Our investment process starts with our stock selection which is done through screening, research and stock valuation as well as rigorous team debate and voting. We then construct a portfolio which is monitored on an ongoing basis. This is all underpinned by risk management to avoid permanent loss of client capital.
Our analysts screen for stocks using both quantitative and qualitative factors. Quantitatively, we have a bias in our screening towards stocks that meet our proprietary definition of a ‘quality’ business, while qualitatively we extend our screening to find businesses with improving fundamentals or great businesses that may have stumbled. We find these ideas from a variety of sources, including reading, conferences and investor trips conducted throughout the year.
- RESEARCH AND STOCK SELECTION
Research is conducted by thoroughly analysing and understanding a company from the ground up using our proprietary research process. We seek to understand the business as a business owner would, and value our stocks using a long term time horizon. As bottom-up stock pickers, we are more concerned with getting the stocks we own right rather than missing stocks we don’t own.
- PORTFOLIO CONSTRUCTION
We construct portfolios on an index agnostic or “clean slate” basis. Because our process is designed to engender conviction in our stock calls through rigorous research, our portfolios will be more concentrated than the average, and will also have a lower turnover than average because of our long-term investment horizon. Because we construct portfolios on a clean slate basis, our funds will typically have a high tracking error versus the benchmark.
We have weekly and monthly meetings to discuss portfolio construction, new ideas, risks and macro developments. We monitor the individual stocks within the Portfolio by keeping abreast of company capital allocation, as well as changes in a company’s moat or competitive advantage.
- RISK MANAGEMENT
Risk management occurs throughout the investment process. Our key risk mitigants are
- Our Process. We conduct a disciplined approach to valuing companies and adhere to our margin of safety principle, which allows for the creation of a diversified portfolio of undervalued assets.
- A long term time horizon. One of our largest advantages is the long-term time horizon that we and our clients share. We define risk as the permanent loss of client capital not deviation from a benchmark on short-term stock market gyrations.
We furthermore reduce risk in our portfolios by:
- Owning good businesses
- Partnering with the right management teams
- Adhering to a margin of safety when buying shares
- Constructing diverse portfolios that don’t hinge on a single view
- Having world-class operations
- Properly aligning the Investment Manager with our clients via ownership