We seek to generate superior after-tax returns by buying high quality, rapidly growing companies that have sustainable competitive advantages and reasonable valuations. The companies that dominate their marketplaces produce the best returns over time. Strong earnings growth is crucial, because long-term stock performance is driven by earnings growth. We do not, however, believe in paying any price for growth. We try to find growth stocks that are inexpensive relative to other stocks with comparable growth rates.
Tax efficiency is a happy outcome of our investments in sustainable growth companies.
As long-term investors, we are able to constrain capital gains taxes. A long-term investment horizon gives us another important advantage. Most portfolio managers are focused on what stocks will perform well over the next one or two quarters. We use Wall Street's obsession with short time horizons to purchase strong companies that may have a temporary problem. Often when a great company with a valuable franchise stumbles, an attractive investment opportunity arises.