INVESTMENT PHILOSOPHY OVERVIEW

High Quality. Long Term. Valuation Oriented. Independent.

Stocks represent operating businesses. We want to own high quality businesses at a discount to intrinsic value.

Quality is a function of company profitability, balance sheet strength, resource allocation, competitive advantages, and more. A portfolio of quality companies:

Compounds capital at high rates
Lowers bankruptcy risk
Tax efficient

Concentrate capital in the best investment prospects. Diversify across industries, sectors, business models, and geographies.

We follow a disciplined, research intensive investment process using quantitative and qualitative methods to assess industry and business economics, management competence & quality and overall market dynamics before a stock makes it into the portfolio. We are Sector and Benchmark agnostic, reacting only to the opportunity set offered to us at any given point in time. We may opportunistically trade in lower quality businesses offering good risk reward if the markets offer them to us.

Resources: Overview

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.

Resources: Risk & Safety

Quality

"Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down." Warren Buffett

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.

Resources: Quality

Resources: Valuation

Portfolio Construction

" A high quality asset can constitute a good or a bad buy, and a low quality asset can constitute a good or bad buy. The tendency to objective merit for investment opportunity, and the failure to distinguish between good assets and good buys, gets most investors in trouble" Howard Marks

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.

Resources: Portfolio