To estimate intrinsic value, the business must be understandable, and we must be able to reasonably forecast its cash flows. For long positions, we seek businesses with sustainable competitive advantages, conservative balance sheets and management with an ownership mentality. The inverse is often true for our short positions.
Independent thought is a hallmark of our approach and an important underpinning of our success. Idea generation often comes from our investment team’s experience and expertise. Having followed companies for many years, our portfolio managers and analysts possess deep knowledge and understanding of companies’ competitive situations and appropriate valuation levels.
We use a discounted cash flow analysis over a long time horizon as our primary method to determine whether there is a discrepancy between the current market price and our estimate of intrinsic value. On the long side, we not only search for stocks trading at a discount to intrinsic value but also businesses whose intrinsic value we believe will grow over time. On the short side, we are looking for opportunities where current valuations appear to imply an overly optimistic view of future fundamentals.
Having a long-term investment orientation requires a deep understanding of sustainability — in business models,
management teams and operating practices.
Our fundamental equity research process includes evaluation of all material risks and opportunities that could impact the
value of an investment over the long term, including issues related to sustainability and ESG risk factors.