Drawing on decades of experience and success, we perform in-depth and comprehensive research on every company we invest in, and research several more everyday.
The Investment Process
We are value investors seeking a concentrated portfolio of equity investments for long term returns. We are independent and are not constrained in our search for value on behalf of our clients.
There are no committees or investment banking clients to appease. We don’t have to dance to the beat of a large parent company. We do not have any externally-imposed restrictions on factors like geography or company size.
The Devotion Difference
Know What You Own
Aligned interests
Fee Only - No Sales Commissions
Independent Research
We hold meaningfully sized positions, and our clients can clearly see what they own.
We want you to clearly understand what you are invested in, and why you are invested in it. We hold positions of meaningful size. We curate a diverse yet potent collection of positions that can be easily understood. Your gains and understandings are not diluted in a sea of hundreds of small positions.
One Simple Fee.
1 percent per year. Paid quarterly.
(0.25% of managed assets per quarter)
We are 100% fee based. We don’t earn any fee or profit other than our 1% annual fee. No referral fees, no commissions, nothing else.
Our effective investment universe is large and varied.
As such, we must quickly eliminate potential investments that are deemed unsuitable. We say “no” frequently to arrive at a portfolio of our best ideas.
Our company structure allows us to think long term. This is in stark contrast to most of the investing world where the short term dominates – the next quarterly earnings report or the next economic forecast. Markets often overreact to near term news and prospects, ignoring underlying fundamentals. We seek to take advantage of this myopic conditions for the benefit of our clients.
We favor strong balance sheets, low debt levels, strong franchise values, sustainable earnings, competitive advantages, and intelligent management teams who think like owners.
These and other fundamental factors are far more important to us than a company “beating expectations”. What ultimately matters is Price and its relationship to a company’s underlying value. This dictates long term returns. In the search for value, Devotion Capital identifies many potentially undervalued companies for examination.
Circle of Competence -
We focus on businesses we understand and can value. We are looking for quality companies that can withstand short term troubles and indeed entire industries that have a track record of poor returns and spotty profitability. We don’t care if a company is well known or popular as long as it is understandable and approachable from a valuation standpoint.
Intrinsic Value -
We then calculate an estimate (or range of estimates) for intrinsic value. Intrinsic value is defined as the discounted value of cash that can be taken out of a business over its remaining life. It is also the price a rational and knowledgeable business person would pay for a given company. The calculation of intrinsic value is the key driver of our investment process. Effective valuation of businesses demands true understanding of industry and company fundamentals.
Catalysts -
We identify potential catalysts that will drive other market participants to rethink and reevaluate a company’s true value. This includes the passage of time and more dramatic corporate actions and potential buyouts.
Margin of Safety -
Understanding that our intrinsic value estimate is never perfect, we only invest in a company when its current stock price (market value) is substantially below our estimate of intrinsic value.
Active Ownership -
We are patient, but not passive investors. We periodically review our intrinsic value estimates to verify that holdings continue to meet expectations. Once we have added a holding to our portfolio, we take on the role of devil’s advocate. We constantly question our assumptions. We frequently establish a dialogue with corporate managers to encourage value-creating catalysts (dividends, share repurchases, liquidation, sale of the company, spin-off, etc.) when appropriate. Devotion Capital also takes proxy voting seriously.
Sell Discipline -
Disciplined selling is as important as rational buying. It helps reduce risk by avoiding overvalued assets. As a long-term partner in the businesses in which we invest, our portfolios have a relatively low turnover. However, because we focus our efforts on calculating intrinsic value, selling a stock is a relatively simple decision. When the market price of a stock rises significantly above our estimate of its intrinsic value, we sell the stock.
