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Investment Philosophy

Value investors taking advantage of opportunities

 

We have a value investment approach based on investing in companies that we believe are priced at a discount to our estimate of their actual value based on their capacity to generate cash flow in the future; its magnitude, growth capabilities, and predictability. We believe buying a share means owning a part of the company, so we focus on fundamental analysis and avoid companies with high expectations and weak balance sheets. We believe this approach increases the odds of having better returns in the medium and long term while reducing risk.

 

  • We invest in companies that we believe are priced at a discount to our estimate of their true business value.
  • We believe this approach increases the odds of having better returns while reducing risk.

Value Investing

  • Buying a share means to own a part of the company.
  • Focus on fundamental analysis.
  • The value of a business equals its future free cash flows.
    • Magnitude
    • Growth
    • Predictability
  • Avoid high expectations and weak balance sheet companies.
  • Medium and long term view.

Investement Process

We look for good businesses with good management at a good price.

Grafica

Good
Business

  • Management that creates value for shareholders
  • Family-owned Alpha Factor
    • Alignment of interest
    • Long term investment focus
    • More efficient CAPEX, R&D and SG&A
  • Management consistently do what they said are going to do

Good
Price

  • 25% to 35% discount on its intrinsic value of the business:
    • Free Cash Flow
    • Sum of Parts
    • Replacement Value
    • Comparable Business
  • Growth for free or cheap
  • More active at extreme (valuation/sentiment) moments

Good
Business

  • Strong balance sheet
  • Steady generation of free cash flow
  • Sound financial statements
  • Competitive advantages and entry barriers
  • Good margins
  • Good ROE, ROIC
  • Good reinvestment opportunities

Portfolio Construction and Risk Management

Mercados generan oportunidades
Generacion e ideas
Analisis Due Diligence
  • AM research
  • Multi level company visits
  • Sell-Side research
  • Buy-Side ideas
Metodo de inversion
  • What to buy
  • How much to invest
  • When to exit
  • Reach its intrinsic value
  • Fundamentals deteriorate
  • Better investment oportunity
Portafolio AM
  • Concentrated Portafolio
  • 60% difference vs IPC

Our portfolio construction process consists of the following:

 

  1. We acknowledge that markets and their volatility generate investment opportunities.
  2. According to our investment philosophy, we generate investment ideas (good companies, well managed at an attractive price).
  3. We do a deep analysis and due diligence of these companies, including in-house analysis, visits to companies, and sell-side research.
  4. Based on this analysis, we make investment decisions to construct a highly concentrated portfolio around 60% differentiated from the index.
  5. We sell when the price reaches the company’s intrinsic value, fundamentals deteriorate, we find better opportunities, or we acknowledge we have made a mistake in our analysis.

 

We have a fundamental approach to risk management based on investments on solid balance sheets, strong fundamentals, liquidity, and cash management of the portfolio. We believe risk equals a loss of capital, and it is higher when it is less perceived and vice versa. We believe there is a difference between actual risk and price risk.

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