Here, we will post write-ups on companies we study and may hold in our portfolio. We see this as a way to improve the quality of our research and give our followers a glimpse into our thought process. We do not intend to influence anyone's investment decisions, and before making any, it is mandatory to do your own research.
We seek mispriced opportunities, mostly in the world of small and micro-caps. We consider ourselves followers of the value approach, but growth is also important to us. Ideally, we want to buy growth companies at a value price, but this is rare. That's probably why we only find a handful of such investments each year.
We start by performing a discounted cash flow analysis based on normalized historical parameters. If the stock passes this test, we move on with our process. We are also quite conservative in our approach and never assume that a company will grow at more than 20% for the next five years or trade at a multiple higher than 20. This is a great way to eliminate companies from consideration. Companies that meet these criteria already have those expectations priced in, and while they may be great investments, they are not what we are looking for.
We are aware that well-managed indebted companies can sometimes be great investments, but a low debt level is an absolute prerequisite for us. We see this as an additional margin of safety and insurance against our own ignorance. Over the years, we have realized that evaluating management teams based on interviews, earnings transcripts, presentations, etc., does not make much sense, as they all seem perfect. Therefore, while we still read those, we use the company's returns as our measure of management. It also helps if the management team has a significant ownership stake in the company.
Being generalists and constantly seeking to widen our circle of competence does not seem to help us be absolutely sure that a particular investment is right for our portfolio. However, having 80% of our portfolio in our 10 best ideas does not make us fans of diversification either.
That's it, more or less. We hope you enjoy our writing, but we really want to hear from you about what we're missing or why our ideas aren't worth pursuing.