At E. S. Barr & Company, we invest in publicly traded securities as if we were buying into a private business.
We look at economic prospects, owners’ earnings versus reported earnings, and management’s ability as measured by past results. We seek a wide difference between the market price and the intrinsic value of the underlying business, what we call “margin of safety”, before we commit capital. We believe operating results over time, not daily price quotations, determine whether our investments are successful. Even though the market may ignore business success in the short term, it will eventually confirm it.
- Our primary goal is to deliver superior risk-adjusted investment results through multiple market cycles. In other words, we put as much emphasis on preserving capital as we do on creating wealth.
- Our research seeks out financially strong companies with a history of producing consistently high returns on invested capital (ROIC), generating free cash flow (earnings the owner could receive from the business), and ability to reinvest at high rates of return. Ideally, that would be a company that has an exclusive product or service in high demand with significant barriers for a potential competitor to challenge and not have its prices subject to regulation.
- We look for companies whose management has an outstanding track record, is investor-friendly, and is apt to buy their own stock when it is trading at a discount to intrinsic value.
- We choose companies based on their own merits, not compared to other companies in the same sector. We only purchase securities when we feel there is an attractive “absolute value.” We will not engage in purchasing an overvalued company because it is “relatively attractive” versus an even more overvalued company.
- Once we buy, we are content to hold indefinitely, as long as the operating results are satisfactory, future prospects appear promising, and the market does not grossly overvalue the business.