Quality
Buy high quality business at the right price and hold that business until business fundamentals or expected forward returns degrade. We look for understandable and predictable business with the following attributes:
- High or improving returns on capital
- Stable or growing competitive advantages
- Cash generation and conversion
- Low capital intensity
- Capital allocation discipline
- Culture of creating sustainable growth
- Integrity
Great businesses are rarely available at discount prices; we may buy acceptable quality at reasonable prices.
Risk & Safety
"All I want to know is where I am going to die, so I will never go there." Charlie Munger
Risk is the permanent impairment of capital. Volatility is fluctuation in price.
To minimize risk we avoid:
- Excessive leverage
- Illiquidity
- High customer concentration
- Business models with high chance of disruption
- Poor accounting quality or accounting manipulation
- Low insider ownership and misaligned management incentives
We utilize quantitative methods to screen a wide universe of businesses every week. This screening process unemotionally eliminates companies that do not meet our standards.
Portfolio Construction
"Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down." Warren Buffett
We conservatively calculate a range of intrinsic values and internal rates of return (IRRs) for each investment candidate using a disciplined and fact-based process. We patiently wait and will purchase a new stock only when a business achieves a hurdle rate specific to each portfolio.