Ideas are not generated according to a systematic magic formula, but through independent study and analysis, intellectual generosity and energetic engagement with likeminded and well-aligned peers. With a concentrated portfolio and a global investment remit, our challenge is rejecting the vast majority of mediocre investment opportunities that cross our path.
The research process is bottom-up, one company at a time. Blocks of uninterrupted focus are dedicated to gathering data, facts, logic or other evidence which help us to form an opinion about the company’s economic characteristics and private business value. We are searching for competitively strong businesses which ideally have avenues for profitable redeployment of capital for a long time, whose capital structure is appropriate for the business model, and whose management is properly incentivised to make the capital allocation decisions that will create the most long-term value for owners.
The portfolio is concentrated, typically holding 10-15 securities. If we successfully identify companies that can increase their own intrinsic values over the long term, holding periods will be many years. By owning a portfolio of businesses steadily compounding the value of their per share economic earnings, we are tipping the odds of earning a satisfactory return on our equity ownership in our favour. Meanwhile we can exploit stock market volatility to augment this underlying business value compounding. We expect the change in underlying per share value of portfolio holding companies to do most of the work for us in delivering acceptable annual investment results, but sensible and occasional portfolio management decisions should enhance these returns over the long term.
If we are going to make good decisions consistently we need a physical working environment that is conducive to independent thinking. We want to avoid devoting brain power to battling distraction. We have cultivated a focused work environment that we believe is conducive to independent thought and sound investing practice.
We, fund managers, should be in the business of creating, not transferring, value. In the pursuit of this goal investors’ capacity to make good decisions is taken for granted. Making good decisions is not commonly considered a source of edge. We believe that behavioural edge is an important competitive advantage. But it requires doing things that are not possible or not palatable to many institutional money managers. It requires inaction, solitude, separating oneself from the herd, being inconspicuous, epistemologically humble and patient.
Tollymore Investment Partners is a private investment partnership. Tollymore's objective is to compound clients' capital over the long term by investing in a concentrated portfolio of undervalued high-quality businesses.