Iron Compass endeavors to be a long-term owner of ‘classically great’ businesses. These are companies we believe have a distinct competitive advantage that allows them to generate high returns on invested capital, stable cash flow, and growth over the long term. We observe that even great businesses are routinely misunderstood and underappreciated, creating attractive buying opportunities for the investor with a truly multi-year horizon.
Iron Compass values businesses based upon their ability to generate current and future cash flows. The returns ultimately derived from an equity investment depend upon that cash flow either being distributed to its owners or invested attractively back in the business. We expect that Iron Compass portfolio companies maintain and communicate detailed operating strategies, but also well-defined and well-articulated capital plans. The greatest businesses seek to outperform contemporaneously in both operations and capital management. As stewards of capital for business owners, boards of directors must optimize overall cost of capital and ultimately look to drive the internal rate of return for the equity. We believe that it is incumbent upon boards to routinely evaluate capital strategies and to ensure that the right skill set is represented at the board level to do so.
We have developed a set of simple corporate governance principles to help guide the Iron Compass investing strategy, and we post them publicly for anyone to review.