We consider our investment style to have a clear value orientation, but our investments are not limited to low expectation and out of favor companies or industries. We tend to avoid very high growth businesses because they are often hard to value and therefore do not correspond with our risk-averse mindset and skeptical tendencies. We allocate client assets to companies that fall into three sub-categories of value:
- Deep discount opportunities based on current earnings and asset values.
- Companies where a recognized catalyst is in place to uncover value — spinoffs, restructurings, and turnarounds.
- Discounted franchise businesses that possess durable competitive advantages and compete in markets with attractive long-term prospects.
We believe this “controlled flexibility” is integral to meeting our return objectives.
In assessing the intrinsic value of our portfolio companies, we utilize the valuation technique that best reflects the true economic worth of a company’s assets. Our superseding goal is to determine what we would pay to own the whole enterprise based on the cash flow we believe the business will produce over the long haul (discounted at an appropriate rate). Accordingly, we primarily rely on discounted cash flow analysis and comparable private market transactions. However, we also often employ other methodologies such as liquidation analysis or replacement cost when appropriate.