Investment Process

The investment process has evolved through 15 years of investing, by drawing on experiences, lessons, mistakes and success. The process is repeatable and underpinned by discipline and intellectual flexibility.

HOW DO WE SOURCE IDEAS?

We look to the future and believe a combination of micro and macro factors influence asset prices

DO WE UNDERSTAND THE IDEA?

We avoid things we don’t understand. The notebook of things we don’t know is much larger than the notebook of things we do know

DO WE UNDERSTAND HOW THE MARKET SHOULD MOVE IF WE ARE RIGHT?

Our process tries to identify when a market will break out of a balanced cycle. The non-linear fundamental event, will often correspond with a non-linear price event

DO WE UNDERSTAND OUR RISK?

We can’t predict the future, so we focus on scenarios, structuring and risk management

Factors include:

  • We aim to be an ideas factory and put pieces of the puzzle together, to capitalize on inefficiencies in the market and look beyond the public market obsession with short term earnings.
  • We gain insights, information and understanding from consumers and companies and combine this with macro-economic and political themes.
  • We are explorers regularly travelling internationally to see opportunities, visit businesses and policymakers and attend events. The Founder who lived in London for more than a decade has visited 50+ countries, travelling overseas on average, 13x per year for the past eight years.
  • We focus on areas where there is an asymmetry of information.
  • Extensive cross-sectoral and global engagement with management teams, industry experts, policy makers and consumers.
  • We aim to consume information across a broad spectrum, including but not limited to, earnings calls, company reports, financial statements and regulatory developments.
  • Environmental Social and Corporate Governance – We will consider every investment thoughtfully and its impact on others and our world.
  • Strong engagement with start ups, innovation hubs, R&D centers and the next generation to determine what trends may be coming or threats to incumbent views.

We work very hard to try and generate compelling risk adjusted returns, but we will not stray outside our areas of competence.

What we look for?

Factors include:

  • Simple and uncomplicated ideas are sometimes the best.
  • Geographical Focus: Global. Our experience is investing globally. We do not have an Australian bias.
  • Business Characteristics: Customer value proposition, network effect, pricing power, strong management, R&D focus.
  • Quantitative: Compelling valuation, solid balance sheet, healthy free cash flow generation & capital allocation supportive for shareholders
  • Timing: Assess if the idea makes sense now and if price action will follow.

What we avoid

Factors include:

  • Stay away from complex situations where we do not have the capability or bandwidth. For example, ignore merger arbitrage and activist strategies.
  • Typically avoid “old world” businesses that may be value traps.
  • When we don’t have a view or don’t understand an idea, we sit on the side-lines. We are not adverse to holding cash as and when it requires.
  • The fundamental analysis is critical, but we believe structuring of positions and market entry/exit is equally important and often taken for granted by investors.
  • What may have happened in the past, or appears to be “rational”, may not reflect how the market reacts in the future. There are many cases of this today and historically.
  • We aim to maximise returns when we’re right and minimise losses when we’re wrong.

How do we prepare for this?

Factors include:

  • At the core of our process is intellectual flexibility. If the facts or our views change, we are not wedded to our biases, or models.
  • Ascertain the prevailing bias in the market to determine how one differentiates between the cyclical and the secular.

We aim to think with a medium and longer term view and not fall into a short term trading mentality, beyond our competency.

Factors include:

  • We conduct extensive quantitative and qualitative scenario analysis for a range of outcomes at a portfolio and stock specific level (for example, see table).
  • We size positions appropriately, relative to their risks. We are prepared and willing to back our conviction when compelling risk adjusted opportunities arise, but equally are content with exiting positions if the facts change.

GEOGRAPHICAL EXPOSURE

MANAGEMENT CHANGE

CONSUMER TRENDS

INVENTORY

MONETARY POLICY

CURRENCY RISK

REGULATION

TECHNOLOGY

DEMOGRAPHICS

FINANCIAL HEALTH

POLITICAL VARIABILITY

VALUATION

NATURAL DISASTERS

EMERGING MARKETS

INNOVATION

PASSIVE & ACTIVE FLOWS

FISCAL POLICY

SUPPLY CHAINS

ENVIRO, SOCIAL
& GOVERNANCE

CONSUMER BEHAVIOUR

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