INVESTMENT PHILOSOPHY
long-term absolute value
Patient Capital’s investment philosophy is based on long-term absolute value. The objective of our investment philosophy is to focus on the preservation of capital while earning superior rates of return. Patient Capital attempts to meet these objectives by purchasing only those securities that meet very strict criteria for value and quality. Investments are only considered in companies that have a long history of operation and are in stable businesses that PCM can analyze and understand with a high degree of certainty. Our portfolios are concentrated and, therefore, will not hold a large number of securities.
PCM’s portfolios are constructed entirely on a bottom up basis. Each investment is analyzed through a very independent and rigorous analytical approach. Reliance on external research is minimal. Historical annual reports are analyzed to determine balance sheet strength, sustainability of cash flows and profitability. A very important component of the analytical process is an assessment of the company’s accounting policies. In depth interviews are often conducted with company management in order to assess future strategy and competitive position. In addition, a considerable amount of time is spent attempting to estimate “intrinsic value” through the use of discounted cash flow models and traditional valuation measures such as price/earnings ratios and price/book ratios.
New investments are only purchased if PCM’s criteria for high quality fundamental characteristics such as superior returns on capital, substantial free cash flow and low debt are present as well as a security price that is trading at a substantial discount to PCM’s estimated intrinsic value.
During certain market conditions suitable investments cannot be purchased and the portfolios may hold substantial cash balances. Patience and discipline prevails to protect the capital and wait for the appropriate time to invest. We are confident to separate from the crowd if it would be best for our clients.
We believe that our investment philosophy is very different from virtually every other Canadian value manager. Because our clients do not require us to be fully invested we do not have to compromise our standards for quality and price in order to meet a fully invested mandate.