- Dan Davidowitz — the lead portfolio manager of the focus growth strategy at Polen Capital — and Jeff Mueller — co-portfolio manager of the global growth strategy at the firm — aren't your typical value investors.
- The duo makes it a point to focus on competitive advantages, margins of safety, strong balance sheets, limited competition, secular tailwinds, and long-term growth when vetting companies.
- They share five competitive advantages they look for before an investment gets added to their portfolio — and the more, the better.
- The pair also share three recent stocks they've been buying in the midst of recent market turmoil.
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Dan Davidowitz and Jeff Mueller are two value investors that don't adhere to the traditional definition of the distinction.
2020欧洲杯夺冠热门At — where the duo oversee in excess of $37 billion — Davidowitz serves as the cohead of the large company growth team and the lead portfolio manager of the firm's bellwether focus growth strategy. Mueller operates as a co-portfolio manager of the global growth strategy.
"What does value investing mean today? It doesn't necessarily mean low P/E [price-to-earnings], low price-to-book, although there's nothing wrong with that too." Davidowitz said on the "" podcast. "Our definition of value really is not just finding companies at a discount to their intrinsic value — which we think we do — but there's a permanence to their business."
For that reason, the pair eschew conventional metrics associated with value investing and discern their picks through the lens of permanence, margin of safety, strength of financials, competitive advantages, competition, secular tailwinds, and long-term growth.
2020欧洲杯夺冠热门As a result, Davidowitz and Mueller are willing to put their capital to work in places other value managers may think twice about. They're not deterred by lofty multiples, especially if earnings growth is compounding.
2020欧洲杯夺冠热门"You can't just run a screen and buy," Mueller said. "There's real critical thought and judgement required behind this."
Davidowitz added: "The only ones that typically pass our screens are the ones that have massive competitive advantages, very-very large balance sheets, and great growth."
In order to analyze the sustainability of a company's competitive advantage, Davidowitz and Mueller abide by a set of five criteria. In doing so, Mueller says "it makes these companies almost impossible to really compete with out in the marketplace."
Below are a list of competitive advantages the duo look for and examples of companies that possess these competitive edges. All quotes below are attributable to Mueller.
1. Network effects
2020欧洲杯夺冠热门"Obviously, is just a terrific example."
For the uninitiated, a network effect increases the value of a product or service as the number of users using that product or service increases.
2020欧洲杯夺冠热门Although it can't be measured, Mueller notes that culture is an integral piece of a company's overall competitive advantage. He says that a company like has a "phenomenal culture."
3. Intellectual property
Mueller mentions and as two companies that wield large swaths of intellectual property over the competition.
4. High switching costs
2020欧洲杯夺冠热门" 365, ; You can think what you will about Oracle, but it's often been said that switching off Oracle is like getting dental surgery without anesthesia."
2020欧洲杯夺冠热门Mueller notes that — specifically their digital media business — has a stranglehold on its market.
Adding to an existing position and 2 new pickups
With all of that to gnaw on, Davidowitz and Mueller have been picking up shares of stocks that have been walloped in the face of the coronavirus.
"We've been adding to in a meaningful way," said Davidowitz. "We also brought in a new position in ."
In addition to Facebook and Autodesk, Mueller also notes that the team picked up .
"Our turnover has been quite low during this period," Mueller said. "But I do want to make the point that had we done nothing, the portfolios would perform quite well both going into COVID-19, and whenever the world normalizes coming out of COVID-19. I would argue that's a result of the level of due diligence we put in and the level of quality in the companies that we invest in before these shocks happened."
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