There are three determinants of returns for equities: earnings, dividends, and P/E multiples. We focus on free cash flow and how it is allocated because that is ultimately the source of earnings and dividends. With interest rates near historic lows, stocks are not likely to benefit from expanding P/E multiples as they did in the 1980s and 1990s.
Focused investment teams, using consistent, rigorous investment criteria and research, combined with an integrated risk management process and a robust infrastructure, are the keys to successful long-term investing. With these elements as our guiding principles, our goal is to deliver strong long-term returns on both a total-return and a risk-adjusted basis. In short, we assemble portfolios of businesses with superior risk/reward profiles and carefully manage risk as part of the portfolio construction process.