Investment Philosophy

Process:

When constructing a diversified stock portfolio, individuals effectively become partial stakeholders in multiple businesses, and the portfolio's performance is intimately tied to the success of these constituent companies.

Our primary goal is to consistently achieve superior medium to long-term performance by identifying high-quality companies with strong fundamentals, promising growth prospects, and, most importantly, trading at attractive valuations.

Our approach involves conducting thorough research by utilising market insights and complementing this with our proprietary research. Engaging in company visits and maintaining regular contact with management teams are fundamental aspects of our investment strategy.

We are prepared to hold cash reserves unless we can identify investment opportunities that align with our rigorous criteria for both quality and value.

During periods of market volatility, we maintain a steady hand, provided that the fundamentals of the companies in our portfolio remain robust.

Team Collaboration

Cultivating a collaborative team culture is of utmost importance to us. We firmly believe that open and honest communication fosters the greatest potential for success. We engage in daily discussions encompassing a wide spectrum of investment opportunities and actively participate in select ones.

Control the controllables

Nobody can accurately predict short-term movements in currencies, interest rates, stock market indices, commodities etc. Value investors focus on what they can know. This encompasses quantitative factors (company profits, balance sheets, intrinsic value etc) and qualitative factors (competitive positioning, quality of management etc). If we understand the businesses we are buying, have a reasonable idea of their future prospects, and purchase at reasonable price (margin of safety)*, the medium to long term results will look after themselves.

Think as a business owner

When buying shares, one becomes a part-owner of the business. Focussing on the underlying operating businesses is far more productive than focussing on short-term price movements. To that end, it can be helpful imagining oneself as owning the entirety of the companies in a portfolio. As an example, if the portfolio consisted of BHP, Microsoft, CSL, Nike and CBA it might be tempting to buy and sell based on short-term price movements, newspaper articles, broker research etc. If an investor were to imagine themselves owning 100% of each of these businesses, the behaviour and advice would change – you would be feted as a mogul and others would be seeking your advice, notwithstanding that the economic outcomes are almost identical.

Embracing Liquidity

We have no reservations about maintaining a cash position unless we can pinpoint investment prospects that adhere to our stringent standards for quality and value. We view cash as a valuable option.

Opportunity Cost Analysis / Rebalancing portfolios

When analysing prospective investments, our threshold question is does the probability-weighted return expectations of this company exceed what we already hold? Given an emphasis on quality holdings, this sets a high bar for new holdings to enter the portfolio.  

Focussing on Downside Protection

Given the vicissitudes of markets and idiosyncratic risks, our analysis focusses on protecting the downside. We look for such situations paired with appealing upside potential. Simply put, if you can’t lose money on an investment, most other alternatives look good.

*A margin of safety (or safety margin) is the difference between the intrinsic value of a stock and its market price.