Investment Philosophy
Investors, not speculators.
On what we own, and why.
The Epsilon Omicron Fund is meant to evolve and grow in accordance with the brothers' views on the financial markets. With that being said, the founders of the fund endorse a value-oriented philosophy grounded in patience, rigor, and a willingness to be early and lonely when the evidence warrants it.
We seek strategically well-positioned, durable businesses with competitive moats that will allow them to earn a return on their capital throughout multiple economic cycles. We want to hold businesses that are likely to grow consistently, generate substantial free cash flows, and maintain clean balance sheets. We do not chase narratives. We do not pay premium multiples for businesses whose competitive position we cannot defend in writing. We are skeptical of our own enthusiasm.
Great businesses may warrant a higher valuation. Average or poor businesses warrant significantly lower ones.
Once we have identified a business that meets these conditions, or appears likely to meet them, we then assess what it is worth. A valuation is proposed and stress-tested. Only after the valuation seems reasonable do we ask the most important question: is there a large enough margin of safety between the current market price and the fair value of the business to justify owning it?
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How We Evaluate a Business
The order of operations.
Every pitch brought before the investment committee is evaluated in a fixed order. We do not begin with price. We do not begin with a chart. We begin with the business itself, and we move to valuation only after we are convinced the business is worth understanding.
- i.
Business quality
Durable competitive moat, pricing power, reinvestment runway. If the moat cannot be articulated in a sentence, we do not own the business.
- ii.
Financial characteristics
Consistent growth, strong free cash flow generation, a clean balance sheet, and a high or improving return on invested capital.
- iii.
Management
A track record of rational capital allocation, aligned incentives, and honest communication with shareholders. We read the last ten years of letters before we buy.
- iv.
Valuation
A fair value range proposed with explicit assumptions. Discounted cash flow, multiples, or sum-of-parts as the business warrants. The math is always shown.
- v.
Margin of safety
An explicit gap between current price and fair value. Lower-quality businesses demand a wider discount. We would rather pass on a good idea than overpay for a great one.
- vi.
Disconfirming evidence
What would make us wrong? What would we need to see to sell? A thesis without kill criteria is a narrative, not an investment.
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The overarching goal of the fund is to use logic, rational thinking, and mathematics to support qualitative ideas that members may have on individual companies. A story is never enough. A number without a story is never enough either. The work is to hold both in the same hand and weigh them honestly.
The target timeline for an idea can be anywhere from six to thirty-six months, though longer timelines are preferred. We compound slowly and deliberately, and we measure ourselves against the S&P 500 over many years, not a few weeks.
Fraternally,
Jason Greenblatt
President · EO 2220