Research Process

Wagner Road uses a bottom-up approach when searching for potential investments. When we identify an investment candidate, we continue with a top-down look at where it fits within its industry. Our analysis includes the combination of many different ideas from multiple subjects; we consider the application of models that were not initially designed for investment analysis. This robust multidisciplinary process aims to achieve superior long-term results.

A focus on quality defines our search. The features we look for emphasize businesses that can survive an economic crisis but also thrive during an economic boom. We also include a basic ethical component in our research process, avoiding businesses that brazenly disregard their stakeholders. The businesses that we prefer have:

1) A robust competitive position with a proven business model

We look for industry leaders that have demonstrated an ability to maintain or improve their position in the industry. We select businesses that have a well-protected competitive position. The ideal competitive position is an unregulated monopoly.

2) A strong financial position that consistently generates high returns without using excessive amounts of debt

Generating high returns means making enough money to have extra cash. But not all high returns are healthy or sustainable. High returns created by borrowing lots of money can become dangerous when it is extended too far. We look for businesses that don’t need to borrow lots of money to earn their returns, and have a strong preference for companies that do not have any debt.

3) A smart management team with a disciplined investment and growth strategy

When a company has extra cash (made from high returns), the management decides how to use this extra cash. We test the management’s plan for investing this cash or returning it to shareholders, and consider the long-term consequences of their methods. We also prefer to invest in a company where the management team has a clear incentive to make the best choices for investors. The best management team often includes a company founder.

4) Attractive long-term opportunities

We like to see a business model that relies on durable long-term trends or potential new markets. Durable long-term trends are most often an expanding industry. Potential new markets could be a business that is expanding from regional to national or from national to international. It can also include an entirely new industry.

Using this checklist, the investments that we find are usually one of three types:

In all cases, we are looking for a business that remains high quality and capable of long-term growth.