The Fund seeks to invest in two types of businesses: a) Compounders, and b) Special Situations.
A “Compounder” is a high-quality business which has attractive unit economics, insulated by a durable economic moat, and a long pipeline of growth opportunities. We seek to partner with shareholder-oriented management teams which have a track-record of making sensible capital allocation decisions. Importantly, we seek to own these companies at an attractive price relative to a conservative estimate of intrinsic value.
Special Situations are generally investments in businesses experiencing temporary hardship or undergoing significant corporate change. Due to the uncertainty which clouds their future these stocks are often discarded at depressed valuations. Their investment appeal is characterised by a bargain price which promises favourable asymmetrical odds of limited downside risk and significant upside potential.
The Fund’s investment style is inspired by Mohnish Pabrai’s concept of “Heads I win; Tails I don’t lose much.” The Fund will only deploy capital in a business when we believe our downside risk is extremely low and it is highly probable that our original investment will be paid back within three to five years.
We view the stock market as a medium which provides us the opportunity to become part-owners in world-class organisations and to exploit irrational valuations placed on unpopular companies. The Fund will place large infrequent bets when we consider the odds to be extremely favourable and we will generally hold between eight and twelve stocks diversified among various industries.
The manager has a strong dislike for losing money and refuses to ‘lower the bar’ if the Fund is unable to find compelling opportunities. This will often cause the Fund to hold large amounts of cash in rising markets. If we can avoid the losers, the winners will take care of themselves.
Ultimately, the objective of the Fund is to preserve our investors capital by focusing on downside risk to prevent permanent loss of capital and to maximise long term profits through intelligent capital allocation.