Human behaviour drives markets. Investors avoid complexity, need near-term certainty and take comfort in crowds. These biases create mispricing opportunities.
We built our firm to exploit this mispricing. We see opportunity where others see complexity.
Take GE Aerospace. While others saw complexity in the restructuring of General Electric, we saw a durable franchise with 70% of revenue from aftermarket services contracts lasting 30 years, the life of an aircraft engine. A duopoly that has not been challenged in fifty years, trading at half what it was worth. We bought ahead of the split and made 230%.
This approach identifies compounding opportunities in businesses with durable franchises temporarily mispriced by complexity. Where others see problems and retreat, we dig deep to distinguish temporary noise from permanent impairment and capture value as confusion clears.
We prefer to make significant investments in companies we know well, rather than spread our capital across a wide variety of businesses we know little about. One good company is safer than ten bad ones. We run portfolios of about 25 companies held for five years or longer. By combining concentration with patience, we compound the returns from our highest-conviction ideas without dilution from over-diversified portfolios.
