Cook & Bynum seeks long-term growth of capital by making concentrated investments in a select few undervalued domestic and foreign businesses. We do not artificially constrain ourselves by style boxes or other arbitrary factors. Instead, we are opportunistic. We will go anywhere we can find value across geographic regions, industry sectors, and market capitalizations. This pure value investing philosophy has been heavily influenced by the teachings of Benjamin Graham, John Burr Williams, Warren Buffett, and Charles Munger, among others.
To minimize the risk of permanent capital loss and maximize long-term returns, we make our investment selections using the following core criteria:
Circle of Competence
We only invest in businesses whose core economics and future prospects we can understand and reliably predict. We know our ability to recognize our limitations will be as important as our ability to execute competencies.
We seek to invest in companies that have durable competitive advantages that allow them to produce predictable cash flows and earn high returns on equity for extended periods of time. Without sustainable competitive advantages, a company’s results will be difficult to effectively forecast.
We invest in companies whose management teams are capable and trustworthy, think and act like shareholders, employ conservative balance sheet and other accounting policies, and make wise capital allocation decisions. The risk of permanent capital loss can be lowered significantly if we only invest in businesses whose managers view shareholders as partners.
We seek to invest in companies whose shares are trading at significant discounts to our estimate of their intrinsic values, as this “margin of safety” serves to both prevent permanent capital loss when we make mistakes and also provide outsized returns when we are correct.
We use fundamental, bottom-up research to carefully assess whether an individual company meets these core criteria. This research often includes, but is not limited to, review and analysis of company filings, discussions with management, visits to company facilities, and conversations with the company’s customers, competitors, and suppliers. When a company appropriately satisfies the first three of these criteria (Circle of Competence, Business, and People), we will value it by projecting the future cash flows expected to be generated by the business and then discounting these ‘‘owner earnings’’ into present-value dollars using an appropriate interest rate. We will only buy a company’s security only as long as it is trading at a large discount to our conservative appraisal of its intrinsic value.
Learn more about why we think our approach is different.