Patient Capital's Vito Maida Speaks with Financial Post
Canadian value investor Vito Maida, founder of Patient Capital Management and former Prem Watsa protege, discusses his strategy and market outlook in this interview with the Financial Post.
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Here is how Patient Capital describes the firm's investment philosophy:
PCM's investment philosophy is based on long-term absolute value. The objective of the investment philosophy is to focus on the preservation of capital while earning superior rates of return. PCM attempts to meet these objectives by purchasing only those securities that meet very strict criteria for value and quality. PCM's mandates allow for substantial cash balances to accumulate if securities cannot be found that meet its very high standards. Investments are only considered in companies that have a long history of operation and are in stable businesses that PCM can analyze and understand with a high degree of certainty.
PCM’s portfolios are constructed entirely on a bottom up basis. Each investment is analyzed through a very independent and rigorous analytical approach. Reliance on external research is minimal. Historical annual reports are analyzed to determine balance sheet strength, sustainability of cash flows and profitability. A very important component of the analytical process is an assessment of the company’s accounting policies. In depth interviews are often conducted with company management in order to assess future strategy and competitive position. In addition, a considerable amount of time is spent attempting to estimate “intrinsic value” through the use of discounted cash flow models and traditional valuation measures such as price/earnings ratios and price/book ratios.
New investments are only purchased if PCM’s criteria for high quality fundamental characteristics such as superior returns on capital, substantial free cash flow and low debt are present as well as a security price that is trading at a substantial discount to PCM’s estimated intrinsic value.
Although PCM’s investment horizon is five to ten years we will exit an investment for any one or more of the following reasons:
- The security price reaches our targeted sale price;
- Significant management changes occur;
- A dramatic change in strategic direction is undertaken;
- Increased debt levels are incurred;
- Adverse changes in accounting policies are implemented.
We believe that our investment philosophy is very different from virtually every other Canadian value manager. Because our clients do not require us to be fully invested we do not have to compromise our standards for quality and price in order to meet a fully invested mandate. Other value mangers that must remain fully invested must by definition practice “relative value investing.” In addition, PCM portfolios are concentrated and will hold a maximum of twenty securities.
(Thanks to Corner of Berkshire and Fairfax for the interview link.)