Our International Focus Managed Discretionary Account (MDA) owns a portfolio of 10-15 stocks that satisfy the following criteria:
- Business quality: we look to own businesses whose intrinsic value is rising over time. This is achieved by earning returns on invested capital well above their cost of capital on a sustainable basis.
- Balance sheet quality: we want to invest in businesses with low levels of financial risk. This is always important, but especially during a period of weaker economic growth and stressed capital markets.
- Management quality: we look for management to allocate capital for the benefit of the shareholders. This means an emphasis on small, accretive acquisitions and share buybacks over large deals where value destruction is common.
- Attractive valuation: we aim to be owners of businesses with the first three criteria only when they are available at value prices. This valuation margin of safety is integral to preserving your capital as well as achieving attractive returns.
We consider this approach to be simple, intuitive and conservative. The portfolio owns no derivatives and does not short securities. We avoid companies that trade on high multiples of earnings, that carry a high debt burden, that are led by aggressive management, are highly cyclical, are in fast changing industries, or are experiencing erosion in their competitive position.