WestRock & Our Investment Philosophy
Many people ask me “What is WestRock?” and “How does the WestRock Investment Partnership work”. In order to provide a bit of insight about the partnership, let me explain what we intend to accomplish and our rationale and thinking and thinking as it relates to our investment philosophy.
WestRock is a value oriented, risk focused investment partnership. Its intent is to achieve above average investment returns by investing in undervalued opportunities—mainly undervalued businesses, thereby achieving above average long-term investment returns.
The foundation of our investment strategy is the belief that all investments are considerations of value on the one hand and price on the other. So often, and for so many investors this basic relationship is forgotten or ignored.
Undervaluation represents a market price that, for various reasons, is indicative of an economic value that is significantly less than what we believe to be the long term economic value of the business. Keep in mind that this definition of “undervaluation” is largely subjective and may vary from investor to investor.
What Do We Mean by Risk-Focused?
Probably the most important way we manage risk is first focusing on investing in good businesses. A business with a history of poor earnings, cash flow and poor returns on invested capital is unlikely to result in above average long-term investment returns. Over the long term, investor return will mirror the business’s long term on the capital invested in the business. Businesses producing poor return on invested capital will ultimately result in poor returns for its owners.
The second way we manage risk is by identifying businesses that are operated by managers with a long history of superior performance. Simply stated, we try to partner with good people, attract good people and do our best to hold onto them. I wouldn’t try to tell Steph Curry how to shoot three-pointers. Our strategy is to try to attract the best and let them do their thing. However, there must be proper alignment throughout the organization. That means when the business does well, its customers do well, its employees do well and the business’s owner do well. This alignment is a critical aspect of how we manage risk.
We believe that if there is one aspect of an organization that is likely to be responsible for its long-term success, it’s the organizations culture. Culture is somewhat difficult to define. Its encompasses many things. Ultimately it means that everyone associated with the organization is in alignment with the organizations values, principles and purpose. And that each individual associated with the organization lives these values each and every day. In order to achieve this alignment, we continually work to integrate our values, principles and purpose throughout our organization and business investments.
Our Investment Strategy & Achieving Our Objectives
Simply put, our strategy has basically three (or four) parts. First, is to buy the highest quality businesses we can find. Second is to find the best business managers we can find when those managers are aligned with our values, principles and purpose. Third, is to make investments in these businesses at the best prices possible, but always exceeding our long-term investment objective of 15% compounded annually. Lastly, we also seek to opportunistically acquire underperforming but good businesses when we believe we can improve operations over the long term, thereby exceeding our long-term investment objective.
Though WestRock Investments we look to create a portfolio of business each of which we believe can achieve a return on investment of at least 15 when averaged over a 3-5 year holding period. Our portfolio tends to be concentrated having on average 7 to 10 individual holdings. However, we feel that if each of these holdings, individually has a high likelihood of achieving our investment objective, then there is a high likelihood that the overall investment portfolio will achieve our investment objective over our holding period. We consider selling a current portfolio holding and replacing it with a new holding only when we believe doing so increases our likelihood of achieving our investment objective. We don’t see ourselves as traders, nor do we see WestRock Investments as a vehicle through which we trade stocks. We view ourselves as business analysts and long-term business owners. We are more analogous to permanent private equity. Our objective is to then find great businesses that are likely to grow, become better and more dominant within their industry in the future. If we can assist with that process, all the better. One of our greatest challenges then is our ability to function as business analysts, and the degree to which we are able to understanding intrinsic business value. And why one business within an industry or area of focus might be better than another.