The Global Value & Growth model (GVG) is simple and very transparent
- We seek to avoid the risk of value traps (stocks staying cheap forever) by focusing on leading superior companies, growing 8-15% p.a. decade after decade
- We seek to get these growth companies at value prices when they are out of favor, forgotten or have short-term problems
- We keep these companies for a very long time
The GVG principles are simple too
In the group of companies that grows 8-15% p.a. we favor what we call super companies. These are companies that meet most or all of our investment principles
The company:
- The company should focus on one field of competence
- The products – or services – of the company should be less affected by economic cycles
- The company should be able to maintain continued growth and profits without large capital injections
- The growth of the company should not be based on large mergers or acquisitions
- Growth in net profit/revenue should exceed an average of 8% p.a. the past 5-10 years
- The profit margin should be or be expected to become higher than that of the competitors. However, net profit should generally be at least 6% of revenue
- The products – or services – of the company must have a strong and well-known brand with PRICING power, few geographical and physical restrictions on growth
- Companies whose growth is based on hiring more staff must be handled with particular diligence. If a company hires too many people too quickly, its "DNA" weakens
- Surplus liquidity should only be invested in relevant business areas, spent on share buy-backs or distributed as dividends to shareholders
- The company should have a deep pool of management talent, a culture of client focus, innovation, focused on employee education and financial disciplined
The Management:
- We look for companies with strong-ego-management not big-ego-management. The big-ego management are more risky as they tend to empower the 2nd management layer less. This makes the company more vulnerable if and when the CEO is replaced
- The management must have achieved pronounced developments for at least the past three years to the long-term benefit of the company. We pay particular attention to managements that are new or taken in "from the outside". In the latter situation, we prefer to wait for 2-3 years until the new management has survived and has taken roots
- The management must think and act as owners. It is also a great benefit if a considerable part of the management members' own assets are invested in the company or their compensation scheme motivates them to think as owners
General considerations:
- Long-term debt should not exceed 50% of the equity, and the annual return on equity (and/or working capital) should be more than 15%
- We never buy shares in connection with IPOs. The motive behind an IPO is very difficult to identify. We wait for 2-3 years before taking any action
- We are particularly wary of companies whose sales are artificially stimulated, or whose customers will be rewarded by a tax benefit based on the purchase of product(s), public grants, loans or other favorable conditions from the company
