포컴에셋투자자문(주)

Investment Philosophy

Focom Asset’s investment philosophy is simple: we buy shares of time friendly quality businesses with fair prices. Since there are only few enterprises sustainable with competitive advantages for a couple of decades, our portfolio consists of only a handful, which generates compounded returns that long. So intelligent investors usually take deductive approaches. Most of failures come from investing in businesses pricing attractively, but out of circle of competence. Our investee companies have strong balance sheets and they are run by excellent management, and thus they demonstrate stable performance even in the midst of difficulties. We at times miss opportunities due to our high standards of filtering, none the less, keep up with rationality to reduce unforced errors. We consider investments as running businesses so we will possess companies, understandable, sustainable, and compatible to our process.

투자 5원칙

1. 첫째도 현금과 현금흐름, 둘째도 현금과 현금흐름, 셋째도 현금과 현금흐름에 집중합니다.
2. 글로벌 우량기업들 중 확실히 배당으로 돌려주거나, 연 복리로 자본을 축적하는 기업과 사업동반자가 됩니다.
3. 최소 5년이상 정량적 및 정성적으로 증명된 신뢰할 수 있는 기업에게만 투자합니다.
4. 주식시장은 반드시 기회를 주므로 내재가치에 상응한 합리적 매수가격범위를 기다립니다.
5. 합리적 가격에 매수한 기업은 투자원칙을 위배하지 않는 한 장기보유하여 복리수익을 추구합니다.

Five Principles

1. Prioritize cashes and cash flows, second to none.

2. Co-run the global wonderful businesses, with paying out decent dividends, or with compounding accumulated capitals.

3. Look into businesses, trustworthy both quantitatively and qualitatively, for at least most recent five years.

4. Wait for the opportunities of the buying price range below intrinsic values, which the market provides at times.

5. Hold for a long time to enjoy compounding unless the businesses are off our principles.

Investment Process

Based on the above principles a company is then put through a rigorous investment process that is ongoing: Firstly, we try to understand the business. And then verify the business profitability, asset healthiness, financial stability, and capabilities of management teams, etc. The former process sees the business qualitatively and the latter quantitatively, which is a core in the process that filters out bad ones. And then, move the next round to evaluate the business qualities such as ROE, ROIC, etc. And next, set the buying price range according to its value and finally, determine whether to buy or not with comparison to the current market price. To be more specific,

1. Business understanding

Most importantly, the very first is to understand the candidate, its competitors, and the industry that the business belongs to. This process comprehends its economic moats where the business positions within the industry from competitive advantage angles, which enable to see to it that it would enjoy a relatively high return on capital long enough.

This process relates to look at whether the business is within our circle of competence. Confucius once said, “When we can say ‘We know what we know’ and also ‘We do not know what we do not know’, this is what we know.” We keep this in mind and at the same time try to deepen and expand our competency by compounding our learning.

2. Evaluation of business profitability, asset credibility, financial stability, management capabilities, and sustainability, etc.

This is a more quantitative evaluation process in depth as below:

Profitability: Operating Cash Flow/Net Income, more than 1

Asset Credibility: Cash and equivalents/Total Asset, more than 1

Intangible Asset: Intangible Asset/Total Asset, less than 15%

Financial Stability: Debt to Equity ratio, less than 50%

Management Capabilities: see if books are managed in the intentional, systematic and continuous manners.

Cash in the above includes marketable securities, short term. Ninety per cent of businesses are out during the process. Quality businesses pass through all the tests could be the winners statistically.

3. Valuation

We pick businesses with ROEs more than 10% for at least most recent five years and derive ROEs for the forthcoming 5 to 10 years based on the past five- to ten-year financials, together with current economic moats of business. This ROEs are equivalent to bond yields of business and directly influence your returns. Any bond like businesses with ROE ranges predictable exist only less than 1% among the listed.

4. Purchase pricing

We measure PERs(Price Earnings Ratios) of candidates as: adequate PER = Market PER X (ROE of a candidate/S&P 500 average ROE), thanks to Warren Buffett’s insightful comments.

A PER of a business is measured to the degree as excessive as to S&P 500 average ROE, which is the aggregate of best businesses in the world. By the same token, based on business profitability excessive to the market average, a buyout price or a goodwill is usually calculated at an acquisition deal. The market PER is to be adjustable to interest rates and inflation on a yearly basis.

And then we formulate an investment case which determines how to proceed with the business

5. Investment decision

We purchase if the current PER of business is within the price range PER, otherwise, wait for the opportunity when there is a margin of safety.

투자 5원칙

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