Well-Rounded Research
I started back in the eighties as part of a centralised research group. Each person was responsible for an individual sector. Instead, what we do within our concentrated approaches today is we work as a team. I’ll give you an example, when we go to visit Apple.inc, we bring our retail analyst, we bring our tech analyst, and I go given my media experience. What is Apple? Apple is a little bit of a retailer, a little bit of a tech company and a whole lot of a media company. So I think the combination of three people around the table asking questions really brings some huge synergies to the research that we do on Apple that most centralised research shops can’t provide.
To us, the ‘idea’ is only the starting point. What we then do is take that idea and do a couple of months of due diligence on the idea. Reading all the K’s and the Q’s and talking to customers and talking to suppliers and really understanding is this a quality business, is this a great management team, effectively if we were the last shareholder in this company is this the kind of business that we want to own. That’s the process that we go through to define if this is one of the great businesses that deserves a spot in our portfolios.
High Conviction or the Long Term
One of the things that differentiates our concentrated growth investing approach, is we are longer term investors. To me the greatest investment opportunity in the market today is in the 2-5 year horizon. There are dozens and dozens of estimates for this quarter and this year. Where there are very few estimates is 2 through 5. If we can find companies that beat the fade or beat the expected earnings decline, that can consistently put up 12%, 15%, 20% earnings growth for a full 5 year period, that’s where we can add the most value.
Quality Growth at a Reasonable Price
And when we look at the portfolio in aggregate, yes the PE is slightly higher than the S&P500 but the growth in our estimates is more than double that over the next 5 years of the S&P500. We are quality growth investors, what that means is we’re looking for companies that have great volume growth, great management teams, solid balance sheets, are non-cyclical, have good barriers to entry - businesses that we think have real moats around them. But we boil that down into an even more simple question, that is do we want to be in this business, with these people? If the answer is not ‘yes’ to both parts of that question we just don’t have to play within a concentrated portfolio.
