Our Investment Philosophy & Process
In keeping with our mantra of making the complicated simple, our investment process is clear and straightforward: we want to acquire wonderful businesses at attractive prices.
While the concept is basic, our process is anything but. Our discipline requires us to rigorously scrutinize company financial statements to ensure we have a complete understanding of the firm and management team we’re going into partnership with. Given our preference for perpetual ownership, we are careful to allocate capital only to those enterprises that meet all our fundamental criteria.
To determine if the common stock is trading at a compelling level, we must value the underlying business. Appraising companies accurately is difficult. It requires both art and science as no two companies are exactly alike.
We rely on historical merger and acquisition transactions to guide us in this endeavor. Key to this process is demanding a significant margin of safety between the share price and our estimate of intrinsic value before initiating a position. The larger the discount, the less dependent we are on a precise appraisal for a positive outcome.
Buying shares of a great business at a discount and selling at a premium seem easy in theory but is more difficult in practice. Adhering to this framework prevents us from having to forecast the direction of interest rates, the economy, or the stock market. More importantly, it keeps our emotions in check and gives us the confidence to go against the crowd during periods of market euphoria and despair.
Our team can – and will – go anywhere. Our universe includes all publicly-traded US companies along with foreign ADRs.
We are cash counters. We screen for companies with pristine balance sheets, affording them the ability to self-finance their growth. With the dollars not being reinvested in the business, we desire a management team that effectively returns capital to shareholders through dividends, share repurchases, and net debt retirement.
Valuations are compelling when the company’s common stock is trading at a sizable discount to our team’s underlying appraisal of the business.
Our ideal holding period is forever. We only sell when fundamentals begin to deteriorate or prices well exceed our underlying appraisal.