We are discerning about public disclosure of individual securities since good investment ideas are rare, valuable and subject to competitive appropriation; however, we explain how we think so that you can assess our capital allocation approach. We classify investments into the following Investment Categories to foster an organised rational decision-making process:

Fast Growers

Fast growers are small to medium sized companies that can grow earnings quickly and have room to grow. The ideal fast grower should have: a proven accelerating expansion record; a low institutional investor and analyst following; and a sensible unleveraged Price to Earnings (“P/E”) ratio.

The P/E ratio is often a useful measure of whether a stock is overpriced, fairly priced, or underpriced relative to a company’s earning power. The average P/E for a slow grower will be lower than the average P/E for a medium grower, and that in turn will be lower than the average P/E of a fast grower. A bargain P/E for a medium grower isn’t necessarily the same as a bargain P/E for a fast grower.

Fast growers can be held for a long time provided there continues to be adequate room to grow and provided they have not become too expensive.

Fast growers are often upstart enterprises which learn to succeed in one place, and then duplicate the winning formula over and over, city by city etc. The expansion into new markets results in accelerating earnings which drives the stock’s price higher. One should consider the fast grower’s debt and whether the company is growing too aggressively and unsustainably. Larger fast growers risk a rapid devaluation when they begin to falter. The key for fast growers is to determine when they’ll stop growing and how much to pay for the growth. The total return from a fast grower is driven primarily by the growth in the company’s earning power.


Stalwarts, sometimes called medium growers, are large well-established companies with durable competitive advantages that enable them to produce satisfactory and consistent earnings growth.

Stalwarts typically offer good protection during recessions. One may check for possible unwise diversification that may negatively affect the company and reduce earnings in the future. If the P/E strays too far beyond the normal range, one may consider selling the company and waiting to buy it back later at a lower price. Satisfactory returns can be made by compounding a series of gains in stalwarts and one may consider taking profits more readily than with young fast growers.

Stalwarts with heavy institutional ownership and analyst coverage that have outperformed and are overpriced are due for stagnation or a decline. The total return from a stalwart is primarily driven by a combination of: moderate growth in earning power; and narrowing of the margin between price and intrinsic value.


Cyclicals are companies which operate in commoditised industries and supply standardised products that cannot be easily differentiated. Cost leadership and low debt are important qualities of sustainable cyclical companies. The earnings of cyclical companies fluctuate widely in line with the industry cycle and their stock charts often look like the Alps with sharp peaks and deep troughs.

It is important to have a comprehensive understanding of the cyclical industry. The best time to buy a cyclical is at the bottom of the cycle and those who have a thorough understanding of the industry have an advantage in determining the bottom. Insider buying possibly offers the strongest signal to buy.

Coming out of a recession, cyclicals tend to rise much faster than the prices of the stalwarts. With most stocks, a low P/E ratio is regarded as a good thing, but not with the cyclicals. The average earning power of the business over a full cycle is a useful indicator for assessing the normalised value of the business. The total return from these investments is primarily driven by an upturn in the cycle.


A turnaround could be a company that had been doing well; however, due to a temporary mishap, the company’s short-term results are affected and its stock price plummets.

The mishap must be temporary in nature and not harm the long-term fundamentals and growth of the company. One should find out if the company can survive this mishap, emerge from it and return to its former earning power over time. One should determine what management is doing to correct the mishap and whether they are redressing it effectively. Key focus areas are company management and debt.

The most important question is whether the company can survive loan repayment demands by creditors. What is the debt structure? How long can it operate under pressure while working out its problems without becoming insolvent? How is the company supposed to be turning around and is business recovering? Are costs being cut?

There are several types of turnarounds including: 1) a bail-out dependant on government support; 2) a minor tragedy perceived worse than it is (stay away from tragedies that are unmeasurable); 3) a perfectly good company inside a bankrupt company; 4) a restructuring to maximise shareholder value; and 5) a security higher up in the capital structure.

Caution and careful analysis is required because there is a very fine line between turnarounds that are great investment opportunities and those that will become bankrupt. A benefit to investing in successful turnarounds is that of all the categories of stocks, their ups and downs are least correlated to the general market.

Asset Plays

An asset play is a company that owns something valuable that the market has overlooked. The overlooked asset may be cash; real estate; a listed or private company; a brand, patent or license; intellectual property; customer data; or an unutilised tax break.

Asset plays can be low-risk and high-gain investments if one is confident of the asset values. A key issue is determining what will remain after all debts and future costs are taken into account. One should also consider whether there is a catalyst to narrow the discount to intrinsic value such as share buybacks or a potential corporate raider who may help shareholders reap the benefits of the assets.