In the third quarter of 2012, I wrote about our investing process in the letter titled Inventing a Flying Machine. I discussed the importance we place on pilot control (manager skill) and wing design (process) over what seems more common, an increase of horsepower (legions of analysts). The letter highlighted the concept of soaring, how we source lift or quality investment ideas, how we take each investment idea through an initial checklist, and how we categorize the magnitude of performance we expect from those ideas (thermals, ridge lift, and lee waves) to size the position appropriately… View PDF »

I have never written at length about our transformation category. Toward our mission of compounding capital it would be logical to assume that our compounder category sufficiently supplies the best opportunities for our overall investment objectives. We define compounders as businesses that have superior returns on tangible assets employed in the businesses, and we expect those returns to be sustained or improved over a five-year or longer time horizon… View PDF »

 At the turn of the twentieth century, a handful of adventurers were convinced that the dream of flight was attainable and thus the great aviation race was underway. Two leaders emerged, each with drastically different strategies. Samuel Langley, armed with a contract from the U.S. War Department and the resources of the Smithsonian Institution, was confident that he could solve the problem of flight with power. Langley’s mental image was that of a stone skipping across water, and the energy applied to that stone forcing it to stay afloat. The Wright Brothers from Dayton, Ohio, were the other leaders in this race. View PDF

The French beekeeper and author Abbé Warré opened his book Beekeeping for All with a clear definition of a beekeeper’s mission. “Apiculture or beekeeping is the art of managing bees with the intention of getting the maximum return from this work with the minimum of expenditure. The production of honey is the main purpose of beekeeping, one that the beekeeper pursues before everything else, because this product is valuable and because it can be weighed and priced.” Intelligent investing shares a similar mission … View PDF

Compounding should be the overarching mission of investing activities for capital with a multiyear time horizon. Toward this mission, we look to allocate capital to the highest asymmetric expected return opportunities – those investments which share the highest internal rate of return (IRR) and highest confidence around margin of safety. While this stated mission is simple, in practice it proves challenging, as the universe of prospective investment ideas is infinite and … View PDF

This quarter I want to share a concept with you that has more or less defied words for me throughout my investing career. While I have failed to articulate it effectively, I believe it to be, and it has been a primary objective of our research process. Great investors, defined by a long history of superior rates of compound returns, have been equipped with this ability. For years I have referred to this as “finding the critical data points” of the investment opportunity. It’s the cornerstone of an investment thesis that will determine… View PDF