Our mission is to deliver consistent above-average returns through a disciplined process focused on actively managing downside risk. We employ fundamental analysis for security selection and a systematic approach to portfolio construction. Let's break this down in simple terms:
First, we conduct fundamental analysis to identify high conviction picks for our investable universe. We do not use traditional stock screeners or care for them. Rather, we focus on companies with strong macro tailwinds. Think cars vs horses, eCommerce vs brick-and-mortar stores, cloud computing vs in-house hosted servers. We start with a secular thesis—such as eCommerce has more growth runway—then work our way down by thoroughly assessing the key players and verticals in that space (e.g. online marketplaces, payment processors, logistics). Additionally, we narrow this down to companies (Marketplaces: Amazon, Walmart, Shopify, Alibaba; Payment processors: Square, Paypal, Stripe, Mastercard, Visa). Once we have identified a vertical, we conduct thorough research on key players and the competitive landscape, paying close attention to the business model, moat, growth strategy, and people. We value companies - not to set price targets but to assess risk-reward ratios. This analysis is time-consuming (typically 4-6 weeks including countless debates) but worth it. We hold ego-free, data-driven in-depth discussions with a keen focus on getting the right answers and letting the best ideas win out.
Secondly, we employ a systematic process to select how much to put into each stock in the portfolio. Investment outcomes depend on two things (a) knowing what to invest in (b) knowing how much to invest. We covered the former but the last part is equally critical. Here, we employ a quantitative/systematic approach to ensure repeatable processes. We researched, developed, and built our processes after almost two years of R&D with one goal in mind: minimize the probability of loss. In doing this, we ignore the upside potential of each individual company and focus rather on minimizing the risk of permanent loss of capital (i.e. downside risk). Additionally, we understand markets are not perfect, and every once in a while a pullback occurs. We integrate a business cycles prediction (BCP) feature that allows real-time prediction of the likelihood of a downturn thereby helping us strike a balance between aggressiveness and defensiveness in the portfolios.
Key tenets of our approach:
Have a long term outlook
Focus on a concentrated portfolio of high conviction picks
Allocate assets with a strong emphasis on managing downside risk
Employ a repeatable systematic approach that puts emotions aside when investing
Strike a balance between aggressiveness and defensiveness via real-time market cycle prediction
We take the time to research and backtest everything we do. No shortcuts!