Investors are behaviourally-biased to seek out “big winners”.
To find them they rely on rosy assumptions about the future.
Disappointment is common.
We focus on quality.
Quality is simply the restatement of risk.
Price matters to your investment outcome.
We are value investors.
Our definition of business quality is demanding.
We exclude many industries others find attractive.
We want to own wealth-creating businesses.
This comes from an earning an attractive ROIC and management reinvesting capital intelligently.
We want the risk of disappointment to be low.
We focus on the durability and resilience of a company’s “moat”.
Diversification is at the core our approach.
You don’t have to get diversification by owning lots of stocks.
We want each of the companies we own to be diversified.
This is internal diversification.
We have a hard cap of 15 on the number of stocks in the portfolio.
This ensures the investment merits of every holding is at a high level.
Price matters as an investment margin of safety.
Quality matters even more so.
Debt acts to amplify problems for a business.
We avoid business with high leverage – including banks.
Management is highly influential as a source of risk.
Aggressively expansive behaviour can be distracting and destructive.
We believe that good behaviour is part of what makes a good business.
We look for not just the absence of bad behaviour but also a positive impact on employees and the environment.
We take a principles-based rather than a rules-based or “box ticking” approach to assessing good ESG behaviour.
A principles-based approach means we assess what the company does, not simply what it says.