“Price is what you pay; value is what you get.”
– Benjamin Graham
At ROCKLINC Investment Partners we adhere to a disciplined value approach to investing. Value investing is simply the strategy of buying a security at a price that is lower than the true worth of the security. In order to execute on this strategy, our investment professionals utilize a disciplined investment process to analyze and understand the securities we invest in with a particular focus on the balance sheet strength of the underlying business (or country in the case of sovereign debt).
We believe the lower the price you pay for a quality asset, the greater the potential investment reward and the lower your investment risk.
The low price paid limits downside market risk and increases appreciation potential. Our focus is on “what is” in terms of understanding a business or security, in contrast to “what the market view is.”
In addition, we believe that a firm’s balance sheet is the best, albeit not the only measure, of a company’s value. Predictions based solely on future operating earnings are not only less reliable but do not capture the possible impact of corporate events such as mergers and acquisitions, changes of control, management buyouts, share repurchases, refinancing, reorganizations, asset sales, spin-offs, investments in new ventures and corporate liquidations.
We will only invest in businesses that are well-capitalized, run by competent and honest management teams, understandable, have established and leading franchises and operate in sound political and regulatory environments.
We invest in a handful of high quality companies ensuring adequate diversification but avoid a common investment error, over-diversification. This allows us to invest in our best ideas and stay current with each investment.
We make investments based on a 3-5 year holding period, although our ideal holding period is “forever”. Having a longer holding period allows us to focus on the true fundamentals of a business rather than trying to time short-tem price movements. For taxable accounts, lower turnover (longer holding periods) increases the tax efficiency of client portfolios.
We will only invest in securities when they are trading at a discount to their intrinsic value and have the potential for attractive growth in the value of the security over the next 5 years. This helps to mitigate investment price risk and increase our long-term rates of return.
We believe that in order to maximize the value of your investments, one has to place each investment opportunity in the context of the current economic environment. Bottom up investing in quality securities of great businesses cannot ignore the top down macro conditions!
In the investment business, it is important to remember that acknowledging what you do not know is a sign of both intellectual humility and wisdom. We focus on sectors and businesses we believe we have a high degree of competence in, which allows us to truly understand the most important aspects of each investment.
“You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.” Benjamin Graham
We focus on the medium to long-term issues that matter and try to reject the short-term noise. This requires us to be patient and, when the time is right, to act with decisiveness. Opportunity meeting the prepared mind is our business!
All investments begin by measuring risk, especially reputational and regulatory risks. Strong brand equity in the business, reputation and integrity are the most valuable of assets and can be lost in a heartbeat.
Other key risks that are often overlooked include inflation and interest rate risks. Strong businesses with powerful balance sheets that provide essential products and services are better equipped to survive inflationary periods. They are able to re-price their products in periods characterized by rising interest rates and by controlling their debt levels and generating free cash flow.
We prefer to invest in businesses that are primarily driven by organic growth rather than growth by acquisitions. It is important that the barriers of entry into the industry are high, making it more difficult for new entrants.
Some industries and businesses are much more consistent in generating above-average returns. We have little interest in any company that cannot generate, through a full business cycle, a high rate of return on the capital invested in the business.
Although debt can be used wisely, over time most individuals, companies and governments abuse debt and over leverage themselves, their businesses or economies. We invest in businesses and economies that are more disciplined with their use of debt. Financial flexibility rooted in a strong balance sheet and conservative accounting policies are the foundation upon which wealth is created and sustained over time.
Don’t overlook the obvious by drowning in minutiae.
“Simplicity is the end result of long, hard work, not the starting point.”
Frederick Maitland
“Money can beget money, and its offspring can beget more.”
Benjamin Franklin
Upon drawing these items together, the most important ingredient becomes discipline and patience. One person stated that patience is the art of waiting without tiring of waiting. Another investor stated that the big money is not in the buying and selling… but in the waiting. Warren Buffett has made the point over and over again, that he didn’t get to where he is by going after mediocre opportunities, but by waiting for the fat pitch!
We have one goal: to create a portfolio of high-quality assets that trade at attractive prices and are customized to the needs of our clients.