Investing in good businesses, with good management, purchased at attractive prices.

We define good businesses as those that have the ability to generate 1) predictable, 2) growing, 3) excess cash flow over a reasonable period of time. The production of free cash flow is the quantitative signpost or indicator of value creation for business owners. We spend a great deal of time trying to understand the qualitative source of consistent cash production. The source and nature of a company’s competitive advantage, preferably one that is durable and sustainable, is equally important as the financial performance.

We view good management as equally important to any investment thesis. Talented, fair-minded, capable people must be present to deliver the potential of a business as actual results for its shareholder owners. Good management in our view is therefore shareholder-oriented, has demonstrated the ability to competently manage the business, and can effectively allocate the excess cash flows generated to other high return investments. Our focus on this final characteristic, capital allocation, is one of the most important components of our evaluation of company managements.

Attractive prices refer to our focus on the relationship between the intrinsic value (range) of a business and the price at which we would invest in that business. It is our view that in order for an acquisition price to be "attractive," it must represent a significant discount to intrinsic value. This aspect provides both a margin of safety to the investor and the opportunity for price appreciation. Margin of safety is a key component to this philosophy because it allows us as investors to protect against the inevitable vagaries of the market.