AXIAM’s investment principles dictate portfolio construction, regardless of market conditions.
- We invest in companies that meet indispensable consumer needs and have strong brands that drive consumer choice.
- We focus on companies with strong cash generation and minimal debt.
- We calculate valuations for each company on an ongoing basis and only purchase shares when our valuation is compelling relative to the company’s stock market valuation.
- We take advantage of market downturns to buy favoured companies at lower prices without the need for the investor to add more cash to the portfolio.
- We generate income through dividends.
Investing in Companies That Are Unlikely to Disappear
Our first principle dictates we invest in businesses providing products or services essential to everyday life—particularly those that fulfill basic needs like hydration, nourishment, hygiene, and communication. Consumers often consider their products or services non-negotiable, and these characteristics make it unlikely the company will disappear. Even in economic downturns, consumers struggle to avoid purchasing these essentials. Established companies in these sectors benefit from strong brand loyalty and consumer habit formation. We continuously monitor consumer preferences to confirm the ongoing relevance of the product or service.
Commodities are the opposite. Companies that do not have brand power have to sell their products and services at a price their customer negotiates with them.
History shows us that people care that their mobile device is an iPhone, a brand, but have little knowledge or concern where the chip, a commodity, inside the phone comes from. The same is true for Apple computers. Apple loyalists care more about owning an Apple Mac rather than whether it is powered by a Motorola, IBM, Intel Chip or Apple Silicon.
Selecting Companies with Strong Cash Generation and Negligible Debt
Strong cash flows and low debt levels are fundamental indicators of a company’s financial health.
Companies with strong cash flow and negligible debt can reinvest in growth opportunities, conduct share buybacks, or pay consistent dividends. A conservative balance sheet mitigates the impact of rising interest rates or tightening credit conditions.
Ensuring an Attractive Valuation
A company’s strong business model and balance sheet do not, by themselves, justify any purchase price. We employ the discounted cash flow (DCF) model to determine whether a stock’s price is reasonable.
Buying When Markets Decline
Market downturns often create favourable purchasing opportunities. When valuations drop, robust companies may be undervalued, providing an advantageous entry point. Our approach allows us to invest during downturns without forcing the sale of existing holdings or requiring additional investor contributions. This is not generally feasible in purely passive strategies—where an index is bought irrespective of intrinsic company values—leaving no flexibility to capitalize on temporarily depressed prices and no mechanism to purchase additional shares without adding more cash to the account.
Deriving Income from Investments
AXIAM ultimately seeks to help investors build a sustainable income stream over time. By selecting cash-generative businesses, the portfolio can benefit from regular dividend distributions and share repurchase programs.
Conclusion
In contrast to AXIAM’s philosophy, an opposing approach might involve buying non-essential businesses that lack strong consumer franchises at any price—the purchase is simply done because of positive price momentum. This strategy would leave investors ill-prepared to capitalize on market downturns, as there is no capacity or plan to purchase additional shares at lower valuations. Furthermore, without a focus on generating free cash flow, companies within such a portfolio are unlikely to pay dividends, depriving investors of a reliable income stream.
AXIAM’s investment framework hinges on unchanging principles of acquiring shares in companies that cannot easily disappear—those with robust consumer franchises and consistent free cash flow—purchased at sound valuations. The ability and willingness to buy more during market declines, coupled with a focus on cultivating income from dividends, bolster both capital appreciation and ongoing cash returns. Together, these tenets form a strategy poised to thrive in varying economic environments and deliver sustainable long-term wealth generation.