We are often asked to describe our investment style. Is it Growth? Is it Value? While these are two common styles in the investment industry, Mawer’s doesn’t fit neatly into either box. And even among the “mixed” style definitions, GARP—or “growth-at-a-reasonable-price”—doesn’t quite fit the bill.
Our preference is something more reflective of our pursuit of finding high quality companies, run by excellent management teams, purchased at a discount to their instrinsic value. But how do you shorten that one—HQCRBEMTPDIV? Doesn’t exactly roll off the tongue!
It means we’re looking for good assets, ones that create wealth so that time is on our side. We don’t need an immediate catalyst to bring the share price to the company’s intrinsic value, because a company that earns a high return on capital sees its intrinsic value increase every day. We’re happy to hold this stock and build a position over the long-term at reasonable prices.
Quality comes through in many ways but ideally it is the stability of the business and the enduring competitive advantages that enable the company to earn a high return on a dollar invested in the business. If that’s present, there’s a good chance that a company we buy today will be as good—or better—in the future.
Finding companies with high quality dovetails into our formal valuation process. High quality gives us more confidence to forecast margins and cash flow if the business is stable, well-run, and solid. And when compared to typical value or growth styles, our approach of buying wealth-creating companies run by excellent management teams and not paying too much for them, is a very rational process and helps put the odds in our clients’ favour over time.
HQCRBEMTPDIV—you know, it has a nice ring to it.