We follow a five-step investment process incorporating idea generation, quality assessment, valuation, risk management and portfolio construction:

Idea generation comes from screening, contact networks, value chain analysis, disruptive change research and our extensive reading. 

When we formulate our investment thesis on the quality of a company, we ask three key questions to determine the sustainability of competitive advantage and how it can be monetized through growth:

- Is the company a disruptor or is it insulated from disruptive change?
- Does the company demonstrate financial strength with high returns on invested  capital, high margins, strong cash conversion, low capital intensity and low leverage?
- Are there environmental or social externalities not borne by the company, or governance and accounting risks that may alter the investment thesis?

Competitive advantages we favor include pricing power, differentiated competitive strategies, habitual services, consumable products, recurring revenue and limited threat from substitutes, rivals, suppliers, customers and regulators. 

Growth characteristics we seek include scalable business models that create value for happy customers, organic over acquisitive, secular over cyclical with a good mix between unit and pricing growth. 

Valuation focuses on the ratio of price to value derived from the key value drivers pricing, units, margin and multiple that determine the present value of free cash flow generation over a five-year time horizon.

We define risk in absolute terms: risk is losing money. We believe that idiosyncratic risk can be reduced by addressing what matters at the company level. We limit valuation risk by not paying a price that exceeds our estimate of value. We limit sustainability risk by analyzing the threat of disruption, financial strength and ESG externalities. We limit fundamentals risk of deteriorating competitive advantage and growth opportunities. Portfolio risks are mitigated by reducing correlated factor exposures with the support of monthly reports from portfolio attribution and risk teams. 

We tend to buy when the quality is high and the price is below value. We weight the portfolio based on low price to value, high certainty of value drivers and low correlation between ideas. 

The result of our bottom-up investment process is a benchmark-agnostic, highly differentiated portfolio concentrated in our highest conviction ideas.