Key investment attributes
Companies with strong balance sheets that generate cash, and which prioritise cash flow and economic value creation. Given the cash generation and long time horizon over which we invest, proper capital allocation is of significant importance.
Companies that are founder-involved or at a minimum have high levels of inside ownership align interests for the proper allocation of capital over the long-term.
Innovators and disruptors. We invest in companies with sustainable and differentiated business models, and good growth opportunities with long runways of growth ahead.
Smaller company focus. Seeking high quality, smaller businesses is fertile ground. These companies outperform over the long-term since they are less researched and often overlooked by investors and brokers. Our particular focus is on companies with market caps between $1B and $10B. These companies are developed enough to fit our analytical framework, yet small enough to be relatively undiscovered by the market.
Global developed market. We invest in companies domiciled in developed markets. These jurisdictions offer cultures and legal systems we are familiar with and the companies communicate in English.
what to expect
Concentrated portfolios typically of 7 to 10 companies and holding cash on any occasion when appropriate company investments can not be identified.
The portfolio typically features a number of technology companies, particularly software and IT services businesses as well as consumer discretionary and industrial companies, and occasionally companies from other sectors.
What we don’t do. We avoid energy, biotech, pharmaceuticals, banks, utilities, real estate, highly regulated industries, heavily government subsidised industries, companies that face headwinds, strongly cyclically exposed companies, and heavily indebted companies.
The process is divided into two priority systems. The first priority system identifies the investable universe and ideas that are most likely to meet our criteria. The second priority system occurs once we have a valuation estimate. Once an idea enters the second system, its priority is based on the current price to intrinsic value provided by the marketplace.
Investment Process - Stage 1
Investment Process - Stage 2
We believe in roughly equally-weighted portfolio construction. As a result, positions tend to enter the portfolio at a 8-10% weight. Positions which would be liquidity constrained at capacity are bought to smaller position sizes.
We believe that permanent risk of loss, and not volatility, is the appropriate way to think about risk for a long-term investor. In the case of our portfolio, while all names may be similar in the short-term and may be volatile, their long-term success is driven by each management team’s ability to execute and thus the risks are spread across the portfolio. There should little correlation between the success of one holding versus another such that the risks are spread on a long-term basis.