Investment Philosophy
Our investment philosophy is simple. We identify resilient businesses, apply our entrepreneurial spirit, and invest with high conviction in typically 15 companies. Each investment we make can have a meaningful impact on performance.
Identify Resilient Business with Strong Margin of Safety
Our fundamental research process results in selecting resilient business with a strong margin of safety. We seek to invest in businesses that generate sustainable recurring revenue, have an enduring competitive advantage, low capital requirements, low reinvention risk, a prudent balance sheet and strong pricing power.
Prioritizing “margin of safety” leads us to focus heavily on a company’s historical sources and uses of cash flow, valuation, and balance sheet strength. Companies that we invest in often have a long history of increasing dividends and repurchasing stock funded by plentiful free cash flow.
Entrepreneurial & Opportunistic
We think like entrepreneurs and often we are customers of the companies that we invest in. We pay attention to company culture and consider viewpoints from customers, competitors, suppliers, government, and management. Volatility is our friend and provides us the ability to opportunistically trim or increase existing positions.
High Conviction Focused Portfolio
Our high conviction, focused approach results in portfolios of approximately 15 stocks that we thoroughly understand, and we believe that depth of knowledge reduces the risk of losing capital. We want to be rewarded when we are right, and our high conviction, focused portfolio enables each investment to have a meaningful impact on results.
Focused Equity Strategy
Our flagship strategy, the Focused Equity Strategy was founded nearly two decades ago and has a track record of delivering consistent long-term performance compared to the S&P 500.
Investment Process
The investment process begins with developing a universe of resilient businesses, applying our fundamental research to narrow the universe of companies we follow, construct the portfolio of approximately 15 positions that meet our criteria and monitor the portfolio for opportunities to trim, add and remove positions overtime.
Development of Resilient Business Universe
Every publicly traded company listed on a major U.S. exchange that we believe has adequate trading volume (excluding K-1 tax reporting companies)
Quantitative Factors
Recurring revenue and resilient earnings history, strong cash flow and low debt
Other Resources
13F filings, industry publications, idea sharing with peers, meetings with companies, industry conferences
Fundamental Research & Idea Generation
Qualitative Approach
We evaluate the company’s overall business model along with its historical sources and uses of cash flow and balance sheet strength to determine management’s ability to execute its business plan into the future. We generally favor companies with business models that are easy to understand.
We have identified and currently monitor over 250 companies that we would like to own at the right price.
Portfolio Construction
Portfolios hold approximately 15 common stocks and occasionally in special situations, may include opportunistic investments in preferred stocks and merger arbitrage opportunities that we believe offer favorable risk-reward characteristics.
- Individual positions are typically established at 5% to 10% of the portfolio value and rarely exceed 10%
- Cash is a residual of the investment process and rarely exceeds 10% of the portfolio
- No sector constraints
- Holding period is typically 3-5 years or longer and turnover is typically 25-35%
Sell Discipline
Positions are sold if they appreciate and become fairly valued, if better opportunities exist, and due to mergers and acquisition activities.