Four simple principles guide Mar Vista’s investment philosophy:
- Capital preservation is equally important as appreciation
- Stock prices follow intrinsic value over the long-term
- Intrinsic value is created when returns exceed the cost of capital employed
- Sustaining excess returns requires durable competitive advantages
We seek to invest in high quality growth businesses trading at discounts to fair value. Specifically, we look for competitively advantaged companies with abundant opportunities to grow and reinvest capital at high rates of return. We also seek management teams with a proven ability to allocate capital in ways that maximize shareholder value.
Our high conviction, patient framework is a key component of our philosophy because we place as much emphasis on preservation of capital as we do on the growth potential of a company. We prefer businesses that can grow economic value at high rates, but will not invest if the stock price already reflects these opportunities.
We value companies as private entities, discounting free cash flows, or economic value added, to determine what the business is worth. We then compare our estimate of intrinsic value to the price the market is currently willing to pay. Our required margin of safety, or discount to fair value, varies depending on the stability and predictability of the business. The wider the range of potential outcomes, the higher the margin of safety we demand.
In our view, Mar Vista’s high-conviction strategy and longer investment horizon create a significant competitive advantage. Our willingness to look beyond the next several quarters to assess the true cash flow potential of a business creates numerous lower-risk investment opportunities. Often, what is perceived to be the maximum point of uncertainty is, in reality, the best entry point since the market has already priced in an overly pessimistic scenario.