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Louis Wilson Fund

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Excellent Management and Strong Business Franchise ... Sequoia Fund. Janus Focused Value Fund. Torray Fund. Mosaic Funds. The Fairholme Fund ... – PowerPoint PPT presentation

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Title: Louis Wilson Fund


1
Louis Wilson Fund
  • Review of Strategy and Philosophy

2
Investment Criteria
  • Excellent Management and Strong Business
    Franchise
  • Evidence of Growing Markets and/or Market Share
  • Low Market/Book Value and High Growth/PE ratio
    (Lynch ratio)

3
Investment Criteria (cont.)
  • High ROE, ROA and profit margins demonstrated
    consistent earning power
  • Low risk measures and strong financial condition
  • Growing companies in growing industries

4
Focus on Companies That
  • Are well-managed, well-financed and display good
    fundamentals
  • Are simple to understand, analyze and value
  • Are undervalued relative to their prospects

5
Why This Approach for the Wilson Fund?
  • Encourages focus on long-term investing, not
    trading or speculating
  • This approach is best suited to the strengths and
    limitations of a student-run fund

6
What are our Strengths?
  • We can focus on the long long-term
  • We can ignore the noise of short-term
    distractions
  • We can concentrate on a limited number of ideas
  • We can hold cash if there are no fat pitches
  • We only need a few good ideas to generate
    significant results

7
And Limitations?
  • Significant lag time between idea generation and
    implementation
  • Limited number/types of companies we can
    understand better than industry experts.
  • Infrequent trading/rebalancing
  • Cant beat analysts at short-term earnings
    projections
  • Dont have constant monitoring
  • Cant trade actively

8
Limit yourself to an investment universe that
capitalizes on your strengths and isnt hindered
by your limitations, i.e.
  • High quality businesses (consistent, predictable,
    high margin, high return)
  • Low risk (risk of permanent loss, not volatility)
  • Long-term investment horizon
  • Sustainable competitive advantages

9
What is Excellent Management?
  • Compensation package, executive ownership Are
    interests aligned?
  • Annual report - Honest and straightforward?
  • Look at record of wealth creation on a per share
    basis
  • Look at capital allocation decisions dividends,
    buybacks, acquisitions, etc.
  • Wealth-building or empire-building?

10
What is a quality business?
  • Consistent and predictable earnings
  • Healthy profit margins above industry avg.
  • Stable or growing, consistently high ROIC
  • Some sort of economic moat sustainable
    competitive advantage
  • Non-commodity, non-cyclical
  • Lots of value added to units of production, not
    easily duplicated.

11
What is a sustainable competitive advantage?
  • Think about 5-forces analysis what is
    competitive position vs. suppliers, customers,
    etc. Who needs who?
  • Can be low-cost provider or highly differentiated
    product or service
  • Advantage can be structural, the result of patent
    protection, or simply superior culture and
    management.

12
Process
  • First, identify companies that meet your
    qualitative requirements,
  • Then, attempt to value them,
  • Finally, recommend purchase only on those that
    are undervalued.

13
Portfolio Selection
  • Universe of attractive businesses 100 or so
    stocks
  • Focus list to evaluate 25 50 stocks
  • Portfolio 12 or so companies

14
Funds to follow
  • Sequoia Fund
  • Janus Focused Value Fund
  • Torray Fund
  • Mosaic Funds
  • The Fairholme Fund
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