Equity Philosophy

Stocks are fractional interests in businesses. Our objective is to buy solid businesses when selling below our estimate of intrinsic value. We prefer to buy a wonderful business that we can compound and hold forever. In order to buy something for less than its intrinsic value, we must first calculate intrinsic value. We define intrinsic value as the present value of future cash flows generated by a company and paid to its shareholders over the holding period of the business. We calculate intrinsic value and buy the business only when an adequate discount or “margin of safety” can be achieved from the security’s market price. We search for businesses with the following characteristics: 

• A business we can understand with sustainable, growing cash flows.

• A business with significant barriers to entry, recurring cash flows, and high returns on invested capital.

• A predictable business in which the past is a reasonable guide to the future. We ask: is technology disrupting, helping, or hindering?

• A business with able and properly incentivized management that are shareholder friendly, have ownership in the firm, and a history of solid capital allocation.

• A business that is undervalued (price is what you pay, value is what you get).

• A business that serves a purpose and creates a win-win for all stakeholders, including customers, employees, communities, and shareholders.

We follow a comprehensive, ever-evolving checklist before investing in any business to ensure consistent application of our core investing principles, mitigate emotional mistakes, and learn from our past mistakes.

All strategies are tax-efficient. Our equity portfolio turnover is 10-15%.