Volume 49 October 2019

4 ROE REPORTER | DKAM encompasses the positives of these metrics while being more appropriate for public stocks. By being a numbers first firm with an algorithmic mentality and knowing this metric inside and out, we are able to invest in high quality businesses with quality management. As a result, it keeps us away from whatever unprofitable fad is having its time in the limelight (ex. lithium stocks, crypto currencies, marijuana stocks, unprofitable high growth tech IPOs, e-sport stocks). 2. The mindset and shareholder base that allows for a long-term outlook allows the magic of compounding (ROE) to work its powers. Without the ability or mentality to buy and hold an investment, one won’t be able to reap the benefits of compound growth. ROE can be thought of as the engine underneath the hood of the compounding machine. A 20% ROE business is a high horsepower racecar, a 7% ROE business is a Honda Civic, and an unprofitable business isn’t a car with an engine at all, it is a rusty bike with a broken chain. 3. Knowing the minutiae of our businesses. This is an extremely important point. Through continually meeting with management, visiting businesses on location, performing alternative data analysis 2 , and constantly updating our models, we can be confident in our investments. This knowledge gives us conviction and allows us to see through day to day price gyrations and prevents emotion from dictating our investing strategy. Take Apple Inc. for example. Apple is a great company, we all know and love the product, but as investors we have no edge. There's nothing we know that the majority of the market doesn't already know too. 4. The ability to concentrate on a select few investments not only allows one to understand those businesses in greater detail but it also focuses investors’ capital on our highest conviction stocks to maximize returns. We rely on our own thorough research and believe the further one is removed from the financial modelling, the meetings with management, and the research process in general, the less one is capable of picking winners.