ECP is based on the original approach of Entrepreneurial Value Investing which consists of investing in marketable securities with a private equity mindset.
Think and act as an entrepreneur. Companies must be analysed from the perspective of an entrepreneur who intends to purchase the whole company. As a result, the risk of a company does not lie in its stock price but in its fundamentals. The team applies a key golden rule in order to understand the companies’ business. Their fundamentals will then translate into the firms’ intrinsic value.
Margin of safety concept. The team’s assessment of “Value” is based on the Earnings Power of the business and its capacity to generate free cash flow over an entire business cycle. Earnings Power is the cash that could be extracted from a business in a normal year while reinvesting enough in the business to maintain its current production capacities. Before buying any stock, the team defines its intrinsic value and focuses on companies that are trading at a min. 40% discount to this estimated intrinsic value.
Patience will be rewarded. It takes time for financial markets to recognize the Earnings Power Value of a company and thus for the underlying margin of safety to close. The investment team adopts a long-term in-vestment horizon of 4 to 5 years resulting in a low portfolio turnover. The final portfolio is concentrated and built around the key convictions of the Investment team (typically 30 to 40 individual names).
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