At Sanford DeLand, we manage our flagship CFP SDL UK Buffettology Fund and its smaller cousin, the CFP SDL Free Spirit Fund, in line with the business-perspective investing philosophy as championed by Warren Buffett, among others. We look for only the best businesses available to invest in and, believe me, there aren’t that many out there.
We want businesses that competitors have an economic moat, meanings find it hard to muscle in on their franchises. We like steady growth, favorable operating margins, superior returns on equity, copious free cash flow and robust balance sheets. We also look for managers who act with the owner’s eye as well as being competent stewards of the shareholders’ capital.
Not surprisingly, a lot of our investee companies, especially the smaller ones, have owner-managers with significant “skin in the game”. We run portfolios concentrateds, with 31 ownership interests in Buffettology and 26 in Free Spirit. Our investment horizon is long term; ideally, we want to hold forever to allow compounding to work its magic.
Quartix: a GPS giant
Quartix (Aim: QTX) is a vehicle-tracking system software developer. It is well established in the UK, with a presence in France and the US. The latter market is the big opportunity. Financially, it ticks all the boxes: all the growth is organic and management retains a significant equity stake in the business. Recently growth has been held back by the decision to shed lower margin insurance-related business and there is some hefty marketing spend going on. However, we expect growth to reassert itself with a vengeance as these passes. The shares are 38% off their peak last September and offer an attractive entry point.
AB Dynamics: a leader in automotive testing
AB Dynamics (Aim: ABDP) is a group of companies specialising in vehicle simulation, testing and measurement to enable the development of active safety and autonomous systems for the automotive industry. Its proprietary technology is used globally by all major vehicle manufacturers for advanced driver assist systems (ADAS); driverless-car technology evaluation; suspension, chassis and steering system development; and noise, vibration and hardness testing.
AB Dynamics’ products include driving robots, ADAS targets, drive-by-wire systems, kinematics and compliance test machines, driving simulators, path-following, and synchronization software. The company is regarded as high-tech, which might explain the 50% sell-off since last October. However, guidance has been raised during this time.
Focusrite: tune into this discount
Focusrite (Aim: TUNE) is a global music and audio products group supplying hardware and software products used by professional and amateur musicians. Its main products are digital mixing desks for home and small studio recordings, synthesisers, high-quality loudspeakers, high-power amplifiers and controllers for commercial audio applications.
It benefited from musicians having to work from home throughout the pandemic. However, more recently management said that it was only “cautiously optimism about the prospects for modest revenue growth in the current year”. That, coupled with supply-chain issues, has spooked investors. You can now buy in to a great business for 45% less than in September last year.
• The making of Warren Buffett
• Warren Buffett’s net worth: how the billionaire built his fortune