CONCENTRATE IN OUR BEST IDEAS

FOCUS ON HIGH-QUALITY COMPANIES

INSIST ON A MARGIN OF SAFETY

INVEST IN BUSINESSES WE UNDERSTAND

INVEST FOR THE LONG-TERM

EAT OUR OWN COOKING

Identify investment candidates. Our primary focus is on high quality companies, namely those with above average long-term revenue and income growth, high operating margins, high returns on assets and equity, modest capital requirements and strong balance sheets.

Gather information. We are research driven, fundamental, bottom-up investors. We gather as much relevant information as possible starting with a company's SEC filings, recent investor presentations, and earnings conference calls. We attend management and brokerage sponsored investment meetings and read sell-side analyst reports and industry specific publications.

Develop an understanding of business. We develop an understanding of the underlying business fundamentals of each company we research and focus on answering questions such as why has the company been successful, what are its business economics, what are its competitive advantages and are they sustainable, how fast can it grow in the future and how much cashflow can it generate.

Evaluate management. As long-term partners in the companies in which we invest, we need to be comfortable with the management teams running our businesses. Factors considered in our evaluation: Does management have a well articulated, reasonable business strategy; reasonable financial goals; a shareholder-oriented capital allocation discipline; and executive compensation plans aligned with shareholders' interests.

Develop valuation framework. We develop company specific valuation models to determine the price that a well-informed, rational businessman would pay for the entire company in a negotiated transaction. We refer to this price as the company's "intrinsic value".

Test key assumptions. We make key assumptions explicit in our valuations thereby allowing us to determine how changes in these assumptions affect our estimate of a company's intrinsic value. We prefer companies that remain cheap under a reasonably wide range of scenarios.

Patiently wait for buying opportunities. Patience is a virtue, especially for value investors. Not only do we want to invest in high quality companies, but we want to do so at prices that provide an adequate "margin of safety". We only invest in companies selling at 20-40% discounts to our estimates of their intrinsic values.

Be a disciplined seller. We are as disciplined in selling stocks as we are in buying them. We always sell stocks once they reach our estimates of intrinsic value.






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