Fourton’s investment style aims to identify favourable mid-to-long-term return/risk profiles and, in the shorter term, to recognise the correct timing of buy and sell situations. Our investment philosophy is summarised in Fourton’s 10 Cornerstones:
1. Value for money
The stock price of a company must be at least reasonable compared to its future outlook.
2. Intelligible business model
The business model of an investment object must be easily and clearly understood.
3. Ruler of the territory
The company should hold a strong market position. In many industries, the saying “the winner takes it all” is appropriate; a market leader tends to enjoy high and fairly stable profitability. We are also particularly interested in industries where established companies are protected from competition thanks to high entry barriers.
The ideal investment is a company that grows organically under controlled circumstances for many years. The growth should be profitable. A further plus is if profitability is improving. Growth does not necessarily have to be yearly and stable, as long as volume growth is apparent in a five-year period.
5. Decent profitability and low level of debt
The profitability of the company should be reasonable. A low debt level is a desirable quality, reducing/eliminating financial risk.
6. Shareholders’ interests taken into account
The company’s management and the main owners should act sensibly and should have a sound long-term vision. The main owner should have the same agenda as the other owners.
7. Low stock liquidity an opportunity
We invest primarily with a mid-to-long-term view. If other prerequisites for a good investment exist, we can accept low stock liquidity on the market. Generally, low liquidity can at times coincide with low prices and depressed investors. This is a buying opportunity for the long term.
8. Change presents opportunities
We are interested in industries that are undergoing change, because change may lead to a brighter future. We find all companies that benefit from change interesting, and at least worth investigating. The same goes for markets, which after periods of decline may start to see improved fundamentals. Rising acquisition activity and general industry consolidation also tend to have positive effects on the valuation of businesses.
9. “Private market value”
When we assess the value of an investment, we also try to evaluate whether an informed industrial buyer would pay the current stock price for the whole company. If the answer is no, why would we as a minority investor, without influence, pay that price? In fact, it is a good reason to sell the shares.
10. In the same boat
In our opinion, the fund managers should invest a meaningful amount of their own invested assets into the funds they manage. With serious own money in play, it is reasonable to assume that the fund manager is only willing to take on increased risk at favourable odds – for instance when valuations are low. It is essential for successful long-term portfolio management to preserve the capital reasonably well through falling markets, which occur once in a while. When stock prices have appreciated to irrationally high levels, it is time to sell.