Investment Philosophy

   While emphasizing client relationships and integrity, it is investment philosophy and execution that drive portfolio performance.  Briefly, my big picture beliefs on investment discipline are:


1.      Managing a portfolio is an exercise in allocating capital to resilient businesses rather than trying to play the stock market.

2.       One should assume one is buying the entire business when deliberating over investing in a company’s stock.

3.       Long holding periods are entirely consistent with building wealth, provided the original due diligence was sound.

4.       Attractive companies trading at compelling prices are infrequent but reoccurring opportunities and  patience is rewarded.

5.       The opposite of rose-coloured glasses should be worn when deliberating over a company’s future. Understand the downside and the upside often takes care of itself.


    From our big picture views we move to the discipline of company selection. We trade infrequently and while understanding that there is no sustainable cookie cutter approach, we emphasize companies with the following characteristics:


1.       A Recurring Revenue Stream:  Companies that sell a product or service that is consumed and thus must be repurchased on an ongoing basis. Insurance brokerage, fast food, mutual fund fees and toothpaste would be examples meeting that mandate.


2.       Growth: We want this recurring revenue stream to be expanding to allow us to benefit from the power of compound growth. Ensuring that our snowball is on a legitimate perpetual slope, however slight that may be, allows for significant long term appreciation of our capital.


3.       Free Cash Flow Business Model:  We define free cash flow as the amount of money an owner can remove from a business (put in their pocket) without impairing the company’s ability to generate future free cash flow. Picking up from the two earlier points, we are looking for companies where a sound thesis can be made for a recurring, resilient, growing free cash flow stream. As minority shareholders, we further want to ensure that this free cash flow is well allocated by management, a final hurdle of significant importance.


4.       Attractive valuation:  We typically resist buying until the shares approach ten times free cash flow, this is where the patience referred to above is required. This provides a margin of safety for judgement while also allowing for significant capital appreciation.


5.       Sound Balance Sheet:  Something is typically going wrong for a company that has a long term attractive business model but is currently trading at a valuation that we find compelling. We emphasize a sound balance sheet and veto companies where we feel they have financed their operations with debt that might impair their ability to control their destiny and weather all storms.


      These are the five pillars of our investment philosophy. It requires the ability to identify attractive business models and the discipline to wait for safe compelling entry points. It is deliberate, methodical, and patient.  Over time we aspire to accumulate a diversified basket of attractive free cash flow companies purchased at compelling valuations. We typically hold these investments for extended periods of time. The low activity associated with such a philosophy significantly reduces the transactional costs of trading and is also very tax efficient. We are not trying to get rich quick, we are trying to increase our wealth methodically.