It’s hard to get into the Marshfield portfolio.
In order for Marshfield to buy a stock, several things must be true: the company must be in an industry that allows it to earn high returns on equity over time, often through an intelligently differentiated strategy or through strong barriers to entry; the company must be imbued with a functional and resilient corporate culture; and the stock must be trading at a price that allows for things to go wrong.
• Industry structure refers to such attributes as competitive rivalry and the power of customers and suppliers. We want our companies to have leverage within their industry’s value chain and the self-knowledge and discipline to hone and exploit those advantages.
• A differentiated strategy is one that harnesses a company’s competitive advantages independent of what the competition is doing. This is not the same as not caring about competition. We like companies that show a willingness to go against the flow while at the same time demonstrating an acute awareness of existing or potential threats to their business.
• Corporate culture is the internal compass as expressed by the company’s attitude toward customers, employees, and shareholders; it must be both appropriate to the business and permeate it. Loyalty to the organization, rather than to top management, along with integrity, courage and resolve tend to characterize our companies.
• Price and what you pay for a stock matters. We invest slowly, adhering to a strict price discipline, as we do not care about the fact that we are holding cash. The simplest way to make money is to pay much less for a stock than our research says it’s worth. Stock markets are volatile and individual stock prices typically more so; accordingly, opportunities tend to present themselves over time.