A Holding Company, operating in various business lines, can allocate resources to the best available options. Don’t all businesses have this ability? Not really. If I were the CEO of an industrial sales company, specializing in selling lubricants and filters, my shareholders may not approve if I decide to invest in a Call Center. I also more than likely do not have the structure to oversee that type of investment.
But if I am the CEO of a Holding Company and the Call Center is the best available option for my capital, more attractive than reinvesting in the lubricant business, it is the right move. This is exactly how my partner and I started 13 years ago. Since then, we have continued to evaluate reinvesting in one of our businesses versus acquiring a new business and chosen the option with the highest expected return.
Our system is simple:
Buy companies we understand with histories of producing attractive cash flow returns.
Run by people we want to work with.
Pay a fair price for the business.
Once we have acquired the business, we follow three additional steps:
Maximize cash flow from our businesses.
Allocate the cash to the best available options.
Compound over the long term.
Wash Rinse Repeat.