Approach
Old discipline, new instruments.
A business is worth the cash it can return to its owners. We examine the competitive position, capital allocation and reinvestment required to sustain that cash over time.
Durable advantages
We study why customers stay, how competitors respond and what allows a business to earn durable returns on capital. We test that understanding against the financial statements.
Capital allocation
We examine how management uses the cash a business generates. Reinvestment, acquisitions and distributions matter through their effect on long-term value per share.
A price worth paying
Business quality and valuation belong in the same investment case. Our estimate of value rests on explicit assumptions about future cash generation, share count and the cost of equity.
Independent scrutiny
An independent review tests the figures, challenges the assumptions and examines the case against the investment. We set out the evidence that would change our view.
Process
From evidence to judgement.
Screen
The strategy's mandate defines the businesses we examine.
Gather
Company filings, earnings calls and ten years of financial results form the evidence base.
Analyse
We examine competitive advantage, management's allocation of capital and the risks that could erode future earnings.
Value
We value owner cash flow after stock-based compensation, using explicit assumptions for share count and the cost of equity.
Challenge
An independent review tests the figures, valuation assumptions and counterarguments before the report is finalised.
Valuation
The assumptions behind the value.
A fair value estimate connects the economics of a business to the cash available to its owners. The case depends on what the business must reinvest, how many shares will participate in those cash flows and the return required to bear the risk.
Owner cash flow
We value owner cash flow after stock-based compensation, using explicit assumptions for share count and the cost of equity. The analysis considers the reinvestment needed to sustain earnings and the risks that could reduce future cash generation.
From valuation to rating
For midori, we assign Buy when the expected return beats the cost of equity by 2 points and Sell when it falls 2 points short. A return between those thresholds receives a Hold rating.
midori risk rules
Risk limits, set in advance.
The midori model portfolio holds 12 to 20 companies over a five-to-ten-year horizon, with no leverage, shorts or derivatives. Its position sizes and review thresholds follow explicit rules.
Largest starting position. Reviewed if it grows past 12%.
Most in any one sector.
Positions are sized for an exit within five trading days at no more than 5% of daily volume.
Drawdown that triggers a full review. At −25%, no new positions.
Companies with net debt above 2.5× EBITDA get a balance-sheet review. VTI, the US total market, is our primary benchmark. SPY provides a second comparison.
Explore the work.
Read our published research notes or explore the midori strategy.