This is the mental model I use when analysing a company’s quality and valuation.
Model models allow complex data to be quickly and accurately turned into actionable insights. They provide a thought process for filtering the signal from the noise and for separating out what’s important from what’s not important.
We only hold companies that can: (i) invest their capital at significantly higher returns than their cost of capital (value creation); and (ii) raise their prices without impacting demand (price setting).
Their returns on capital must be high, consistent and unleveraged, with competitive advantages, ideally switching costs and network effects, preventing high returns from being competed away. We pursue a long-term strategy that aims to minimise transaction costs and defer capital gains by only investing in companies capable of compounding value indefinitely.
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Comments
Good tips