Kalakau Avenue’s investment philosophy is founded at the intersection of our investment foundations — circle of competence, competitive advantages, and passions.
“You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.” — Warren Buffett, 1996 Berkshire Hathaway Letter
Our circle of competence is rooted in the study of many industries and business models and the development of frameworks to assess why some business models might be more advantaged than others. We have developed insights regarding why some competitive advantages are durable or structural while others are more temporary in nature. Put simply, our circle of competence is assessing enduring business quality. We undertake never to stray from our circle, though as a learning organisation we expect our circle to grow slowly over time. We will only invest in companies we deem to be of the highest quality.
Our most important competitive advantage is our long-term capital base. This affords us a behavioural edge to invest in assets where we are confident that value will increase over the long-term even if we cannot predict the short-term path. It helps us avoid the pressure to produce short-term returns, which could lead to value-destructive behaviours such as focusing on multiple expansion, selling at the wrong time, excessive trading or risk-taking, or investing in businesses that do not match the strategy. Our second behavioural advantage is our strong culture of intellectual honesty, meritocracy, teamwork, commitment to organisational learning, and rationality. Our culture ultimately enhances investment decision-making, and it is an enduring advantage because culture is incredibly hard to replicate or change.
Passion is the fuel that sustains us and what makes us go the extra mile. Without passion, the work quickly becomes a job. We would become less innovative and think less critically. Our team must be passionate about investing, passionate about understanding business models, and passionate about learning.