The goal of SVC is to compound capital at above-average rates of return while taking on below-average risk. There are three main pillars to my investment philosophy: buy high-quality businesses with exemplary management teams at attractive prices.
The first two pillars – a high-quality business and exemplary management team – are what drives the long-term compound returns on our capital. The third pillar – an attractive price – is how I mitigate risk and avoid permanent loss of our capital.
A high-quality business has:
- Durable competitive advantages,
- A long runway for growth, and
- Earns high returns on incrementally invested capital.
An exemplary management team has:
- A strong track record of performance,
- Significant skin in the game, and
- Is honest and capable.
An attractive price means:
- The business is selling at a price much less than what it is worth, and
- It typically requires a contrarian view of the business.
Checking the box for all three pillars is very difficult because high-quality businesses with great management teams don’t typically sell at attractive prices. Paying too much for even the best businesses can result in a poor investment. When I find a business that checks the first two boxes selling at a price that checks the third, I like to make a meaningful investment in that business, typically resulting in a concentrated portfolio.