Investment Philosophy and Process
Investment Philosophy
We believe that a high-quality business is backed by three fundamental pillars:
1. Durable competitive advantages,
2. Proven management team,
3. Favourable growth tailwinds.
These businesses should also have strong balance sheets giving them financial freedom to reinvest throughout the economic cycle. We seek to invest when they are trading at a sensible price. The quality of the business and the price we pay – versus our estimate of intrinsic value – are the margin of safety with which we aim to invest our own, and our Client’s money.
“Over the long term, it's hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for those 40 years, you're not going to make much different than a 6% return—even if you originally buy it at a huge discount”
Key Pillars
Competitive Advantages
“In business, I look for economic castles protected by unbreachable moats”
Warren Buffett
Proven management team
“Over time, the skill with which a company’s managers allocate capital has an enormous impact on the enterprise’s value”
Berkshire Hathaway Shareholders Letter, 1994
Favourable growth tailwinds
“Growth is always a component in the calculation of value”
Warren Buffett
Investment Process
Idea generation
We focus our research efforts on companies listed in North America and Western Europe, with strong balance sheets, high returns on invested capital and a solid track record of organic growth and cash generation.
Investment research
Investing in great businesses takes time, diligence, patience, and discipline. We try and learn everything we can about a business before making an investment decision.
We study the company’s history, its business model, competitive advantages, the industry structure, its management team, culture, relevant ESG issues and its growth opportunities.
Our aim is to identify exceptional businesses which can prosper for many years.
Portfolio construction
We aim to build a concentrated portfolio of 25 to 30 exceptional businesses. When determining our target weights, we evaluate the quality of the business, our margin of safety and what sort of characteristics it introduces to our investment portfolio.
In summary
Investors should understand that the price of a stock is not correlated with its past performance. The underlying value of a business, is based on the discounted value of the cash flows it will generate in the future.
Investing in businesses is underpinned by the belief that its share price will be driven by its ability to grow earnings over the long run. Investor returns depend on a company’s capacity to grow revenues, cash flows and the returns it earns over its invested capital.