Investment Management Philosophy:
- Our focus on investing as business owners, combined with our respect for aspects of index investing, creates an approach that is quite different than our competitors.
- We firmly believe that thinking like business owners allows us to identify superior companies. We also believe that, to outperform an index, portfolios must be constructed quite differently than an index. Both of these principles lead to our concentrated approach to equity investing.
- We believe in emulating the most powerful attributes of index investing. Index investing means “buy and hold” investing, and our portfolios have minimal turnover. Since we expect to hold a stock for many years, we focus on companies with the brightest multi-year growth prospects.
- We do not define risk as security price volatility (beta); we center our risk analysis on the fundamentals of the business itself.
- Our equity investment philosophy is based on our conviction that significant long-term wealth will be created by “investing as owners,” so we seek companies with the following characteristics:
- A dominant product or service that is essential, irreplaceable or lacks substitutes.
- A sustainable, consistent level of growth in revenues, earnings and dividends.
- Strong profitability as measured by return on equity, without the use of excessive debt.
- A strong, proven management team that is shareholder oriented.
- When we find companies that meet these criteria, we look for reasonable, but not necessarily cheap, valuations.
Portfolio Company Attributes:
Successful business owners and managers look beyond the next quarter, taking a long-term perspective to maximize the value in their business, strengthen their business model and enhance the sustainability their market position. This is the core of our “Invest as Owners” process for identifying companies that we believe will be long-term outperformers:
- Minimum market capitalization – first, we screen the universe of investments for companies that meet our size threshold.
- Strong, consistent past performance – we look for businesses with exceptional track records based on return on equity, return on total capital, cash flow, and earnings and revenue growth.
- Porter’s Five Forces – stocks that pass the first screens are evaluated in depth, focusing on their prospects for future excellence using Porter’s “Five Forces of Competitive Advantage”
- Significant barriers to entry
- Few viable substitutes
- Buying power
- Supplier power
- Intensity of industry rivalry