Our Process

Quality Before Value

We seek to identify quality companies and purchase them at a discount.

We look for "Quality" in three areas:

Financial Quality is characterized by a rock solid balance sheet, strong free-cash flow generation, and high Cash Returns on Net Operating Assets (CRONOA).

Business Quality is determined by identifying sustainable competitive advantages and ensuring the business is both understandable and not subject to obsolescence.

Management Quality is understood through the lens of past capital allocation decisions.  Has the company allocated capital in a way that maintains the firm’s competitive advantage, and has that capital lead to increasingly efficient free-cash generation?

A simple absolute valuation model

We do not believe in elaborate free-cash flow models because the many assumptions they rest on create additional sources of error.

Once we have identified a company that meets our quality criteria we use our absolute free-cash flow model to derive a risk-adjusted value.  Our portfolios are constructed from the bottom up, based on the merits of individual companies.