Even the most attractive business does not have unlimited value. Frequently, the market will have excessively optimistic or pessimistic expectations about a company’s prospects, which are often reflected in stock valuations. Our objective is to identify companies with outstanding profitability and growth characteristics, at times when the market does not fully appreciate them.
We always seek to pay a compelling price for the businesses in which we invest. A fundamental element of our research process is estimating what a potential investment is worth — that is, its intrinsic value. Alongside our company due diligence, we use several methods to derive that estimate. We consider traditional valuation metrics, but we also generate an informed estimate of the economic profits a company can deliver now and into the future. We only invest client capital in companies which trade at a meaningful discount to our intrinsic value estimate, taking great care not to assume that every great company is also a great investment opportunity.
We believe that there are two key elements of successful portfolio management that are not practiced by the majority of investors. While it is possible to be successful without abiding by these guidelines, not sticking with them makes superior performance much more difficult to achieve.
Like the Pareto principle (the majority of the beneficial effect arises from the minority of the causes), Ensemble invests in highly-focused, customized client portfolios of 20 to 25 positions. Selected by our own proprietary research, we believe these positions offer the greatest potential for market performance, as supported by academic research, real-world studies, and our own firm's superior performance over the last 15 years.