Our investment philosophy and process
Archipelago Partners is a Brazil-based equity investment boutique. We focus on managing our own money and serving a few qualified institutional investors and family offices with a very long-term horizon.
Our research is people-centric. We believe that the most important things you can learn about a company in order to gain investment perspective are not to be found within our 4-walls, but in the frontlines of each business, where the real action takes place. Accessing and organizing this knowledge is the essence of our investment process. For that, we turn to the Archipelago Network: a group of business leaders, board members and long-term investors that share a passion for improving their investing and business skills. These are relationships that we have cultivated throughout our lives and that make us better individuals and investors.
We manage a single strategy, long-only fund of listed equities concentrated on our very best investment ideas in the very few sectors where we have investing, operating or board experience, namely consumer goods, retail, services and selected industrials.
We are absolute-returns oriented. We can and will actively raise cash and patiently wait when we don’t find enough attractive investment opportunities. We don’t let any artificial benchmark interfere with our work: we ignore market indexes and short-term “performance” rankings, keeping track of our performance in rolling 60-month windows (using 36 months as a lead indicator). We offer fund terms aligned with our long-term investment horizon, encouraging the right clients to self-select.
We are only interested in fighting asymmetrical wars. We focus strictly on companies in which: a) our frameworks/mental models, our network and our operational/investing experience can provide us with a clear analytical advantage; b) we sense the opportunity to co-create long-term value together with their leaders.
We don’t believe in “buy and hope”, thus we take an active, strategic role in our investments. We help our invested companies’ key people (shareholders, board members and top executives)address the few strategic issues that matter, drawing on our experience and the Archipelago Network. We go beyond the typical activist toolkit: financial public relations, one-off cost cuts, opportunistic spin-offs and special cash dividends. From sales and marketing to organizational structure and talent management we are ready to help.
We believe quality is the ultimate margin of safety. Even though we take an active investment stance, we invest in dominant high quality “compounding” or “cash machine” businesses with solid balance sheets and return drivers we understand. We don’t like wishful-thinking turnarounds or strictly asset-backed investments of poorly-ran businesses.
In buying shares of quality companies at reasonable prices, we capitalize on the market players’ misperceptions and misunderstandings. We benefit from the fact that many market participants have short-term horizons, a short-term oriented client-base, misaligned internal incentives and lack an understanding of many of the real-world nuances of the businesses they invest in. Quite a few also don’t understand (or simply don’t care about) the critical role played by non-financial factors that significantly influence future cash flows and returns of the businesses they buy, such as: a) their key people and governance systems, b) their “invisibles and intangibles” such as culture, organizational structures, tacit and explicit internal incentives, brands, and business systems.
Finally, we are process makers, not takers. We deliberately design the way we consume information in order to protect us from a few of the key behavioral biases that haunt all investors. We built our information supply chain in order to help us consume more information that we pull from the sources we want when we want, rather than noise that is pushed to us (and everybody else) through the usual channels.