How we value a company is based on the principles of cash economic value, rather than actuarial accounting data.
- Our analysis merges income and capital data, converting it into economically-relevant information
- We have a time-tested framework for determining a company’s intrinsic value
- Opportunities arise when price deviates meaningfully from intrinsic value, usually when sentiment or perception swing too far in one direction
We demand profitable growth
- The only valuable growth is profitable growth: unlike many investors, we care about how a company grows
- We scrutinize how much cash flow can be generated for every dollar of capital invested in the business
- High-return businesses should reinvest capital; we avoid companies that pour capital into low-return assets
The Intersection of Quality, Value and Price
Of this investing trinity, only price is objective and readily knowable. It’s better to buy a company of fair-quality at a low price than to buy a high-quality company at a fair price
- We measure risk as the permanent loss of capital, so paying the right price is paramount
- The riskiest investments are those which the investor pays the greatest premium above intrinsic value
- This means that overpaying for a company with high-quality assets can be more risky than buying lower-quality assets at cheaper prices
A poor management team can ruin even the best business
- Experience and good judgement are necessary to evaluate the quality of a company’s managment
- Stated earnings say nothing about the quality and the cost of generating those earnings
- Earnings power and financial leverage are fluid and must be continuously monitored
We care about value. Always.
- Despite the many ways to derive it, a company can only have one intrinsic value
- Our time-tested and proprietary analytical process is both thorough and efficient
We care about the price we pay. Always.
- The riskiest investments are those in which the investor pays the greatest premium over intrinsic value
- Overpaying for high-quality assets can carry greater risk than buying lower-quality assets at discounted prices
- Oftentimes, waiting for the right price takes a great deal of patience and discipline