BAM utilizes a handful of guiding principles as it conducts research on individual companies.
Stay Within Circle of Competence
One of the best ways to achieve investment success is to know what you don’t know. BAM’s expertise is not analyzing cutting edge technologies or finding the next overlooked biotech name. While BAM is free to invest across any sector, we spend the majority of our time focusing on industries that we best understand while also monitoring particular buckets of investment opportunities that have a history of outperforming. There are a limited number of hours to research names and therefore BAM seeks to maximize time spent on areas where it has the best chance of investment success while quickly disregarding those where it has no edge.
Maintain Long-Term Perspective
BAM cannot predict where the stock market or individual names will trade next week or next year. BAM has a better chance of investment success by examining individual company scenarios over 3-5-year time horizons. By maintaining this longer-term orientation, BAM maximizes its ability to rationally select businesses that may be avoided by those who are seeking more immediate payoffs. If BAM cannot find compelling opportunities, it will simply hold cash.
Financial Modeling and Valuation Analysis
BAM often selects individual securities that are facing perceived or real problems and often are unpopular with other investors. To have the necessary conviction to purchase out-of-favor names, BAM performs detailed financial modeling work on all current investments. While the future will always be unknown, BAM attempts to assess the most likely outcomes and forecast a range of values for an individual company under various different scenarios. This modeling work is invaluable when assessing businesses with complicated structures or limited research coverage. Additionally, this work helps BAM better understand individual businesses and builds conviction levels to purchase and hold names that others may avoid.
Management Track Record
BAM believes that management’s track record for managing a business and allocating capital (including acquiring other businesses, paying dividends, repurchasing shares) is often a major factor in investment success. BAM attempts to partner with honest teams with a track record of successful capital management.
Admit and Learn from Mistakes
One of the few certainties in the investment process is that mistakes will occur; nearly every investor will eventually misjudge a business, misjudge valuation levels or misjudge people. BAM strives to document its investment rationale to help clarify its thinking and to fight against the temptation to rationalize changing facts/circumstances. While mistakes are unavoidable, BAM believes its documentation process helps to identify mistakes earlier and to avoid the same errors in the future.