Choice Equities: Introduction
Mitchell Scott, CFA
Choice Equities Fund (CEF) is an investment partnership that seeks to generate market-beating returns over any rolling multi-year investment period while minimizing the risk of permanent impairment of capital. The fund invests through a concentrated, long-bias portfolio which typically consists of 10 – 15 equity longs, frequently of the small-cap variety.
It took decades for Warren Buffett to build Berkshire Hathaway into the conglomerate it is today. Along the way, the Oracle of Omaha and his business partners have acquired a range of different companies and extracted cash from failing businesses to reinvest back into growth stocks. Q2 2021 hedge fund letters, conferences and more The Read More
Choice Equities approaches equities investing like an opportunistic businessperson and seeks investments offering the potential to double or better over a three-year time horizon. Launched as an independent and standalone investment management firm in January 2017, CEF has compounded capital at 32% per year on a net basis since inception.
It’s been three years since we last spoke, and a lot has changed since then. As such, have you made any significant changes to your strategy as a result?
Not really. We run a long-biased, concentrated portfolio, primarily focused on small to midcap US equities where we can find meaningful return opportunities through value-added primary research. I think our approach is a proven one that can work over the medium and long term in nearly all market cycles. So really, it’s all about execution, which for us, is primarily about picking good stocks. That said, I would say there were a few points in the last year when we administered our approach perhaps a bit faster than we typically have in the past, but really, that had more to do with a rapidly changing environment than with any meaningful changes to our investment approach.
In 2018 you noted Choice used “four critical success factors we call the Four M’s: Moat, Management, Money Flows & More Reinvestment Opportunities.” Have the developments of the past few years led to any changes to this approach?
No. I still think the four Ms moniker that describes our evaluation criteria is a bit hokey, but I still think it’s important to remember what’s important. So as a framework for evaluating companies, it continues to be really useful in helping to keep the focus on what matters in our efforts to identify businesses that are poised for success.