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At Black Creek, we take a fundamental approach to investing in common equities. We approach any potential investment as would an experienced business person looking to acquire the entire company. We view the investment process as one of buying businesses with our own money and that of our partners in order to grow capital over time.

We take a long-term view of the world, and strive to understand the economics and characteristics of different businesses and industries. When we study any particular company, we also look at its competitors and the industry overall. We study historical financial performance, trends and technological changes in the business, sensitivities to economic factors, and other factors that may affect the future economics of the business. Most importantly, we try to discern any special competitive advantages that the company of interest might have, and whether these advantages are sustainable.

We look for growing businesses; companies that are leaders in their markets and which are gaining market share; businesses for which there are huge barriers to entry; companies with significant and sustainable competitive advantages; and companies with honest and competent management who care about shareholders. Not all of our investments meet all of these criteria, but these remain our preferences.

In looking at a potential investment, we strive to develop a proprietary position or relatively unique viewpoint about that company compared to other investors. We try to form some view of what the company will look like in the future, and what its earning power will be, to the surprise of other investors. We then determine what we would be willing to pay for this company in order to achieve a reasonable return. This independent thinking is a major part of our value-added over time.

We strive to buy good businesses with high-quality management at fair or attractive prices. We try to determine a fair price by making judgments about what “normalized economic earnings” are for a business, and the rate at which these earnings will grow in the future. Because we do not know precisely what these variables will be, we must make estimates and judgments about the future. Business valuation is not an exact science! We are neither “growth” nor “value” investors. To value a business, you must be able to judge the future growth of earnings (free cash flow) for that business; hence, growth and value are not independent of each other.

We invest in individual business ideas for your portfolio, and we do not try to time markets, trade for short-term gains, or alter the portfolio significantly for any particular economic or interest rate outlook. We also refrain from taking sector views and bets, either by industry or geography.

It is important to define one’s investment universe or circle of competence. We must be able to distinguish between what we know versus what we don’t know. There are particular businesses and industries where we know very little, and many regions of the world where our knowledge level is low as well. We avoid those areas where our knowledge is low until we have sufficient confidence that our knowledge and experience is suitable for investing there.

We compare companies in similar businesses across geographic borders to aid in our decision-making. That is why we eschew “pie-chart” investing, where holdings are grouped and measured by geography. We do not pay any attention to index weights, either by country or by sector. Because we are not “closet-indexers”, the performance of the portfolio will likely tend to be very different from that of the major stock indices at various points in time. If in fact we are adding value to this process, it will only show up in the performance numbers over a long period of time.

The portfolio thus becomes a collection of individual business ideas. There is a conscious diversification of the holdings in the portfolio. The ideas are diversified by business and industry, region, technology, management, and other factors. Any new investment idea must “fit” with the rest of the portfolio in this context.

We choose to have a relatively concentrated portfolio compared to many of our competitors. We take a much larger positions in companies where the conviction in our idea is strong. Having fewer holdings allows us to know and follow the companies better, and maintains our selling discipline: if we find an idea that we really want to own, we must make room for it in the portfolio by selling our least favourite idea. We believe that too many holdings results in too much diversification and hence average performance.

We view risk as the possibility of permanent loss of capital. Therefore, in analyzing a company, we prefer to have a built-in margin of safety through the price that we are willing to pay for the business. We do not view risk as the volatility of the portfolio relative to any index over a short period of time.

Our goal is to provide capital growth over the long term through investment in common equities, and to achieve superior returns relative to equity market averages in general and to competitors.