Investment Approach

For decades, we have owned a concentrated collection of high-quality businesses with long runways to compound intrinsic value. We wait to buy our favorite franchises at value prices. Portfolio turnover is low, which minimizes frictional costs.

Investment Tenets

We concentrate client capital into 20-25 businesses that a) generate economic returns far in excess of their costs of capital, b) are run by capable stewards with appropriate incentives, and c) trade at sensible prices.

Compound Growth

We want to own quality franchises that harness the magic of compound interest by consistently growing their intrinsic value at attractive rates over long periods of time.

Value Discipline

We hunt for high-quality growth companies trading at value prices. We demand substantial discounts to our estimate of intrinsic value, which protects client capital when we are wrong.

Primary Research

Our investment team collectively digs for clarity, or “scuttlebutt”, about a business’s prospects by speaking to a wide variety of people with relevant knowledge, including its competitors and customers. These conversations fortify our conviction to stick with promising ideas amidst inevitable market volatility.

Long Term Focus

We are business owners, not traders of common stocks. Even temperament, long-term orientation, and concentrated portfolios facilitate wealth creation across generations.

Investment Process

Our investment team consists of eight portfolio managers. We spend most of our time researching businesses and vetting conclusions with each other. We study great franchises and great people. We wait for the compelling intersection of exciting prospects and sensible prices.

Research Process

  • Curiosity and persistence are the ultimate drivers of idea formulation.
  • We read sector-specific publications, discuss trends with industry contacts, synthesize disparate pieces of information, screen for quantitative signs of compounders, etc.
  • We keep an eye out for reality-perception gaps. We debate why an idea could be undervalued and determine the few critical research questions worthy of investigation.
  • We funnel hundreds of ideas from idea stage to a subset of businesses to research deeply.

Idea Generation

  • We embrace exhaustive underwriting and due diligence.
  • Typically, we focus time on three areas:
    • 1]  Understand key unit economic drivers and their sustainability
      • Evaluate the competitive moat: pricing power, pace of share gains, returns on incremental capital, scale advantages, etc.
      • Anticipate operating leverage and ultimate earnings power.
    • 2]  Evaluate management
      • Analyze heritage and culture. Understand capital requirements and capital allocation ability.
    • 3]  Mine our networks to understand of how customers, competitors, suppliers, former employees, and regulators regard a business’s position, prospects, and challenges.

Portfolio Construction

  • Client portfolios typically consist of 20-25 businesses, populated from a “Buy List” of ~30 businesses. In a typical year, we collectively evaluate >100 businesses and may add 2 to the Buy List.
  • Position sizes range from 1-5% at cost.
  • We are generalists with no interest in matching market or index sector exposures, though we closely monitor sector and related exposures as part of ongoing risk management.
  • The investment team meets at least weekly to discuss current holdings, our new idea pipeline, risk management, and other topics.