When investing in public equities, WE BELIEVE IMPLEMENTING A PRIVATE OWNER INVESTMENT PHILOSOPHY WITH A LONGER-THAN-AVERAGE TIME HORIZON CREATES A DIFFERENTIATED APPROACH TO INVESTING.
The Core Equity Strategy seeks to achieve superior risk-adjusted returns by implementing a private owner investment philosophy with a longer-than-average time horizon.
While we strive to maximize return, we believe that the primary investment criterion should be safety of principal with a focus on minimizing the odds of a permanent loss of capital. We believe the entry price of any investment is the single largest determinant of expected return and the risk assumed to generate the return. We focus our attention on businesses whose publicly traded stocks are selling at a significant discount to our conservative estimate of their underlying private market value.
We believe applying a multiyear time horizon allows us to purchase partial ownership in above average to great businesses that have become temporarily out of favor for a reason that is short-term in nature, but that would be deemed far less important if investors owned the business in its entirety. We do not regard ourselves as traders of stocks, but rather as part owners of tangible businesses.
Common Characteristics of Businesses We Own:
- Market leader with strong competitive position
- High returns on capital
- High barriers to entry
- Stable products and economies of scale
- Recurring revenue/earnings stream
- Low financial risk
- High correlation between GAAP EPS and free cash flow
- Low risk of technological obsolescence
- Passes the 5-year rule: If the market was closed for five years, would we be comfortable with the illiquidity?