- A portfolio comprised of superior businesses is the foundation to successful long-term investing
- A company’s earnings growth – the quality, sustainability, and consistency – is the primary determinant of its long-term stock price appreciation
- Once attractive businesses have been identified and studied, shares should be accumulated only when the price offers an attractive risk/reward tradeoff
- Building a portfolio of fundamentally superior growth businesses and avoiding over-paying for their shares should reduce volatility and generate strong price appreciation
As the chart to the right illustrates (click it for a larger view), over time, the market rewards businesses that can grow earnings faster, more reliably, and more consistently with higher stock prices (upper–right quadrant) and punishes those that cannot with lower stock prices (lower-left quadrant).
If you would like to learn more about our equity philosophy, please continue reading at Capital U – an area of our site dedicated to advanced topical discussions.
- Earnings growth supported by similar or better cash flow growth
- Solid balance sheets that can support the business through uncertain economic conditions
- Experienced and accessible management teams focused on efficient cash flow allocation
- Participate in markets with secular growth dynamics
- Sustainable balance of revenue growth and operating income growth
- Wide-moat competencies supportive of high barriers to entry
- Market demand for products and services are relatively steady in all economic conditions
- Flexible business models that can minimize the impact of weak economic conditions
- Less capital intensive businesses generate high levels of free cash flow that management can allocate (M&A, dividends, share repurchase)
As demonstrated in the chart to the right (click it for a larger view), our disciplined analysis of quality, sustainability, and consistency results in a portfolio of companies that generates faster and more predictable earnings growth than the market over time. The higher level of predictability serves as the fundamental foundation for lower volatility across a full market cycle.
Following the last two downturns, it has taken an average of 3.75 years for the S&P 500 to fully recover its lost earnings. This recovery period was substantially less for our high-quality, consistent, growth companies.
If you would like to dive deeper into our equity strategy, please continue reading at Capital U – an area of our site dedicated to advanced topical discussions.
If you are an active social media user, please consider sharing our website content with your acquaintances who may benefit from our services.