PROCESS

Investment Process

Our concentrated, low turnover investment approach requires only a few new investments per year, so we can closely monitor our current investments and be highly selective in adding new names to the portfolio.

Security Selection

Our process is focused on identifying companies that meet our five investment criteria:

    1) High quality business
    2) Large growth opportunity
    3) Excellent management
    4) Discount valuation
    5) Low catastrophic “tail risk”

We conduct thorough fundamental research on investment prospects with the expectation that we will own them for five years or longer. We source information from company events and regulatory filings, industry research reports, management interviews and other sources.  In our experience, this knowledge is cumulative, and the understanding that we build about a business, its industry, and its management team is often helpful in identifying new investment opportunities in companies in the same or adjacent industries.

Portfolio Construction

We construct concentrated portfolios – typically 20 to 30 positions – and size positions based upon our conviction in the businesses and their risk-return profiles. Investments are selected through a bottom-up process. Portfolio cash levels are a byproduct of this research process. We weigh the investment merits of the companies that we own against each other, and against other businesses that we are contemplating for purchase. We spread positions across a variety of industries, but do not factor index weightings into portfolio construction.

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“We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort-level he must feel with its economic characteristics before buying into it.”

                                                                                – Warren Buffett