portfiolios