Long-Term Investing Playbook

Holding Period: 1 year to multiple decades · Compound capital by owning high-quality businesses at reasonable valuations

1. Core Entry Criteria

Business Quality Filters

ROIC consistently above WACC — typically ROIC ≥15%.
Durable competitive advantage: network effects, switching costs, scale economies, intangible assets, or cost advantage.
Recurring revenue or high customer retention where applicable.
Management with demonstrated capital allocation discipline and aligned incentives (meaningful insider ownership).

Financial Health

Manageable leverage: Net Debt / EBITDA below industry norms.
Consistent free cash flow generation across business cycles.
High gross margins and stable or expanding operating margins.

Valuation Discipline

Entry price offers a margin of safety relative to intrinsic value (DCF, reverse DCF, or peer/historical multiple analysis).
FCF yield attractive relative to the risk-free rate and sector peers.
Normalized P/E, EV/EBIT, or EV/FCF within or below the stock's long-term historical range.

2. Market Context

Works best when: Broad market valuations are moderate to depressed. Macro regime is characterised by stable or falling real rates, or during capitulation phases after drawdowns. Specific sectors are out of favour creating dislocation opportunities.

Avoid when: Euphoric market conditions with extreme retail participation and elevated speculative metrics. Sector-specific bubbles where valuation expansion (not earnings growth) drives returns. Balance sheet fragility combined with rising rates. Businesses whose competitive moats are being actively eroded by technological disruption.

3. Confirmation Signals

Technical confirmation is secondary but useful: price above the 200-week moving average indicates a long-term uptrend intact.
Insider buying clusters (multiple executives purchasing in open market) corroborate the thesis.
Positive revisions in sell-side estimates after a period of downgrades (the "bad to less bad" inflection).
Fundamental follow-through: subsequent quarters confirm the thesis (margin expansion, FCF growth, debt paydown).
Accumulation patterns on weekly/monthly charts: higher lows and declining volatility after a prolonged decline.

4. Risk Framing at Entry

Risk is framed as permanent capital impairment, not short-term price volatility.
Invalidation is thesis-based: deterioration of the competitive moat, sustained ROIC decline, unsustainable leverage, or governance failure.
Position sizing: commonly 2%–8% per position based on conviction, expected return, and portfolio context.
Averaging down is acceptable only if the fundamental thesis remains intact and the investor has pre-committed capital for scaling.
Diversification across uncorrelated holdings serves as the primary risk control.

5. Institutional Perspective

Why this works: Long-duration institutional capital allocates to businesses where compounding intrinsic value exceeds the cost of capital over multi-year horizons. The inefficiency exploited is time-horizon arbitrage — most market participants are forced short-term by quarterly performance measurement, creating mispricing in businesses whose value realisation extends beyond 2–3 years.

Behavioural mispricing during drawdowns creates opportunity when forced sellers dump quality assets indiscriminately.
Institutional accumulation in quality franchises provides structural demand that manifests as steady appreciation over years.

6. Common Entry Mistakes

Value traps: confusing low multiples with cheapness in businesses whose earnings power is secularly impaired.
Anchoring to prior highs as a reference for "cheapness" rather than intrinsic value.
Ignoring balance sheet risk in cyclicals at cyclical peaks.
Overpaying for quality during periods of multiple expansion.
Style drift: abandoning the investment framework during drawdowns to chase momentum or thematic narratives.
Concentration in correlated names under the illusion of diversification.
Neglecting reinvestment rate analysis: high ROIC is only valuable if the business can redeploy capital at similar rates.