Longshire

Longshire is a private Norwegian investment company committed to the benefits of long term ownership in high quality businesses listed in the global equity markets.

The holdings are selected through a rigorous screening process to identify businesses of exceptional quality that can sustain high returns on the invested capital over long periods. These businesses have competitive advantages that are difficult to replicate and business models with high resilience to disruptive change. They can grow profitably due to lean operations and low capital requirements, and have significant markets left to grow in. Once these companies are identified we are busily occupied with waiting.

Should Mr. Market offer an attractive price we act to build a meaningful position in the business. The likelihood of such an event is higher in times of distress and significant market drops. Then we hold on for a long time. Our favorite holding period is forever.

The ultimate goal of Longshire is to facilitate knowledge transfer in society, as we believe that common sense combined with insight is a powerful resource and a greater good.

Quality Investing

The key ideas in stock investing are surprisingly simple. Look for a business that you can understand, and a business with favorable long-term prospects. Buy into this business at a fair price. Then spend the ultimate luxury item - your time - on something you enjoy.

While the ideas are simple, successful execution is not. Everybody would be a successful investor if investing were easy. In fact, most investors would get better investment results with significant less effort if they invested in a sensible low-cost index fund.

Most investment books will discuss how to value a business. In principle, you estimate the normalized earnings of the business, and then adjust for any growth prospects. Quality Investing excels in this process compared to any other approach. Businesses with higher quality business models generate more free cash with better predictability, making the delta between the low and high estimate narrower. The business models of such businesses tend to be downside protected by a competitive advantage that makes the business difficult to replicate for the competition. If the business has some advantage today, it tends to keep that advantage tomorrow. In sum the earnings estimate and growth estimate tend to be less error prone and less risky for a quality business. As an added bonus, the downside risk in the investment tends to be lower.

There are at least two major drawbacks with the quality investing approach. The first is that surprisingly few - only a few percent - of all existing businesses will qualify as ‘quality’. Hence, the investment universe is quite small. Depending on how narrow your criteria are you would be hard pressed to find significantly more than 300 real quality businesses listed on the stock exchanges in the industrialized countries. This can be contrasted to the around 9000 businesses world-wide invested in by one of the largest sovereign funds in the world, the Norwegian Government Pension Fund Global.

The second issue is that quality usually comes with a steeper price. A majority of the quality businesses will at any point in time be highly priced by fellow investors. Fortunately, anomalies tend to occur in the market from time to time, and when they do the quality investor needs to act decisively and establish a meaningful position.

Continuous Learning

When stating that someone has ‘common sense’ we usually mean that he or she has an ‘uncommon’ common sense. Unfortunately, it is not that common to have common sense, and that’s probably one reason why we have an urge to pinpoint the fact when we observe it.

As humans, we are hotwired to act in certain ways. Most of this were useful when we tried our best to survive in a hunter gatherer society 50000 years ago, but not that useful when we are presently trying to make sensible investment decisions.

Some try to read a number of investment books to uncover some secret as to how an investor should act. Maybe this would work for some. If you travel this path we would at least encourage you to search for an investment style that suits your temperament. If not, you are exposed to the risk of double self-doubt when the market disagrees with your positive view of your own holdings.

Rather than reading investment books we would recommend that you read business biographies. Learning how businesses meet customer needs, how they deal with crisis, how they grow and how they tune their operation to secure and expand their competitive advantage would give you valuable insight when reading annual reports and analyzing businesses for possible investing. We would also recommend that you pick up a few good books on accounting, as you need to master the ‘language of business’.

Be warned, however, that the path to becoming a good investor is lifelong. Investing is one of the areas in life where, if you continuously educate yourself, you will get better over time. We believe that to become a better investor you should strive to learn something every day. Some of the world's most successful investors read for the better part of their working day, day in and day out. Hundreds of pages a day. Their day is organized around learning and gaining insight.

Stellar investors learn how to combine and apply multiple mental models to gain insight into and detect patterns in the dynamic and complex world of business and human behavior. Most people are well versed in a particular trade or discipline. This is where they have their main insight or competency. Most disciplines have some major models or insights that are commonly used as a basis for this particular discipline. However, most people do not venture outside their chosen profession or discipline to learn about the big ideas and main insights in other disciplines. If you do, the rewards are plentiful, and in particular in the field of investing. When you start to combine models from different disciplines and apply these to gain understanding, you embark on a journey to master a very, very powerful tool. This insight will give you a priceless edge. We recommend that you start by reading “Poor Charlie’s Almanac”. If you have what it takes it will change your life.

FAQ

Updated 2020-02-10

1. Longshire was founded three years ago. How has the portfolio and the investment process performed?

We have been fortunate and have had a sizeable amount of luck. At the 3-year mark the capital has more than doubled, measured net of all cost in USD (and in NOK). While these outsized results are encouraging and somewhat surprising, three years are too short a timeframe to conclude on the quality of the process and if there are any skills involved. The markets have performed well above long-term average in the period, and only a good, old fashioned and sizeable drawdown will tell if we are onto something. What we do know at this point is that these return levels are completely unsustainable in the long run.

2. Does Longshire only invest in stocks?

Yes, the portfolio is stock only. No shorting, no hedging, no leverage. Just owning quality companies for the long run. From time to time, the portfolio may hold cash because of unattractive market pricing of its potential targets. At the end of 2019, less than 6% of the portfolio was in cash.

3. Why do you hold shares for the long term?

The intention to hold onto the ownership of a company for a long time force you to think through if a company can sustain its quality over time. Imagining that the holding may last “forever” will assist in the decision process. It also encourages taking a long-term view on the development of the company. Will this company thrive the next 10+ years? A positive side-effect for the portfolio is ultralow turnover, leading to lower cost.

4. What is the typical holding period?

The favorite holding period is forever. We will typically see holding periods of 3-10 years, and preferably longer. After 3 years, Longshire has not sold one single share.

5. Why are you looking for ‘quality businesses’?

Quality businesses tend to outperform the averages over the long run. Further, quality businesses give better downside protection in periods with falling markets. We have found that it yields better results to hold a select few quality companies over the long run, as opposed to trying to pick “winners” within short timespans, such as 1-3 years.

6. What kind of companies will typically be in the portfolio?

Global, large and growing companies listed on the major stock exchanges in industrialized countries. We focus on companies listed in North America and Europe. More than half of the portfolio will typically be in the S&P 500. At the end of 2019, 100% of our holdings are within the 50 largest companies on the S&P 500.

7. What is your thinking on ESG?

We are hardliners on Environmental, Social and corporate Governance (ESG) and follow strict standards. This follows naturally from our long-term investment style, as Non-ESG is a huge long-term risk in our view. At the base level, we avoid any company excluded by the Council of Ethics in the Norwegian Global Pension Fund. Their guidelines can be found here: Etikkradet. These guidelines exclude companies in product areas such as weapons, tobacco or coal, as well as violators within human rights, environmental damage and corruption. If Norway does not invest in it, then we certainly will not either. Over and above these guidelines, we further exclude a number of companies and industries, such as airlines, defense, breweries/wine/spirits, casinos and gambling, non-renewable energy, mining and metals, oil/gas/carbons, porn, tobacco and cannabis. Avoiding these companies makes us sleep well, and we find that we don’t need to own any of them in order to enjoy satisfactory returns.

8. How concentrated is the portfolio?

Following the lead from Warren Buffett, Charlie Munger and other successful investors, we aim for our 3 largest holdings to be well above 50% of the portfolio. In our strict definition, there are few exceptional quality companies out there. Because of the rarity, should we get a chance to buy one at a fair price, we buy a sizeable amount. We would normally target between 10-40% of the portfolio for a new entry. Over time, as we hold our companies, the best ones will compound their way to the top of the list. Limiting this effect does not make any sense to us.

9. Will you invest in small companies?

We are not actively researching small companies. In fact, we exclude more than 80% of all listed stocks even before we start our process. This may sound strange, given that our small portfolio size could potentially give us an edge compared to portfolios working with larger sums. However, we have actively decided to build a robust investment model and process that could scale to very, very large portfolios.

Our ideal company will have a history over decades and has shown its merit and resilience over many business cycles. Because of the compounding effect over all these years, these companies tend not to be small anymore. We would prefer them to be small to have a long runway in front of them, but mostly they are not.

10. You discuss the merits of ‘quality investing’. However, there are a lot a paraphrasing and references to Warren Buffett and Charlie Munger on this site. I was of the impression that they favored ‘value investing’?

We are not huge fans of qualifying ‘investing’ with any label, be it ‘value’ or ‘quality’. In fact, a better qualifier would probably be ‘intelligent investing’. Warren Buffett is a fantastic investor only matched by his abilities as an educator. However, ‘value investing’ in the Benjamin Graham sense was something Warren Buffett did in the 1950-ies and 60-ies. Starting in the 70-ies he gradually started to invest in quality businesses. Warren has attributed this change to Charlie Munger.

11. Do you favor any particular industries or sectors?

We do a wide search and do not exclude any particular industries. However, some industries are over-represented when identifying quality businesses, and some are heavily under-represented. To reduce risk we favor businesses that have either some control of the resources they use to produce their goods or services, or a value add that minimize the impact of the cost of the input factor. We would normally exclude businesses with high sensitivity to the cost of one particular raw material which price they can’t control. Crude oil could be an example. On the customer side of the business we would favor businesses with small ticket items with customers with little bargaining power and products or services that are difficult to reduce spending on even in a crisis. Typically, something you would buy regularly and use every day. An example of an excellent industry with such characteristics could be pet food.

12. You are a Norwegian investment company. Will Norwegian or Nordic companies be favored?

No. Norway and the Nordics are relatively small countries with relatively few companies that will meet the selection criteria. More than half of the companies will usually be from the S&P 500, with the rest typically listed in major European countries. Companies listed in developing countries will typically not be in the portfolio. However, because the ideal portfolio candidate is a global company, most of the portfolio companies will have substantial business and growth opportunity in developing markets, and hence exposure to developing markets.

13. Why do you use English on this site when you are based in Norway?

Quality investing is a relatively small niche in the global investment community, and Norway is a small country. We use English to reach a wider audience of fellow investors. English is the lingua franca of investing, and well above 90% of Norwegians speak English as their second language.

14. Tell us more about Norway. Since your country is so small, do you even have a financial industry there?

While Norway is a small country, we still have one of the largest sovereign funds in the world. The fund holds about 1.4% of the market value of all listed companies in the world.

15. I’ve heard Norway is beautiful. Where can I find more information?

Yes, Norway is beautiful. You will find resources and nice pictures at www.visitnorway.com.

16. Is the portfolio open to outside investors?

Longshire will remain closed for outside investors. Should we decide to open for outside investing this will be done with a purpose-built, separate structure.

17. Do you have any open positions?

We have no open positions.

18. I have written a paper or thesis or done some research on quality investing. Would you like to read it?

Yes, please. Any researcher into this topic is a friend of the house.

19. Are you open to present your thinking on quality investing to our organization or at our event?

Send an e-mail to discuss. One of our purposes is discussing investing at large and 'quality investing' in particular.

20. What are the contact details?

Please use 'enquiry at longshire dot com'. Beware that we don't have any staff to serve requests and this will impact response times.

21. Can you tell us something more about the founder?

Before setting up Longshire, Morten Løhre served in business development and management roles in the Global Outsourcing and Technology industry, including 11 years with companies on the Global 500 and Fortune 500. He holds a graduate degree in Finance and Economics from the Norwegian School of Economics (Siviløkonom NHH).

22. Can you please send me some more specific information?

No other information is publicly available at this point. Meanwhile, we kindly encourage you to follow us on Twitter:


The content on this site is for personal educational purposes only and does not under any circumstances serve as investment advice. The company is not in the business to sell you anything, and this site is free of advertising. Before you invest any of your hard-earned money in anything you should educate yourself or seek professional advice. If your temperament can't sustain that your assets with high certainty will drop significantly in market value at irregular intervals you should not invest directly in the stock market. The company is not liable for any losses or suffering experienced by any party.

The information on this site is copyright © 2017-2020 Longshire AS. The company is registered in the Register of Business Enterprises (Foretaksregisteret), Norway, with Business Registration Number NO 918 632 050. Longshire LEI is 5493000877IOSUYCOA68.