PUBLIC HOLDINGS
We look for opportunities where the market's price per share is well below our estimate of a company's intrinsic value per share.
With a background operating businesses, we believe that markets do not always value businesses correctly. Frequently this is due to human emotions, behavioral biases or investors' beliefs about the economy (the macro environment) impacting the prices of companies (the micro), often expressed through passive investment products such as index funds and ETFs.
Investment Philosophy
Compelling valuation - creates an asymmetric "reward relative to risk" payoff
Businesses run with an ownership / entrepreneurial mentality
Companies with relative competitive advantages - they should earn above their cost of capital over a cycle
Out of favor due to an issue that we believe is temporary
Essentiality
We look for opportunities where the market's price per share is well below our estimate of a company's intrinsic value per share.
With a background operating businesses, we believe that markets do not always value businesses correctly. Frequently this is due to human emotions, behavioral biases or investors' beliefs about the economy (the macro environment) impacting the prices of companies (the micro), often expressed through passive investment products such as index funds and ETFs.
Investment Philosophy
Compelling valuation - creates an asymmetric "reward relative to risk" payoff
- Low multiples of free cash flow or tangible book value which would attract a knowledgeable, strategic acquirer.
Businesses run with an ownership / entrepreneurial mentality
- We prefer businesses operated by their founders or by executives who took career risk in leading a business spun-off from a parent company.
- Hallmarks of ownership mentality are material insider ownership, focus on "per-share" value and incentive compensation tied to "return on" metric.
Companies with relative competitive advantages - they should earn above their cost of capital over a cycle
- Consolidated markets
- Niche orientation
- Low cost operator
- Localized scale
- Exclusive distribution rights
Out of favor due to an issue that we believe is temporary
- Our research focuses on whether an issue is permanent or temporary, what we call the "investment controversy."
- If we believe an issue is temporary, this can be our variant perspective relative to the market.
- Typically, once a company resolves this temporary issue, free cash flow and multiples revert back toward more normal levels.
Essentiality
- Businesses that are needed in day to day life or to make an economy function.
- "Boring is Beautiful" - industry dynamics change little over time, so that economics are sustainable for the next 5 to 10 years.
PRIOR INVESTMENTS
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Parking lot operator (acquired)
Automotive maintenance & repair shop franchisor (acquired) Tire manufacturer |
Energy equipment distributor
Manufacturer of commercial cleaning products (acquired) |