Professional Specialties

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My philosophy is that we buy businesses, not stocks. We look for  long-term fundamentals that outweigh short-term worries on the Street.  We have long-term horizons and enormous patience. We look for companies  trading at a discount to free cash flow, book value and intrinsic value,  and we have a basic fundamental belief that all under-valuations will  eventually correct.

Our criteria for investment is that we look for strong franchises  that have freedom to price; strong, experienced management that’s  owner-oriented; businesses trading within 30% of tangible book value;  and we’re looking for a 10% return on equity for every dollar of book  value purchased. As an example, if a company was trading at 2 times  book, we’re looking for a 20% return on equity. We look for an earnings  growth rate for the past three years and projected forward that is in  excess to the current price/earning ratio, known as the PEG. We look for  a dividend of at least 100 basis points over the current rate of  inflation. We look for a current ratio, current assets compared to  current liabilities, of at least 2. We look for a quick ratio, current  assets minus inventory compared to current liabilities, of at least 1.

We like enough cash in working capital to cover payables and  short-term debt. We look for long-term debt that is less than 50% of net  worth. Most importantly, we look for companies that have a stated  mission to generate shareholder value. That means expansion accretive to  earnings, dividend increases, and share buybacks. And our dream  investments are companies trading for less than net working capital –  that’s current assets, minus current liabilities, minus long-term debt –  that have operating cash flow.