We pick stocks of profitable and properly managed companies that have some kind of durable competitive advantage working on their favour, allowing the magic of compounded interest to happen over time.
To find these treasures, we constantly scan for companies around the world searching for strong fundamentals and peruse over hundreds of income statements and balance sheets.
We place strong emphasis on buying great companies at a fair price or better: the entry price is calculated using our desired annual return as a reference, and not the other way around.
We consider ourselves business owners and judge the merits of our investments based on the companies' performance, instead of the stock price.
Our target is an annualized compounded return of 15-20%, which can only be achieved buying great companies capable of reinvesting our earnings for a long period of time.
All the companies in our portfolio share these characteristics:
- Fat business margins
- High and stable returns
- Above average growth rates
- Predictable revenues, earnings and margins
- Little or no debt on the balance sheet
- Little or negative dillution rates
- Constant spending patterns
- Outperform the competition
- And many others!
We don't attempt to make money in the stock market. We buy companies on the assumption that the stock market could close the next day and not reopen in five years.
Our investing methodology is inspired by Phil Fisher, Charlie Munger, Warren Buffet and to a much lesser extent, Benjamin Graham.
Constantly scan markets from all over the world looking for prospective investments, and study one by one using the process below.
Would a bank lend money to this company? Study company's financial health as a lender. Discard insolvent companies or very indebted companies.
How good is the business? Discard commodity type businesses with low or fluctuating margins and operating metrics. Discard companies in highly-competitive industries.
Discard poorly managed companies with unpredictable or decreasing revenues, net earnings or earnings per share. Cashflow statement must be stable and predictable.
Discard companies that don't have a strong brand and depend too much on research and development or property, plant and equipment.
Evalute how the company does against its competition and companies in the same industry. It should stand out as one of the leading companies.
Verify the company's performance and find advantages. Discard companies that pose a future danger or flash red lights (Obsolete industries, high dillution rates, zombie companies, etc).
We'd like to buy this company. What annual return would make us happy? Project future earnings using min/average/max operating metrics and determine entry price.
When the share price meets our predetermined entry price, buy the company. If the price is not there yet, we might write a put option and earn a premium for waiting.
Monitor the performance, financial health, expense items, shares outstanding and debt levels of the company regularly. Hold the company as long as the business is sound.
Sell our stake in the company only if the company is no longer performing as it should or any red flag persists. The best holding time for a good company is forever.