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Bill Aman is widely regarded as one of the most brilliant strategic minds in modern finance. A high conviction visionary who doesn't just follow the market but helps shape it for the better. We share with you eight of his principles which he shared publicly with examples. So stay tuned. These commandments are so central to his success that he famously had them engraved on stone tablets for his entire team at Persing Square.
The business must be simple and predictable, easy to understand with reliable, forecastable cash flows. He avoids overly complex or unpredictable companies. Aman prioritizes companies with straightforward operations that are easy to understand and forecast over long periods, avoiding complexity that could lead to surprises.
This reduces risk and allows for confident long-term holding. Real example, Chipotle Mexican Grill, CMG. Aman invested heavily in Chipotle starting in 2016 after its E.coli crisis. The business is simple, selling burritos and bowls in a fast casual format with a limited menu and predictable as consumer demand for fresh customizable Mexican food follows clear trends in healthconscious eating.
Persing Square held over 2 million shares as of recent filings and the stock has compounded significantly under this thesis. It must generate free cash flow. Strong consistent free cash flow generation is essential. Strong free cash flow. Cash left after capital expenditures is crucial for Acman as it indicates a company's ability to fund growth, pay dividends, or buy back shares without relying on debt or external financing.
Real example, Alphabet Goo added to Persing Square's portfolio in 2023. Alphabet generates massive free cash flow, over $60 billion annually in recent years from its dominant search advertising business. This cash supports investments in AI and cloud computing while allowing share repurchases, aligning with Acman's focus on self-sustaining growth.
Third, the company must have a dominant market position, leading or commanding share in its industry. Amen seeks leaders in their industries as dominance provides pricing power and resilience against competitors. Real example, Restaurant Brands International, QSR, which owns Burger King, Tim Hortons, and Popeye's.
Aman has held this since 2012 via his involvement in its formation. It holds a dominant position in quicks service restaurants with Burger King as the second largest burger chain globally, giving its scale advantages in supply chains and marketing that smaller rivals can't match. Fourth, there must be large barriers to entry.
A strong economic moat, protection from competition that allows sustained profitability. A moat such as brand strength, network effects, or high switching costs protects the business from new entrance, ensuring sustained profitability. Real example, Hilton Worldwide, HLT. Persing Square invested in Hilton post IPO in 2013 and remains a major holder.
Its moat comes from a vast network of over 7,000 properties, strong brand loyalty, eg Hilton honors program with 150 plus million members, and economies of scale in reservations and management, making it hard for newcomers to compete in the global hotel industry. Fifth, the company must generate a high return on invested capital, ROIC.
Efficient use of capital to produce strong returns. High ROIC shows efficient use of capital to generate profits indicating a quality business that can compound value over time. Real example, Lowe's companies low ACM took a stake in 2018 during a turnaround. Lowe's consistently delivers ROIC above 20%, often 25 to 30% in recent years through its home improvement retail model, leveraging prime store locations and inventory efficiency to outperform invested capital, which supported Acman's activist push for operational improvements.
The business must have limited exposure to uncontrollable extrinsic risks, low sensitivity to external factors like commodities cycles or macroeconomic volatility. AMAN avoids companies overly sensitive to factors like commodity prices, economic cycles, or geopolitics, preferring stability. Real example, Universal Music Group, UMG, as added to the portfolio in 2021.
UMG's business revolves around music licensing and streaming royalties, which are relatively insulated from extrinsic risks. Demand for music is steady regardless of oil prices or recessions. While streaming trends evolve, they're more predictable than cyclical industries like energy and UMG's catalog.
Eg. Taylor Swift. The Beatles provides recurring revenue. The company must have a strong balance sheet, well capitalized with limited need for external funding or excessive debt. A solid balance sheet with low debt, ample liquidity, and no urgent need for capital allows companies to weather downturns and seize opportunities.
Real example, Howard Hughes Holdings, Inc. HH Persing Square has owned this real estate developer since its spin-off in 2010. It maintains a strong balance sheet with net debt under 3xida and significant cash reserves, over $500 million recently, enabling patient development of master plan communities without forced sales during market dips.
Last one, the company must have excellent management and good governance. Highquality leadership with integrity and alignment with shareholders. Acman emphasizes aligned ethical leadership that prioritizes shareholders often getting involved as an activist to ensure this. Real example, Uber technologies Uber Aman invested in 2024 after Uber's post IPO maturation.
He praised CEO Darra Kosra Shahi for turning around governance issues eg from the Travis Colonic era scandals into a focus on profitability and shareholder returns with strong board oversight and incentives tied to performance leading to Uber's first profitable year in 2023. That brings us to a close.
We've outlined the core tenets of Bill Aman's investment strategy by distilling publicly available data through our unique lens bolstered by the analytical power of AI. Acman's Edge is spotting what's unseen. Looking at the market today, what is the one massive trend you think the rest of us are completely missing?
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