VGI’s Investment Philosophy

Capital preservation – We place a great deal of importance on assessing downside risk. We attempt to know as much about our portfolio companies as we can and believe that this will enable us to prevent permanent loss of capital. Risk comes from not properly understanding your investments.

Superior long term compound growth – We aim to produce superior long term compound growth over time by seeking out and investing in what we believe to be some of the best businesses in the world. Great businesses purchased with a sufficient ‘margin of safety’ will provide superior long term returns.

Concentration – We aim to invest in a relatively small number of high quality stocks (with about 10 to 15 core positions at any one time). We aim to be concentrated enough in our best ideas so as not to dilute our overall returns but hold enough positions in order to provide an appropriate level of diversification. Concentrating capital in high quality businesses builds wealth.

Our strategy is to buy wonderful businesses for the long term in an effort to defer tax, minimise frictional costs and maximise our long term returns. If a business performs well, the stock price will eventually follow.

We aim to hold cash when we feel that no ‘margin of safety’ exists. We demonstrated this in 2008 by holding the majority of our capital in cash. By doing this we were able to protect our clients’ capital during one of the worst market collapses since the Great Depression.

We are often contrarian and strive to be fearful when others are greedy and greedy when others are fearful. To have better performance than the crowd, you must do things differently to the crowd.

We aim to selectively short companies that we have identified to be structurally weak and believe are vulnerable to material price declines.

What does a great business look like?

The following are some of the qualities that we look for in a great business:

  • Simple and easy to understand business model. Never invest in any idea you can’t explain in relatively simple terms.
  • Dominant in its industry and has been through periods of recession and emerged stronger.
  • Superior returns on capital achieved through high margins and relatively low capital reinvestment requirements. This allows the business to distribute cashflow to shareholders in the form of share buybacks and dividends.
  • Sustainable competitive advantage protecting the business from competition and allowing management to increase prices above inflation without losing market share – these traits are often found in businesses that are natural monopolies or oligopolies in their industry.
  • Significant cashflow generation. Creates excess cash over and above the business’ annual capital requirements.
  • Strong balance sheet with sensible gearing levels.
  • High quality management with a proven track record of outstanding performance. Management should display honesty, intelligence and integrity.