Our Investment Philosophy
Our Investment Process
One team. One philosophy. One process.
Our Investment Philosophy
We strive to invest in great businesses that we believe have inherently stable values trading at a discount to our estimate of intrinsic worth. We curate our list of qualifying businesses that we believe have identifiable, sustainable competitive advantages and the ability to consistently produce free cash flow. Our patient discipline, guided by the principle of margin of safety, gives us confidence to use stock price volatility to our advantage when building concentrated portfolios.
We define risk as the probability of permanently losing capital over our five-year investment horizon. In our view, market volatility is not risk. Market volatility creates opportunity for long term investors who believe that price and value are not always equal. We try to maximize our margin of safety in terms of value over price to lower the risk of losing permanent capital. We believe that a wonderful business purchased at an attractive price has very little risk in the long run even though its price might fluctuate in the short run.
As part of our research process, our analysts identify businesses we believe have stable values and add them to a list we call our MVP list. These businesses have what we believe are identifiable and sustainable competitive advantages, produce free cash flow, and enjoy high returns on intelligently allocated capital. We patiently follow these businesses as if we own them and wait for an opportunity to invest with what we believe is a margin of safety.
Our investment universe consists of all publicly traded companies including US companies, ADRs, and foreign ordinary shares.
The majority of our analytical time is spent identifying, evaluating, and understanding a subset of high quality businesses.
The remainder of our analytical time is spent on valuation.
Only the most discounted names from the subset of high quality businesses are included in our portfolios.
We seek to reduce risk by driving down the weighted average price to value ratios of our portfolios. This leads us to size positions according to discount. The higher the margin of safety, the more of the business we want to own. We seek to be fully invested at all times but will hold cash as a residual of our process when there are no discounted, qualifying investments. We tend to concentrate into fewer names when attractive discounts are available and will own more businesses when price to value ratios are less attractive.
Vulcan Value Partners’ primary return goal is to compound capital at real rates of return significantly in excess of inflation over our five-year time horizon. We believe that by focusing on the fundamental building blocks of absolute returns we should deliver attractive returns relative to benchmarks over the long term.
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