The investment philosophy is grounded in fundamental analysis, valuation discipline, and long-term thinking. A key distinction of the strategy is its focus on concentrating capital in a select number of high-conviction ideas, while maintaining the flexibility and patience to wait for the right opportunities. We aim to invest in a few high-quality companies with durable business models where profits are expected to grow over the long term. We want to invest when the price of a company’s shares is significantly below what we deem to be the long-term worth of the business. While these opportunities are uncommon, they appear with some regularity across public markets. By concentrating capital on fewer companies, we are able to increase the chance of capitalizing on price inefficiencies. Since undervalued stocks rarely stay undervalued for long, we remain pragmatic and open-minded in our decision-making and portfolio construction. We also strive to maintain competition for capital within the portfolio and are willing to increase turnover if better opportunities arise than those currently held.

Advantaged businesses operating in attractive end markets: We aim to invest in companies in industries that are growing organically, are structurally profitable, and operate in a favorable competitive environment. Within these markets, we look for businesses that are—or are clearly on a path to becoming—leaders in their verticals, capable of sustaining or strengthening that position over time. We favor companies with identifiable and durable competitive advantages, whether through scale, network effects, brand strength, proprietary know-how, or high customer switching costs. Financial strength is important too: we look for high returns on invested capital, attractive margins, strong free cash flow generation, and a flexible balance sheet. Ideally, these businesses also have “visible” earnings and free cash flow drivers over a five- to ten-year horizon, giving us a clearer view of intrinsic value. At the same time, we try to avoid businesses facing intense competition, high execution complexity, or material long-term disruption, particularly those led by overly promotional or visionary management teams. Instead, we look for levelheaded, execution-focused leaders with a history of prudent capital allocation and a clear strategic framework.

Companies trading well below their long-term fair value: We try to keep our valuation work straightforward, avoiding over-engineered projections and complex models. If the opportunity isn’t clear and obvious, we move on. We focus on companies trading well below what we believe they are worth over the long term, where a clear gap exists between the long-term earnings power of the business and the current stock price. These situations often arise when sentiment is weak, expectations are low, or short-term issues distract the market from the company’s true potential. We project earnings and free cash flow over a five-year horizon, focusing on assumptions we feel comfortable with, and typically err on the conservative side. We apply reasonable valuation multiples, account for dividends, and derive a baseline fair value estimate, which we discount back to today’s price to assess potential returns. Scenario analyses are run to test outcomes under less favorable circumstances. Our comfort with temporary challenges depends on whether the issues seem solvable and whether the risk-reward remains favorable.

Concentrated portfolio: We deliberately concentrate capital on our highest conviction ideas, typically five to fifteen companies globally at any given time. This allows us to dedicate meaningful resources to companies we deeply understand and believe offer the best long-term absolute return potential. Truly exceptional opportunities are rare, and owning a smaller number of positions ensures each holding receives appropriate focus. Rather than chasing broad diversification or managing to traditional risk metrics, we prioritize business quality, earnings visibility, and valuation discipline. While the portfolio may include a few smaller positions, the core remains focused on our strongest convictions.

Pragmatic opportunism: From time to time, asymmetric opportunities arise when shares trade at a significant discount to their long-term fair value. We remain patient and disciplined, because these moments often present the best chance to invest. They frequently occur when the market is overly focused on short-term risks, rather than balancing both short-term challenges and long-term potential. While many investors assume these opportunities are rare, history shows otherwise. Large-cap stocks often see drawdowns of 20–25% in a given year, and smaller companies can experience declines of 30–50%. Not every dip is a buying opportunity, but such volatility demonstrates that there is ample room to take an active, flexible approach. Market dislocations—like those seen during the COVID-19 selloff or major commodity shocks—can create asymmetric opportunities that don’t fit traditional frameworks. We aim to be ready to seize them rather than sitting on the sidelines because an opportunity isn’t aligned perfectly within our framework.