QUALITY

Company-specific attributes such as high relative profitability, durable free cash flow generation, a defensible margin/return profile, and low leverage are viewed as critical inputs to delivering excess return over a full market cycle.

SEEK STRONG COMPANY INTERNALS:

• Durable franchise position
• Above average: margins, return on invested capital, free cash flow generation
• Below average: leverage, cash flow variability
• Track record of strong capital discipline, corporate governance

SEEK FAVORABLE INDUSTRY EXTERNALS:

• Rational industry structure
• Expanding or fully penetrated addressable market

PRICE

Price sensitivity at attachment is the most critical determinant of both forward return potential and downside risk.

ADHERE TO GUIDING PRICE PRINCIPLES: 

• Price sensitivity at entry is critical
• Valuation can provide downside protection
• Incoming positions should possess a potential 3:1 up/down return profile
• Quality must not be sacrificed to achieve low aggregate valuation

DETERMINE THE RIGHT PRICE: 

• Seek attachment at attractive price relative to business value
• Utilize multiple industry appropriate valuation measures

DISCIPLINE

Strict adherence to a well-defined stock underwriting process and a robust portfolio construction framework.

• Follow stringent equity underwriting process
• Exercise patience to reach desired attachment point
• Be prepared to act when high-quality companies go on sale
• Quality and price must align