ABSOLUTE TRUMPS RELATIVE
Do not overpay. When necessary, invest patiently.
Seek to limit permanent losses to capital.
Focus on high-quality businesses that can be valued with a high degree of confidence.
RISK REQUIRES COMPENSATION
Require an adequate return relative to the risk assumed.
Act opportunistically. Take risk when sufficiently compensated.
PROCESS REWARDS CONSISTENCY
Maintain consistent investment process despite pressures to conform.
Do not sacrifice investment standards to manufacture opportunities.
Predictable Free Cash Flow
300 name possible buy list
Established companies up to $10B market cap
After determining whether it's a good business, we ask,
"Is it selling at a good price?"
Unique Valuation Methodology:
Discounting free cash flows (DFC)
Discount rate 10-15%
Normalized free cash flows
Growth rate 2-5%
Discount to NAV/balance sheet valuations
Stock reaches calculated valuation
Valuation adjusted below stock price
Combination of operating and financial risk
Position can no longer be valued with a high degree of confidence
avoid adding to positions with declining valuations
Free Cash Flow: Cash from operating activities minus capital expenditures.
Discounted Free Cash Flow (DCF): A valuation method used to estimate the value of an investment based on its future free cash flows. DCF determines the present value of expected future free cash flows using a discount rate, or required return.