Why we’re focused intently on identifying resilient companies with above average growth prospects - and not overpaying
Transcript
Chris Davis:
As investors look out at today's market, there's an enormous amount of unsettled feeling and uncertainty. And in a way, we think that this is wise, but we also think that it creates the danger of people wanting to move to the sidelines. And this is a time when you need to separate the notion of price from the notion of value. Look, the markets could be in for, for rocky times, uncertainty, higher volatility, that's something that should be expected over time.
Corrections are an unpleasant but inevitable part of the landscape. But when you look at that and you think through to what is happening to the underlying businesses, this is where we see the opportunity to build wealth, not just in the next year or two, but over the next five and ten years. And the way we define that opportunity is by being selective and narrow, rejecting a lot of the average companies and trying to build a portfolio that has the sorts of characteristics that will help investors navigate these choppy and turbulent times that we see ahead.
And in particular, the characteristics that we're looking for are what we call the value investor's dream, the combination of durable and resilient growth with value prices, with cheap undervalued discounted prices. Now let's put some flesh on that idea. So, by rejecting maybe 90% of the companies in the S&P 500, we built a portfolio of companies that are generating average or even above average rates of growth, doing so with resilient balance sheets and proven business models that will help them navigate uncertain and disruptive times. And yet, we built that portfolio at valuations that are today 30-40% below where the market is trading.
We think that's what creates a margin of safety. Now we can't make predictions about the short-term direction of stock prices, but what we can say is that the types of businesses that we own have the proven durability, resiliency, low prices, and long-term growth prospects to help investors build generational wealth over the long-term.
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