This article is authored by MOI Global instructor Todd Wenning, a senior investment analyst at Ensemble Capital Management, based in Burlingame, California. Visit Ensemble’s Intrinsic Investing website for additional insights.
“I do believe in simplicity. It is astonishing as well as sad, how many trivial affairs even the wisest thinks he must attend to in a day… So simplify the problem of life, distinguish the necessary and the real. Probe the earth to see where your main roots run.” –Henry David Thoreau
According to a quick Bloomberg screen, there are about 2,000 companies in our investible universe. At any given time, we’ll own between 15 and 30 of them.
To narrow down the list of potential portfolio holdings, we employ a framework borne out of both our personal and team experiences.
Over the past four years, we’ve written dozens of blog posts that have elaborated on this framework. We wanted to boil all of that down into a one-page diagram that shows, as Thoreau put it above, where our “main roots run.”
Before we invest in any company, we must believe that three key factors – management, moat, and forecastability (which informs our valuation) – are present. These factors are of equal importance.
Indeed, if even one of the factors is missing, we consider the idea a trap. We haven’t written specifically about traps yet, so here’s a summary.
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About The Author: Todd Wenning, CFA
Todd is a senior investment analyst at Ensemble Capital. Before joining Ensemble, Todd was an analyst at Johnson Investment Counsel, where he worked on the firm’s SMID cap strategy. Prior to that, Todd was a sell-side analyst at Morningstar, where he led Morningstar’s equity stewardship methodology and covered companies in the basic materials, industrials, and consumer sectors. Earlier in his career, Todd worked for The Motley Fool, SunTrust Asset Management, and Vanguard. He holds a BA in History from Saint Joseph’s University in Philadelphia and the Chartered Financial Analyst designation.
More posts by Todd Wenning, CFA