We follow a disciplined investment process designed to narrow our investment universe to focus only on companies that score highest on our Confidence Checklist. We wait patiently for the opportunity to purchase these great businesses at great prices. The Confidence Checklist is the culmination of a thorough review of successes, mistakes, and lessons learned over our collective investment careers, distilled down to a set of characteristics that fit the pattern of our most successful investments:  

Dominant Industry Business Model: Does the business have a durable competitive advantage? Is it gaining or losing share?  

Compounder: Is the long-term outlook for the industry growing or in secular decline? Does the business generate an above average return on invested capital? Is there opportunity for reinvestment? Do we believe earnings and price targets will increase over time?  

Control of Destiny: Is management in control of the key drivers that will make the stock work? If it is a cyclical business, is the cycle closer to trough or peak?  

Management: Does management have the relevant skill set and experience that will lead to success? Are we fully aligned with pay, stock ownership levels, and incentive compensation metrics that encourage capital efficient growth? Is there stability in management ranks, or does turnover suggest a culture problem?  

Financial Strength: Is the balance sheet in great shape and part of the investment thesis? Conversely, is there a concern about leverage, liquidity, and cyclicality?  

ESG: Is the company aligned with the customer, community, and environment?

For every investment we calculate a risk- adjusted IRR using our own proprietary earnings model based on three different scenarios: (1) stress test (2) base case and (3) upside. Understanding the worst-case scenario or replacement value for the company’s assets helps determine the price we are willing to pay for a security.