We segment the stocks we buy into three distinct categories based upon business model considerations and
risk/reward dynamics:
CONSISTENT PRODUCERS demonstrate a history of steady, predictable growth in earnings and dividends.
Since appropriate valuation models for consistent producers are well known in the marketplace, we seek an
edge in these opportunities by way of disciplined adherence to purchase price limits and exit price targets.
ACCELERATED GROWTH STOCKS exhibit an elevated pace of growth in sales and earnings over some
finite time period relative to the longer-term, more sustainable rate of expansion that all companies eventually
settle into. Year-over-year earnings growth for these businesses ranges from two times the growth rate of the
overall economy, up to 10-or-more times average GDP growth. We seek to own these kinds of stocks when
our independent analysis assumes either a faster pace, or a longer duration for a given company’s accelerated
growth phase relative to consensus expectations.
EMERGING FRANCHISES participate in the emergence of new industries, or apply novel business models
to existing market sectors. Unlike Consistent Producers, valuation is highly uncertain for these companies
because the size and growth rate of the market opportunity is often unknowable in the present tense. We seek
an edge when investing in these opportunities by 1) adopting a longer-than-consensus time horizon, 2) acting
upon imperfect information when “imperfect” is all that is available, and 3) exploiting a tendency for
consensus expectations to under-estimate the ultimate magnitude of many secular disruptions.
EQUITY PHILOSOPHY AND PROCESS
BUY DISCIPLINE
SELL DISCIPLINE
