One of the primary factors that differentiates our investment style from that of other managers is the concentration of our portfolio. We assume large positions in a small number of companies, which allows us to focus our research efforts and minimize risk for our investors. It also allows us to carry out the depth of analysis required to find truly undervalued opportunities.
Our portfolio continues to be dominated by high-quality companies with highly recurring revenue streams, stable margins, high levels of free cash flow, low capital requirements, excellent balance sheets and significant returns on invested capital. They face limited competition and are exceptionally well managed.
A consequence of concentration (being focused on your best ideas) is that our Fund looks nothing like the overall stock market/index. The market is composed of many different industries, some of which we will never own. We are not attracted, for example, to capital-intensive or cyclical businesses. There will, therefore, be many periods when we perform better than or worse than the market. Over time, however, we believe that owning a less expensive and, in our view, higher-quality portfolio will achieve better long-term relative results and good long-term absolute returns.