Our investment Philosophy
Bottom up investment processes are traditionally described as “value”, “momentum” or “growth” orientated. This simplistic approach is a manufactured construct that has been defined to pigeonhole managers into a textbook investment style but lacks relevance in the real world. Value is commonly misinterpreted as relative cheapness as measured by low earnings multiples; Momentum is construed as chasing what is in vogue; and growth a willingness to pay ever higher prices for rapidly expanding businesses. These are all critical factors that are part of the same equation and must be carefully considered together when making investment decisions.
The combination of a superior business model and an astute, entrepreneurial and well-incentivised management team frequently maximises the future cash flows of a business. If acquired at a reasonable price, owning such businesses provides the prospect of generating above average investment returns. We also understand the importance of genuine earnings momentum within a business. Our competitive advantage as investment managers is our ability to better understand the fundamental drivers of superior and inferior business models and to distinguish between exceptional, capable and poor management teams. Deeper insight into these factors allows us to invest with conviction over long periods of time in great businesses, and to avoid or short sell those inferior peers.
However, the risks presented by politicians, commodity prices, interest rates, currencies, excessive systemic leverage and other macroeconomic factors are real and can have devastating impacts on asset prices. We seek to position our portfolio in a conservative manner to mitigate those macroeconomic risks. In addition, we stress test our individual investment cases to better understand how they may react in different scenarios and include this in our valuation methodology. We do not look to predict the future but rather react with pragmatism to events as they unfold.