Investment Framework
“Remember, it’s the quality of your ideas not the quantity that will result in the big money.” - Joel Greenblatt
Quality, Growth, Value
I seek to invest in businesses that generate high returns on invested capital (Quality) with good business reinvestment opportunities (Growth) at a reasonable price (Value).
Quality
On the Quality front, businesses must have well-defined moats that prevents or at the very least, slows erosion to its profit generating abilities. The evidence of such quality businesses typically shows up on its financials from the high returns on capital.
Growth
On the Growth front, high returns on capital is particularly profitable if there are ample reinvestment opportunities. For example, Haidilao, the eponymous hot pot chain in Asia with just 300 restaurants globally, has a long growth runway to redeploy its capital. It can do so by opening more outlets to earn similarly high returns as its existing outlets. In contrast, McDonald’s is 100 times the size of Haidilao by outlet count, with more than 30,000 worldwide. Needless to say, there aren’t as many opportunities for McDonald’s to grow at the rate it used to and we are unlikely to witness the opening of a Golden Arches outpost on Mars any time soon.
Value
On the Value front, I seek to invest in opportunities when the valuation is reasonable as opposed to dirt cheap, knowing full well that high quality businesses with excellent reinvestment opportunities rarely come cheap. Unlike deep value plays, for an investment in a truly exceptional business to work out, it is not absolutely required nor necessarily wise to squeeze out the last dime out of the price in order to own it.
While the hurdles of uncovering and investing in phenomenal businesses that fit perfectly into the “Quality, Growth, Value” framework are sky high, the rewards of success are stratospheric – almost as good as drinking from the holy grail. I strive to practice hurdling everyday so that when the opportunities come