Europe: Identifying the Best Companies at a Reasonable Price
My approach to investing focuses on buying good companies at a reasonable price. We focus on return on capital employed, profitability of companies and we try to buy them at a reasonable free cash flow valuation.The way we choose our stocks is the focus very much on screening through the universe of companies in Europe who are very much agnostic as to market cap, but what we’re looking for basically, are companies with good returns over the long-term. We don’t mind if they’re cyclical, as long as they normalise to a good level. We sift through and we try to do work on those companies which look like they’ve been good businesses and hopefully, would be good businesses when we invest in them. At the same time, we do a detailed analysis on cash flow and we’re trying to buy those companies at a good DCF valuation.
I would say we’re very rigid in the application of our investment style, in a sense that we are very focused on buying only good companies and sometimes we get them wrong, but we attempt to buy only good companies and buy them at a reasonable free cash flow valuation. So I would say it is our discipline on trying to buy good businesses and at the same time, our discipline on valuing them and not overpaying for them. The key to our investment process is trying to understand in a very detailed way, the businesses that we’re investing in because it’s only through that analysis that you can really understand what drives the company earnings and why it’s a good business and why it’s going to continue to be a good business. So fundamental research is a key part of everything we do, without it we could not work. So detailed analysis of companies, many management meetings, intense relationships with the companies that we own and a sense of trying to understand them, is very key to what we do.
Well, I can say what we attempt to give our investors in our strategy is the best companies in Europe at a reasonable valuation and we’ll do that as I say, through large-cap, through small-cap, where we’re trying to offer Europe's best companies at a reasonable price. So I think that is applicable to many types of investors.
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