We manage a single long-only equity strategy, concentrating our clients’ capital in 10-15 competitively advantaged businesses with the potential to compound shareholder value at above-average rates.
We purchase these businesses at what we believe to be reasonable discounts to a rational assessment of intrinsic value, and we seek to invest in companies with corporate managers who we believe can allocate capital in ways that benefit long-term minority shareholders.
We are geographically agnostic, and do not target a pre-defined regional exposure. Our portfolio allocation to different parts of the world is purely a residual of our security selection process; as such, we may have little or no capital invested in some geographies for lengthy periods of time. While we believe strongly in the value of local “scuttlebutt” as we research companies located outside the United States, we also believe that a global perspective enables a more comprehensive understanding of cross-border comparisons and value chains.
Our search process for new investments is largely qualitative, since the structural competitive advantages that we prize cannot generally be found via quantitative screens. Our investment universe consists only of businesses with economic moats — such as high switching costs, network effects, and scale advantages — that insulate high-returning companies from competition. This filter naturally leads us to focus more time on some industries than others, since certain business models enjoy more favorable structural economics. Truly great businesses are few and far between, so we spend our time fishing in well-stocked ponds, rather than casting our lures in dried-up streams.
Economic moats are the foundation of our investment process, but moats do not create shareholder value in a vacuum. Reinvestment opportunities maximize the value of a competitive advantage, and capital allocation links business value and shareholder value. Our ideal investment combines all three elements — a moat to insulate the business from competition, reinvestment opportunities to generate value-accretive growth, and superior capital allocation to ensure that shareholders enjoy the fruits of increasing business value.
Of course, a great business is not a great investment if its valuation already reflects its full future potential. Our guiding principles when it comes to valuation are twofold. First, we believe it is better to be approximately right than precisely wrong, and so we work hard to avoid the trap of false precision. Second, we believe that valuation is a double-edged sword — maximizing one’s margin of safety at purchase must be balanced with minimizing the opportunity cost of not owning a business with the potential to compound at high rates for a long period of time.
You can learn more about our strategy by contacting us.