Investment Philosophy
In a Nutshell
We seek to preserve and grow our clients’ capital over a long time horizon by maintaining a disciplined investment approach.
We own portions of quality businesses run by high-grade people that can compound their earnings rapidly. We hold these businesses over a long horizon with the mindset of a long-term business owner. We buy them for less than what a conservative business person would pay for them. We focus on our best ideas, while avoiding excessive concentration. All along the way, we strive to make thoughtful, rational decisions based on intensive primary research. Our core belief is that if we pay attractive prices for higher-quality, faster-growing businesses than the average S&P 500 company, our portfolios should outperform the S&P 500 Index over the long term with less fundamental risk.
We implement our investment strategy through well-aligned, discretionary, evergreen vehicles offering clients transparency and immediate access to high-quality portfolios. Our single investment process maintains a clear focus on generating exceptional investment outcomes, avoiding allocation conflicts, and maximizing alignment with our clients.
Our Process
Gulfrock specializes in managing a highly-concentrated, long-only public equity investment strategy. Our objective is to compound capital at exceptional rates of return over extended periods of time. Our investments are meticulously selected through a rigorous fundamental research process that identifies high-quality businesses led by exceptional management teams, which we can own for the long term.
We maintain a strong focus on our circle of competence, only delving into in-depth analysis of investments when we can offer unique insights into a business's future prospects. We evaluate the suitability of an investment based on the following core criteria:
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Understandable within our circle of competence
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Does not operate in an extremely volatile industry where we can predict future prospects with high degree of certainty
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Operated by a management team that values candour, prioritising long-term goals over short-term metrics
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Offered at a significant discount to its intrinsic value, as judged through the lens of the engineering-based principle of sufficient margin of safety
When an investment meets our stringent criteria, we act with conviction and urgency. Given the rigorous nature of our investment filters, few investment opportunities may arise in a given year, and even fewer will merit action. Consequently, our investments are concentrated among a select group of businesses, allocated based on opportunity cost. Focused on long-term CAGR rather than short-term returns, we embrace an ethos of limited activity punctuated by disciplined, decisive action when opportunities arise. Charles Munger's insights on his superior investment record resonate with us: "I think the record shows the advantage of a peculiar mindset - not seeking action for its own sake, but instead combining extreme patience with extreme decisiveness."
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In making investments, we have always believed that you must act with discipline whenever you see something you truly like. To explain this philosophy, Warren Buffett likes to use a baseball analogy that we find particularly illuminating.
Ted Williams is the only baseball player who had a .400 single-season hitting record in the last eight decades. In the Science of Hitting, he explained his technique. He divided the strike zone into seventy-seven individual cells, each representing the size of a baseball. He would insist on swinging only at balls in his ‘best’ cells, even at the risk of striking out, because reaching for the ‘worst’ spots would seriously reduce his chances of success.
As a securities investor, you can watch all sorts of business propositions in the form of security prices thrown at you all the time. For the most part, you don’t have to do a thing other than be amused. Occasionally, you will find a ‘fat pitch’ that is slow, straight, and right in the middle of your sweet spot. In these situations, we choose to swing hard with high conviction rates. This way, no matter what natural ability you start with, you will substantially increase your hitting average. As Gerry Goodman said: “If a decision is made not to make a decision, that is just as much a decision as a decision which initiates action.”
One common problem for investors is that they tend to swing too often. This is true for both individuals and for professional investors operating under institutional imperatives. However, the opposite problem is equally harmful to long-term results: You discover a ‘fat pitch’ but are unable to swing with the full weight of your capital.
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A Lesson From Ted Williams
We don't just think like long-term business owners.
We are long-term business owners.
We are keenly sensitive to false precision risk. We don’t believe in target prices. We know that value exists within a range, and is hard for even a thoughtful analyst to pinpoint. We are also sensitive to reinvestment risk. Great companies at good prices are hard to find. We are also mindful of reinvestment and expense risks, recognising that exceptional companies at favourable prices are rare finds. Our long-term perspective prioritises business results over value arbitrage, limiting trading activity to instances of clear opportunities within our highest circle of competence.
A Tenet for Equanimity
"If you’re not willing to react with equanimity to a market price fluctuation, you’re not fit to be a common shareholder and you deserve the mediocre result you’re going to get compared to the people who do have the temperament and can be more philosophical about these market fluctuations."
- Charlie Munger, Berkshire Hathaway Vice-Chairman
We endeavour to know our businesses with extreme intimacy
We firmly believe that consistently outstanding performance can only be achieved through superior knowledge of companies and their securities, rather than attempting to predict broader economic, interest rate, or securities market trends. As such, our investment process is entirely bottom-up, grounded in proprietary, company-specific research.
Reading company filings and crunching numbers is just the start of our research process. We take pride and pleasure in investigating a company from all angles, doing the kind of on-the-ground, primary research that an enterprising journalist might do. This comprehensive approach may span months or even years but often yields invaluable insights, some of which can be put on a spreadsheet but many of which cannot be. This sort of intensive primary research is how we spend most of our time.
The Gulfrock Advantage
We're Picky.
We prize the outliers – companies that define a market or dominate a niche, standing head and shoulders above their competition. Often, such extraordinary businesses command premium valuations in the stock market. We patiently wait to capitalise on rare occasions when these companies are available at a discount to their intrinsic value, incorporating what we believe to be the single most crucial concept in investing: a margin of safety. Our carefully curated investment strategies bears little resemblance to the S&P 500 or other indices. In fact, our top ten investments typically account for the entire value of our portfolios. While the S&P 500 may be relevant for assessing our long-term performance, it has no bearing on how we construct our portfolios.