Disciplined search process in those areas where opportunities
are normally found.
Independent assesment of intrinsic value.
Analysis of the downside scenarios.
Global assesment of the portfolio.
We are patient waiting for the market to recognize the intrinsic value.
In order to achieve successful investment returns it is mandatory to follow a disciplined investment methodology that allows to systematically look for opportunities in those situations where they are normally found, that ensures a sound calculation of intrinsic value and provides reasonable indications to buy and sell securities.
Our investment process relies on three pilars:
- Ongoing and systematic search of potential opportunities where divergence between value and price may exist.
- Proprietary research with a particular emphasis on the assessment of the potential risks and the calculation of intrinsic value.
- Portfolio analysis and stress testing.
1. Systematic search of opportunities.
We concentrate our research on situations where investor behaviour and biases can generate investment opportunities with a good margin of safety.
|Behavioural Biases||Which companies we look for||How and where to look|
|Short-term investment approach||Proven quality, capable of consistently creating shareholder value in the long term||Ongoing monitoring of 300 high quality companies and proprietary screening of the market based on Free Cash Flow yield, levarage and investment returns|
|Avoid bad news or difficult situations||Undervalued because of short term problems||Profit warning
Companies trading at 52 week lows
|Avoid complex situations||Undervalued as a result of neglect, difficulty in analysing or non-inmediate outcomes||Corporate restructuring
Family holding companies
Companies with non-recurring items
|Forced Sale||Undervalued as a consequence of an indiscriminate sale||Forced liquidation of assets, spin-offs and certain corporate transactions.
Market panic situations
2. Proprietary investment analysis
When we identify a potential investment we carry out our own analysis to assess the business stability, intrinsic value and margin of safety. For each company we analyse the following:
- Company´s business model.
- Sector dynamics.
- Historical and expected financial performance.
- Financial structure of the company.
- Corporate governance and management´s alignment with shareholders´ interest.
We determine an intrinsic value for each investment opportunity and avoid investments that do not offer a margin of safety.
We place special emphasis on identifying the potential risks of investments, trying to understand and quantify business risks and their impact on intrinsic value.
We buy when the market price is considerably lower than our estimated intrinsic value, and when we believe that the negative scenarios we have examined are already discounted in the price.
3. Portfolio Analysis
We analyse the possible reaction of our companies to certain external variables: the business cycle, interest rates, inflation, geopolitical crises and specific macroeconomic events, to limit exposure to any specific variable.
We diversify our portfolio with the sufficient number of investments to allow us to hedge ourselves against unexpected situations.