I manage a private portfolio, of the same name as my blog, that pursues a fundamental value oriented strategy focusing on developing and frontier markets in the Asian region. The fund focuses on countries that have progressive foreign investment policies, young and growing populations, and stable or improving economic situations. The aim is to find and invest in companies that have stable franchises for good prices before the masses. I’ve established my blog for two key reasons 1) to provide a commentary and some accountability for my ventures in the Orient, and 2) to get feedback on my ideas. I strongly believe that beating the markets over time can only be achieved if you are dispassionately honest to both yourself and those around you and you continuously search for the truth. Investment Philosophy My philosophy is relatively simple, albeit unoriginal, I want to find companies that have a good return on equity and are selling at a reasonable price. I’m not searching for deep value investments because in my experience I’ve found that deep value investments have found their way to the bottom of the pile for a reason. I’ve seen deep value investment opportunities drop deeper and deeper into the “deep value” spectrum. While I can juggle balls and occasionally the odd pieces of fruit confidently I still haven’t mastered the art of juggling knives so I’m going to be shying away from typical deep value investments. As a first screen, I look for companies that have a good return on capital that are selling cheaply (as measured by Enterprise value). This method brings up companies with strong franchises that aren’t expensive taking into consideration tax and accounting differences between jurisdictions. As a second screen, I apply a cashflow metric to ensure that the businesses have the ability to generate cash that could provide the fuel for a catalyst. At the end of the day when you’re buying a business you’re just buying a discounted stream of cash flows so I want to be able to ensure that the businesses I’m looking to buy are able to generate cash and will be able to grow their cash flows in the foreseeable future. This gives me an appropriate margin of safety without having to rely on a traditional asset backing valuation because eventually the market will recognise the cash and the business will be rerated. Finally, I perform the necessary fundamental research to determine whether there are any near-term catalysts that could see the company rerated in either direction. I’ll ascertain whether the company is going to be able to continue to produce and grow its existing cash flows and also cover all of the usuals (management quality, competitive advantage, existing market structure, potential market size, political and regulatory environment, etc). I’m aiming for growth and as such aspire to have a relatively concentrated portfolio with 15-20 investments. While such a concentrated portfolio might be considered under-diversified, there are two reasons I believe a concentrated portfolio is more appropriate for my strategy. Firstly, I’m acutely aware of my shortcomings when it comes to processing large amounts of information. While, like many others, I’d like to proclaim that I’m a prodigy when it comes to dealing with copious amounts of data, I understand that you lose focus and meaning when packing a lot of information into a small space. I have no intention of scouring continuous news releases on a daily basis to gleam incremental pieces of information about a wide range of portfolio companies. To spread myself too thinly would mean I’m unable to focus on those areas that are able to give me the best bang for my buck. Secondly, it encourages a sell-discipline. I’ll have to assess whether each investment still has a place in the portfolio daily because there will always be others waiting in line.