At Motley Fool Funds, we don't invest in themes. We don't invest in strategies or markets or economies or index components. Rather, our goal is to invest in the globe's best businesses at great prices.
Our emphasis is on finding value. In each of our Funds, we seek opportunities that offer wealth accumulation potential over the long term. While the conditions that create opportunities for us are sometimes fleeting, we do not spend our time worrying over what other investors think about a company. We don't claim to have particular insight into the short-term movements of stocks. Frankly, we find that many opportunities are created because so much investment money chases themes, fads, and short-term trends.
At Motley Fool Funds, the portfolio manager is expected to be a stock analyst first and foremost, contributing ideas to our pool of potential investments. Our team meets formally several times a week, with each member discussing his or her most recent findings. We then review potential targets for transactions, be they buying or selling.
Our process is guided by our approach of deep fundamental analysis. We bring to bear every tool available to us, including public documents and transcripts, face-to-face meetings with management and industry experts, identifying risk factors and potential catalysts for creation of value, and we make determinations about the company's competitive position.
We are not "growth" investors -- we do not find much value in creating scenarios that guess whether a company's competitive advantage period is three years, five years or forever. We do focus on "is" analysis. What does the company do? How big is its addressable market? How much value is there in the firm at the present time? What are the assets this company holds truly worth?
It is our goal to keep substantially all of our clients' money invested at all times. We do not believe in timing the market, and we do not attempt to predict the wiggles and waggles of security prices. Still, we are risk-averse investors: We believe fully that, the better the bargain that you get for a security, the more underlying safety that you have. As a corollary, we do not believe that stock market prices are necessarily indicative of business value.
As such, while we do not seek to take on unnecessary volatility in our selection process, we will always hold investment risk as being more important than market risk. Or, in English, our focus is on avoiding permanent losses of capital, not temporary ones. This means that we do not focus on quarterly results, beating Wall Street's earnings number, or market sentiment. We do focus on companies’ ability to execute their long term plans for generating superior returns on capital.
We seek the best companies in the world at great prices. We define “best companies” as ones that are safe and have strong financial positions and management, coupled with large addressable markets in industries we understand. For international companies, we also adjust our risk premium depending on the economic and regulatory conditions of their countries of domicile.
Our preference is to be long term investors -- we believe that the best companies in the world offer the potential for share appreciation that can last for years. Yet we rigorously track each of our portfolio companies for changes in business fundamentals. Our overriding doctrine is one of market outperformance, not of prescribed holding periods.
Before we place any company into the portfolio, we go through a multi-variable process for determining its suitability. These variables include:
- Business Fundamentals: Gaining insight into the business, the management, its strategies, and the size of its addressable market.
- Financial Strength: Developing models that estimate ranges of intrinsic value, financial strength, capital returns, cash flow analyses, and risk factors.
- Management: Gaining a sense of the quality of the individuals running the company, the board, and their ability to deploy capital.
- Catalysts: Determining the factors that will cause the company’s shares to increase in value.
- Portfolio Fit: Gaining an understanding of whether a company’s inclusion in the portfolio increases or decreases our systemic risk.
- The “What Can Go Wrong” Factor: Understanding key risks that, if they come to pass, would cause an unsatisfactory result.At Motley Fool Funds, we don't invest in themes. We don't invest in strategies or markets or economies or index components. Rather, our goal is to invest in the globe's best businesses at great prices.