At Neosho Capital we embrace the following tenets in our approach
to investing capital on behalf of our clients:
- We believe that Value Investing, as espoused by Benjamin Graham and David Dodd, is the surest path to satisfactory long-term investment performance. The price paid for an asset versus the value received is the most important determinant of satisfactory long-term returns.
- On a day-to-day basis, stock prices are more volatile than the underlying fair value of the enterprises they are meant to represent, but rather than a source of frustration, this represents as an opportunity we stand ready to exploit.
- We seek those enterprises whose stock price we believe is 25% or greater below our estimate of the price that a knowledgeable, unlevered purchaser with a long-term orientation would pay for the entire enterprise.
- Leverage in excess of equity distorts both purchase prices and the sensibilities of the investor in, as well as the operator of, an enterprise. We seek enterprises whose debt is far below the value of the enterprise's equity and the servicing of which is well within the means of the enterprise.
- The consistent production of substantial free cash flow over a full business cycle is the surest measure of value creation when assessing the likely success of an enterprise. We define free cash flow as the net flow of capital through an enterprise after all operating expenses, research and development, and capital expenditures needed to maintain or grow the enterprise's competitive edge are accounted for.
- There are a limited number of enterprises at any given time, even on a global basis, which meet our investment criteria and that cash is a preferable holding to compromised investment ideas. Therefore, our portfolios may hold upwards of 30% cash in periods where few enterprises meet our purchasing criteria.
- A limited number of high quality investment ideas produce better long-term performance than a larger number of mediocre investment ideas and we therefore manage portfolios of between 10 and 40 holdings. Our portfolio turnover per annum is generally 25% or less.
- While our performance is compared against a variety of benchmarks, in no way do we attempt to construct our portfolios with any particular benchmark's country, company, or industry weightings in mind. Clients seeking benchmark-tracking performance have a large number of affordable passive products from which to choose.