East Coast’s Q1 Letter: How an Idea Goes Through Their Investment Process

April 19, 2013 Leave a comment

Thursday, April 18, 2013

East Coast’s Q1 Letter: How an Idea Goes Through Their Investment Process

Christopher Begg’s East Coast Asset Management is out with their first quarter letter for 2012.  Entitled “The Art of Fugue,” the letter details how an opportunity goes through their investment process and they also provide an update on their portfolio. Investment process is always a work in progress, so it’s interesting to hear how other investors refine this and what they incorporate into their approach.  On East Coast’s process, Begg writes, “Once an investment idea is sourced, the idea is put through an initial checklist and if it has merit it will ultimately be categorized as a compounder, a transformation, or a workout. Next, the investment idea will go through two stages of due diligence – two individual fugues, both in six parts. In each six-part stage we always begin and resolve with our subject, or royal theme, which is a perspective on compounding.” We’ve highlighted East Coast’s investment process before, but their latest letter breaks down the six things they look at (in search of quality of the business):
– Competitive advantage
– Pricing power
– Market opportunity
– Capital itensity
– Economics
– Management
Then eventually they look to answer 4 questions:
1. Does the investment have an attractive expected rate of return? (IRR)
2. Does the investment have a sufficient margin of safety?
3. Do we understand the critical data points that will drive the success and intrinsic value of the business?
4. Do we understand first cause, or why the investment may be mispriced?
Begg then applies the above to a new holding they initiated in the quarter so you can follow along with their investment process to see how they think about everything.  It’s certainly a useful exercise and some of you may be able to guess the position.

http://www.docstoc.com/docs/document-preview.aspx?doc_id=153075680

Filed under Investing Process

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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