Investment Principles
• Understanding the business
• Fundamentals/Valuation
• Key competitive advantages
• The management team/ownership structure
• Future prospects
• Company’s history

Understanding the business:

Understanding the company behind an investment is crucial to making informed decisions and managing risk effectively. It’s not enough to simply look at financials or stock prices; knowing the company’s business model, competitive landscape, and growth strategy provides the context for assessing its long-term potential. By understanding the products or services the company offers, its market position, and the strength of its leadership, I can better anticipate how it might perform in various market conditions. Obviously the larger the business the harder this process is as the complexity of products and geographies creates an exponentially growing challenge. Hence for the majority of my investments I focus on companies which offer one or two products in niche markets and geographies. I also have preference for companies where the management decisions have overwhelming influence on the success of the company. Markets where I tend to shy away are complex business like finance, or overly competitive industries such as airlines and auto. Also businesses where the majority of the returns are driven by macro factors such as oil/commodities are not my favourite either.

Fundamentals and Valuation

It may seem obvious, but the price you pay for an asset matters — especially in the short term. I look for companies with steady, consistent profitability growth, ideally driven by both improving margins and top-line expansion. I prefer companies with solid balance sheets and minimal to no leverage. When assessing a company, I consider its historical performance and compare it to peers where applicable. In short, as Warren Buffett wisely says, I prefer a wonderful business at a fair price, rather than a fair business at a wonderful price.

Key competitive advantages

Here I am looking for an aspect of the business model which is unique and could be maintained for some time. These could be things like patents, new technology for manufacturing a product, operational excellence, market leader in a niche market or simply a unique product which is hard to emulate. In short I need assurances that the margins which the company currently is valued at are stable and defendable.

The management team/ownership structure

This is a critical factor in my investment decision-making, whether for large or small companies. I prefer to invest in businesses where management has a significant stake in the company, either as owners or CEOs with “skin in the game.” Management’s interests should be closely aligned with the long-term success of the business and shareholder value. Ideally, I look for management teams that have been in place for a while, with a clear and consistent strategy that can be traced through annual reports and investor communications. In my experience, companies where employees and management have a vested interest in the success of the business tend to make decisions that are beneficial for long-term value creation.

Future prospects

When I buy a stock I am effectively paying a certain price for the future profits of the company. Therefore, understanding if and how the business will grow is essential. I am look for areas where there are some clear cut plans. These could be things like: new upcoming regulations (i.e electrical safety of homes), expansion of the product in new markets, offering products which could demonstrably safe money to other companies or improve their efficiency (who doesn’t like saving money?), market consolidator in a fragmented market (i.e buying up small businesses in a narrow field and benefiting from efficiencies) etc… These are all fairly long term tailwinds which could underpin growing the business in most market environments and are fairly easy to monitor.

Company’s history

I prefer companies with a track record of delivery and growth. As mentioned earlier, I review previous annual reports for consistency and clarity, particularly the financials. I like to see a history of improvements that can be clearly attributed to specific actions, such as insourcing production, scaling up operations, or expanding into new markets. For this reason, I tend to focus on well-established businesses. However, there are times when companies undergo dramatic strategic changes (e.g., due to a spin-off or acquisition). These periods of transition can present excellent opportunities to invest, as shareholder bases are often in flux. This requires diligent monitoring of regular updates, such as RNS announcements and results, which are typically published at 7 a.m. UK time.