investment approach

Four Pillars

  • Have Patience

    Real successful business investors own businesses for years, decades and generations. Bargains don’t emerge because of positive events. Patience is required in undervalued situations in most instances because often, a negative event has occurred. We don’t know when the event will pass, but we have a high degree of certainty that it will happen at some point in the future. Investors in our funds may have to wait for these events to unfold. But the returns received from having patience far outweigh the time that is needed to be patient.

  • Concentration – Own a Few Terrific Companies

    Again, we are imitating successful business owners. In practically every case, they have prospered by being in and understanding one business. Owning hundreds of companies as characterized by most mutual funds and investment portfolios is a guaranteed road to mediocrity, not the path take by the few winners in the field of business and investing.

  • Paying a Bargain Price

    This simple concept means that the business buyer will purchase a company in whole or part (shares) only when the price of the business is below a conservative evaluation of the estimated range of the true underlying value of the enterprise.

    This allows the investor to achieve two goals: first and most importantly, to protect capital. Paying such a price means the investor is naturally less likely to suffer a lose of capital. Successful business owners are usually very conscious of never overpaying for any input to their business or in buying other companies. Secondly, paying a bargain price for a wonderful business enhances the return generated by that business, in exactly the same way that buying a bond below issue price will increase the coupon to the debt holder. The end result: high returns and lower risk – the ideal objective of intelligent investing.

  • Buy Wonderful Businesses

    Successful business people have been winners because they usually own companies that possess a few simple, but critical characteristics.

    These include, An enormous sustainable competitive advantage against others in the same industry. They generate large growing streams of free cash flow (excess cash not needed by the company for ongoing operations). They are simple and understandable businesses. They have a high degree of predictability with repeatable consistent revenue streams, selling products or services that people will require now and in the future. They have a high return on invested capital – that is, they don’t require much capital or future capital expenditures in order to succeed.

    A wonderful business is allowed to make mistakes – sometimes large ones – but the company survives such events because of the strength of the franchise. Such companies obviously differ significantly from an average business where competition and future revenue and cash flow streams are usually much less predictable.