Ashva Capital Management LLC

Quality Investing: The Unexpected Downside to Investing in High ROIC Stocks

In my latest post, I discuss one of the major negatives of owning high ROIC companies that generate copious FCF (Free Cash Flow).

CC #003: The Price of Success and the Downside of High ROIC Businesses - Ashva Capital High ROIC businesses can sow the seeds of failure by providing management with the opportunity to allocate FCF poorly.

My Top 10 Takeaways from 'Britain's Warren Buffett' 2023 Investor Meeting:

1) No investment strategy can outperform in all market conditions and time periods. The last investment manager that was able to outperform in all markets was Bernie Madoff.

2) The key to outperforming with an investment strategy is to stick with it during the time it will inevitably underperform.

3) High gross margins are the best indicator that a company has pricing power and can handle inflation by being able to raise prices to customers.

4) You want to own companies that have a high cash conversion ratio (FCF per share) / EPS. Ideally this ratio is 100%.

5) Share based compensation is a real expense and should be factored into valuation.

6) As a value focused manager you need to remain patient. Smith has waited up to 4-5 years to purchase a company at the right price.

7) Valuation matters. Terry Smith stated that META was the most undervalued stock in their portfolio. The stock is currently 165% above its 52-week low.

8) Low turnover doesn't mean you don't exit positions where the underlying investment thesis has changed.

9) Family controlled businesses can produce more value than professionally managed companies over the long-term because they make decisions based on a longer time perspective.

10) High returns on capital aren't enough. A company must have reinvestment opportunities in order to effectively deploy the capital its generating.

FUNDSMITH Annual Shareholders' Meeting February 2023 FUNDSMITH Annual Shareholders' Meeting February 2023Ian King introduces the 2023 Fundsmith Annual Shareholders' Meeting at Central Hall Westminster. Terry Sm...

https://ashvacapital.com/how-i-used-a-pmcc-strategy-to-4x-the-return-from-a-stock/