EL PASEO CAPITAL
 

PHILOSOPHY

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We are long term, concentrated investors. We don't diversify for diversification's sake. It is simply too challenging to deeply understand more than a handful of companies at a time. Therefore, we don't believe in spreading our capital thin in order to "reduce risk". Risk is reduced through thorough research and analysis, not by spreading capital amongst a large number of companies, which reduces our ability to have full understanding. For this reason, it is highly unlikely that we will ever be invested in more than 10 companies at any given time.  We also have no restrictions on concentration. Any given position at any time may increase to 50% concentration in the portfolio. When riding the wave of a mega-trend on a first mover with a durable, competitive advantage, it is non-sensical to limit the concentration of that quickly compounding position to an arbitrary number. Borrowing from Lynch, we let our winners run until the story ceases to make sense. 

We approach investing in the public markets somewhat akin to a private small business owner. As a business owner, you must know your product, margins and customers well. You must focus on what you and you alone can do better than everyone else and avoid the attempt to become an expert on anything outside of your circle of competence. Small business owners rarely diversify, because to do so would put their business at risk. They must concentrate on what they can control, and excel at that which they are competent. They don't over analyze the Fed's interest rate policy, and they're not too concerned with hyper-inflation in Venezuela. 

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They focus on their business and what they can control. We seek to do the same.

We are business owners, not daily speculators. 

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As long term investors, we view volatility as a feature, not a bug. Beta does not equal risk and there is no risk free rate, there are only lower risk rates. The assumptions in the capital asset pricing model are flawed and there is no such thing as an efficient market. We expect violent swings one way or the other, and we intend to use them to our advantage. We know that, in the long run, stock price and earnings will move in tandem. In the short run, opportunities will present themselves.

We are not market timers. We are not macro experts. We are not short sellers. We do not move in or out of positions based on geo-political events or shifts in monetary policy.

We do not invest in crypto.

The businesses we are interested in are built to survive and do well in all types of conditions, and we are fully aware that we are not smart enough to predict macro conditions anyway. We expect our returns to be lumpy, not linear. Over the long run (minimum 10 years), we aspire to compound capital at 15% annually. Any interested partners must have a similar, long term approach and must be comfortable with short term volatility. In the game of investing, energetic action does not correlate well with long term compounding. Bouncing off the walls is inefficient, while sitting on our hands and waiting is usually the best approach. 

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The businesses we are interested in have durable, competitive advantages.

We also want

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- strong brand value

- world class, ethical management;

  preferably with a fanatical founder

- pricing power

- huge total addressable markets

- noticeable differentiation in

  competitive markets

- leaders in a mega-trend

- a long term outlook and

  operations that are easy to

  understand. 

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And...businesses with customers that are obsessed with the product or service. 

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These businesses are hard to find. They are even harder to find when they are selling for discounts to their intrinsic value. So, when we do find these ultra rare beasts, we intend to hang on for as long as possible. 

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