“Fundamentally driven, independent, bottom-up research”

Initial Screen

~250 companies

Where do we get our ideas?

  • By continuously studying the segments of the economy that show strength, we discover most of our potential portfolio candidates as a consequence of day-to-day research in these areas
  • In an effort to cast a wider net, we also run a multifactor screening process for growing companies that meet our criteria for revenue and earnings growth
  • We cross reference the lists to ensure completeness, and then we maintain and update those lists over time

Deep-dive analysis

~100 high-quality growth companies

What questions do we answer in our fundamental research process?

Industry analysis

  • How attractive is the structure of the industry?
  • What is the basis of competition? (Price? Innovation? Service?)
  • Who are the players?
  • Have the competitive dynamics been changing? How could they change in the future? 

Company’s competitive advantages

  • What are they? How strong are they? How sustainable are they?

Company’s growth profile

  • What are the company’s key growth drivers? (Market growth? Market share growth? Margin expansion?)
  • How long will growth last?

Company’s management team

  • Who are they and what is their past experience?
  • How long have they been at the company?
  • How are they compensated?
  • Do they have a long-term strategy and have they delivered on targets in the past?
  • How have they allocated capital in the past?
  • Do we trust them?

How do we answer those questions?

  • We read tens of thousands of pages of research each year
    • Company annual and quarterly reports
    • Industry reports and whitepapers
    • Sell-side research reports
    • Magazines articles, blogs, and books
  • We attend dozens of events each year
    • Investment conferences
    • Analyst days
    • Industry trade shows
    • Sell-side hosted lunches and dinners with company managements
  • We constantly speak with industry participants
    • Analysts
    • Industry experts
    • Management teams

We use all of these tools to inform our position on the most interesting investment ideas, and to provide a mosaic for our decision making process. We understand our research process is continuous, which is why we constantly read, listen, watch, and ask.

Valuation and portfolio construction

~100 high-quality growth companies

What is our valuation methodology?

  • Model financials out for 5 years
    • Develop assumptions for revenue, margin and earnings trajectories
  • Apply terminal multiple to 5 year forward earnings
  • Calculate present value by discounting terminal value back to today using appropriate discount rate
  • Use the calculated present value as an input to facilitate disciplined process for buy and sell decisions

How do we develop conviction in our investment thesis?

  • Understand the consensus bull and bear thesis
  • Determine where our thinking is differentiated from consensus
  • Establish necessary milestones for thesis validation
    • What must happen for us to be right?
    • What are signals that we could be wrong?