Exclusive Interview With Clarkston Capital Partners: Selective, Quality Value Investing by John Mihaljevic, BeyondProxy
We have had the distinct pleasure of interviewing Jerry Hakala and the team at Clarkston Capital Partners, based in Bloomfield Hills, Michigan. Clarkston Capital manages in excess of $1 billion utilizing the quality value investment process created and developed by Jeffrey and Jerry Hakala over a decade ago.
Please tell us about your background and the genesis of the firm. What operating principles have guided you since the founding of Clarkston?
My brother, Jeff and I founded Clarkston in 2004. Jeff was trained as a CPA in public accounting and therefore is well versed in the language of accounting. I spent several years in corporate finance at Ford Motor Company. The common thread across both our backgrounds is that we were trained to analyze businesses, not to buy and sell stocks. As you might expect, it didn’t take much time for us to embrace Graham’s axiom “Investment is most intelligent when it is most business like.” The firm was founded on the belief that the best way to create and protect wealth is by owning businesses.
Our sound philosophy is only as good as the execution of the strategy. We believe that an inherent advantage of Clarkston is that the investment managers are also the creators of the investment process and philosophy. Furthermore it is not the investment process alone that has created our investment success, it is also the investment temperament of the team. Our temperament is driven by our core investment values; patience, discipline and courage.
What are your key stock selection criteria, and what types of businesses have you favored historically?
We developed a metric for analyzing returns on capital called “CRONOA”, or cash returns on net operating assets. CRONOA helps us understand and identify companies with strong balance sheets, competitive advantages relative to their peers, and managers with a long term approach to growing free cash. Our initial focus is the cash earnings power of a business’s assets. If a business has operated efficiently and profitably in the past, we spend a majority of our time understanding how it will fare in the future. Through an in-depth analysis of the business model itself, we assess any competitive advantages and the sources of those advantages, and determine whether we want to buy into that specific enterprise or allocate our capital elsewhere.
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