Investment Principles
Long Term Fundamental Value and Growth Investment Principles:
The primary investment strategy of the firm is to purchase superior quality businesses we have a thorough understanding of, pay a fair price, then hold them for the long term. Cash flow and profitability is the key to our long term investment strategy. We also seek management that we respect and admire.
Described as follows:
Durable Competitive Advantage Over Competitors
Within Circle of Competence
Honest Management with Integrity and Long Term Vision
Margin of Safety on Price Paid and Value Received
High Returns on Invested Capital
Quality Shareholder Capital Allocation Decisions
Stable and Predictable Cash Flow from Operations
High-Quality Sales Team and Marketing
Our investment approach is a investigative one. Our investment research and analysis process is best described as forensic accounting combined with intuitive business foresight as well as industry and management research.
Questions we Ask?
Do we understand their market for inputs, their conversion to outputs? Do we understand why their customer buys? What is the utility to the customer? Who are their closest and most feared competitor?
What are their durable competitive advantages? How durable are those advantages? How quickly could the business revenues be materially affected?
What factors determine why their customers buy the product or service? How well capitalized is the business? What is the management track record of successful innovation and operational efficiency?
What is managements capital allocation decision record? Does management act in the interests of shareholders?
We believe the stock market prices will correlate with the business fundamentals over time.
We do not expect our investment portfolio returns to grow smoothly. We consider our investments in the ownership of companies as though they are private and illiquid despite them being publicly traded and highly liquid. The most significant factor in determining the ultimate success or failure of our predictions is the analysis of the future profitability growth and overall company fundamental performance.
Any investor that wishes to invest with our firm needs to have a long-term investment horizon.
Management of Publicly Traded Companies have a material interest in certain key metrics with the companies they run. There are often conflict of interests between management and shareholders. Being able to identify these conflicts is key to managing risk effectively. Some areas we investigate to test the management’s quality of stewardship of shareholder capital is the following.
Potential Red Flags:
Goodwill and Goodwill Impairments
Revenue Recognition
Large Discrepancies Between Earnings and Cashflow
Off Balance Sheet Entities
Asset Sales Timing
Work in Progress Inventories and Depreciation
Mergers Acquisitions and Spin Offs
Work in Progress Inventories and Depreciation
We believe the best way to manage risk is by following our investment principles. Individual investments may succeed or fail, but over the long term, our investment principles will give us greater odds at being right more often than not. We believe this strategy executed correctly has a high likelihood of achieving better than average returns net of fees.
Any investment program may be volatile and can involve the loss of principal. No assurances can be made regarding the accuracy of any future prediction. Past performance is no guarantee of future returns.