Once we have clarified what you will not find, let’s briefly and clearly summarize the pillars on which we have built our investment style at Éstock. Highly influenced by Warren Buffett and Charlie Munger (there is no better school than them) and other large investors such as Benjamin Graham, Philip Fisher, Nick Sleep, Rob Vinall, and Terry Smith.

• Quality – With the names we mentioned in the previous paragraph, it was very difficult not to look for this type of company at Éstock, since except for Benjamin Graham, everyone invests in this type of company to keep them for many years.

• Understandable – At Éstock, we try to invest in companies that we can explain to a 10-year-old boy and that are easy to understand. If it’s too complex, we don’t complicate things and look for something simpler. That is why you will not see us invested in pharmaceuticals, biotechnology, cryptocurrencies, or banks, among other things.

It is much easier to understand the business of a company that manufactures the best tonics in the world, barrels for storing wine, or provides heavy machinery maintenance services.

• High ROIC – It is the first metric we look at to start analyzing a company at Éstock. We focus on companies that have generated, generate, and have the ability to generate a high return on the capital invested. In the long term, a company’s annual stock market profitability is very close to its ROIC, and we don’t say it, Charlie Munger does.

• Moat – The very famous term introduced by Warren Buffett to define the competitive advantage of a company over its competitors. Whether it’s a network effect, exchange costs, intangible assets, cost advantage, shared economies of scale, or others, at Éstock, if the company is not protected, the competition will soon come for its piece of the cake.

• Good executives – At Éstock, it is very important that behind a large company there is a CEO and a group of executives making coherent decisions and capable of being extraordinary. However, we are aware that it is very difficult to find this type of executives. Warren Buffett, there is only one, but we have to try to look for those who try to imitate him or have learned from him. Mark Leonard, Tom Gayner, Bruce Flatt, or Alex Rozek are some examples we have found. At Éstock, we value executives with “skin in the game” who are committed to generating value for the shareholders and are fully aligned in their remuneration.

• Time in the market – When we invest in a company at Éstock, in principle, it is to keep it for a lifetime, although we are aware that it is difficult to find this type of gem. However, we rotate companies when we see better return on investment opportunities in our watchlist that match our ideal company profile.

• Reasonable prices – At Éstock, if we find an extraordinary company and the price is fair, we buy it. It is preferable to buy a wonderful company at a fair price than an ordinary company at an extraordinary price. If it’s very difficult for us to evaluate it, we move on.

A person knows if they are obese when they see themselves entering through the door; there is no need to put them on a scale. The same thing happens with companies, as Warren Buffett says.

• Return – At Éstock, we rarely invest in companies with an expected yearly return of less than 15% compounded per year, which is on average the minimum return that we expect.

• Concentration – Our idea at Éstock is to maintain a portfolio of between 15 and 20 companies so that we can understand and follow them efficiently. The risk is not diminished with many companies, but with mediocrity. We prefer a portfolio of 15 excellent companies than 50 mediocre ones.

• Non-debt – Both for the companies in which we invest at Éstock, we look for them to have the lowest possible debt ratio (normally no more than x2 EBITDA), and for our own investments, we avoid leverage. While the use of debt can be profitable in many situations, it would not allow us to sleep peacefully.

• Geographical diversity – At Éstock, we have no problem looking for companies around the globe as long as they have stable and understandable governments, economies, and policies. There are times when certain geographical areas can be extremely expensive, while others offer good prices. One of the advantages of small investors.

• Multiple capitalizations – The theory that only inefficiencies are found in small caps is widespread. It is true that they can be less followed and cause certain inefficiencies, but that does not mean that highly followed companies do not present inefficiencies, both downwards and upwards. That’s why at Éstock, we don’t want to limit ourselves; we invest where we see the opportunity.

• Qualitative analysis – Along our journey as investors at Éstock, we have realized that the most important thing about a company is what is not seen, what is intuited in the numbers but is not written, what makes a company different and magnificent. We could define it in one word: culture.

• Psychology/Conviction – It is the last point of our philosophy at Éstock, but perhaps the most important. Over the years, there will be periods of great volatility that will test our ability as investors. The only way to stay stable and make sensible decisions is through conviction, that is, knowing perfectly well what we are invested in.