My background, objectives and investment process

Inaugural post

My background:

I have worked for both one of the largest fund management businesses in the world and a concentrated (8 - 10 stock), value-based hedge fund as a fundamental equity analyst over my eight years in the institutional investment industry. I have now decided to invest privately full-time.

Objectives of this blog:

1. Maintain analytical best practices by forcing me to write-up my research which will hopefully underpin the continued objectivity and comprehensiveness of my thinking

2. Create a network of smart, like-minded individuals engaged in finding and analysing similarly mispriced opportunities as the ones I shall be writing up

3. Have readers directly reach out to me through here or Twitter with feedback and / or questions regarding my investment research (please be a “devil’s advocate”)

Investment process

Goals

To compound my capital at 15 - 20% annualised returns on a rolling five-year basis. Ideally, I want to maximise my “life-time CAGR”, but believe assessing annualised returns on a trailing five year horizon is an appropriately reliable measure of whether my investment process is working as intended.

Philosophy

I intend to stick to three categorisations of investments:

1. HIGH-QUALITY SPECIAL SITUATIONS (“HQSS”): Underlying high-quality companies going through a 'special situation' (i.e. minority squeeze-out, arb, recap, spin-off) which can be purchased at a reasonable price (even post the initiation of the ‘special situation’) → Examples of these that I have invested in the past include Hunter Douglas, Metlifecare, Think Childcare, Collectors Universe and Great Canadian Gaming.

2. DEEP VALUE W/ CATALYST (“DVC”): Discount-to-asset value plays experiencing a catalyst (material buy-back, dividend hike, liquidation) —> Examples of these that I have invested in the past include Pershing Square Holdings and VGI Partners Global Investments.

3. HIGH-QUALITY TRANSFORMATIONS (“HQT”): High quality businesses (as judged by TAM, re-investment runway, economics, moat, industry and management) where I have forecasted materially differentiated fundamentals over a three-to-five year period vs. consensus due to a revenue-driven inflection in the mid-term, catalysing earnings upgrades and valuation re-ratings → Examples of these that I have invested in the past include Bill.com, Integrated Research and Melbourne IT

My belief is that in specialising in these three types of investments, they will provide flexibility and high / consistent returns through the investment cycle as:

• When the market feels "exuberant" I will weigh the portfolio allocation more highly towards "market-agnostic" (not correlated with market / IR moves) HQSS and DVC

• When the market cycle "turns", I will allocate increasingly more capital to HQT on the basis of assumption that I would have done work on the most appealing ones beforehand and they are now available at a significantly lower price - these investments are preferable given:

1. No need to consistently come up with new short-duration ideas

2. Reduce taxation (and maximise compounding)

3. Reduction of frictional costs

4. Knowledge compounds when look at a specific company or industry for a long time

Investment universe:

I intend to invest in Western markets w/ a preference to remain ex-US given the level of competition there (so Canada, Australia, Western Europe and New Zealand)

The underpinning of my investment philosophy is to deliberately target investment opportunities which are restricted by institutional investors to maximise "dumb counter-parties in inefficient markets (what I term "DCIM")", due to either / and:

1.      Illiquidity

2.      Lack of (any or intelligent) sell-side coverage

3.      Special situation (i.e. bankruptcy, spin-off)

As a result - it is likely that I skew towards smaller market capitalisation opportunities.