Our Guiding Philosophy
Globescan Capital was founded on the principle that investing in high-quality businesses at attractive prices is the most consistent strategy to achieve long-term, risk-adjusted returns. As such, our GCI Select Equity strategy is active, concentrated, benchmark agnostic, and focused solely on the long-term, future free cash flows of the businesses we invest in.
Our firm’s investment philosophy rests on four pillars:
1. Invest in Businesses, Don’t Trade Stocks
Investing is about allocating capital to businesses, not buying pieces of paper. As such, we take an owner’s mindset with each of our investments, asking ourselves which management teams we want to partner with to grow our businesses.
2. Think Long Term, Don’t Time Markets
Short term market movements are impossible to predict, not only because of the vast number of variables one would need to get right but because even if we could predict all those variables with certainty, we still wouldn’t know how markets would react to them. As such, we ignore the short-term prediction game and focus instead on the long-term cash generation of the businesses we invest in.
3. Be Concentrated, Don’t Overdiversify
Great opportunities are rare and should not be diluted by average ones. As such, we concentrate our portfolio in our highest conviction ideas with the understanding that such an approach will at times deviate significantly from broader markets in the short term.
4. Use the Market, Don’t Rely on It
Market prices only reflect an opinion about underlying business value and those opinions are prone to substantial errors in the short term. As such, we always reach our own opinion about a business’s value in isolation of what the market might think, and then we wait for the market to provide us with an opportunity to transact at an attractive price.
Our process: Real Intrinsic Value Recognition (RIVR)
RIVR is our disciplined, repeatable, and proprietary investment process. At a headline level, RIVR involves evaluating businesses as long- term owners would – we establish an underlying real value for the business itself, based on our expectations of its long-term future.
RIVR requires us to answer two crucial questions before including a business in our portfolio:
- Is this a high-quality business?
- Is it trading at an attractive price relative to its real value?
To answer these questions, we must fully understand a company’s industry, business model, economics, management, culture, and financials. This process can take anywhere from two to six months in which we are analyzing relevant data – some of which is qualitative in nature and some of which is quantitative.
We understand that quantitative data is important, but it is only the qualitative work that can tell us whether a business will still be around in a decade. In other words, it is only when we are comfortable with the qualitative side of a business that we can reliably forecast future cash flows for that business.
Our Competitive Advantage
At a high level, we believe that there are only four competitive advantages that investors can have:
- Informational Advantage – finding information that the market does not have.
- Analytical Advantage – using available information to forecast earnings better than the market.
- Time-horizon Advantage – taking a long-term view when the market is taking a short-term view.
- Behavioral Advantage – remaining disciplined rather than following then following the market to extremes.
The first two advantages go hand in hand. There was a time before the internet when informational advantages could be found and used to better predict next years earnings and thus produce excess returns over time. However today, information and analytical capabilities have largely been commoditized to the point that we are skeptical of anyone who claims to have information that the market does not already have, or an ability to out model or out forecast the rest of the market in the short term.
Instead, our advantage comes from the second two. Through our RIVR process, we have both a time horizon advantage as well as a behavioral advantage. By focusing on our own estimation of value, we are willing to bear short term relative underperformance (against an arbitrary index) to achieve consistent outperformance over the long term. And by approaching our investment decisions based on our expected returns, we are naturally led away from a number of behavioral biases such as panic selling in market bottoms and buying at tops- we will in fact be more likely to be doing the opposite.
This willingness to view a business through a different lens than the majority of the market is a real and sustainable edge that has only gained in magnitude over time as the market has increasingly become more focused on short-term information gathering and forecasting.