My Investment Strategy: Active Patience
"All of humanity's problems stem from man's inability to sit quietly in a room alone." — Blaise Pascal
Pascal clearly never met a deep value investor. We're the ones who find genuine joy in the footnotes that everyone else skips, who light up when discovering a hidden gem in a financial statement, and who feel a quiet thrill when a stock with solid fundamentals gets overlooked in favor of the latest AI darling.
But Pascal's point still stands. In a world obsessed with action – where day traders and algorithms fight over fractions of pennies and Jim Cramer screams buy recommendations between commercial breaks – the most successful investors often stand out by their willingness to do nothing.
As the legendary Jesse Livermore put it, "It never was my thinking that made the big money for me. It was always my sitting."
At Coughlin Capital, I've built my entire investment philosophy around this principle of patient inaction, of waiting for the fat pitch and then swinging with conviction. This approach has served me especially well in today's manic market, where patience is scarcer than a reasonably priced tech stock.
The Tao of Patience
Investing, at its core, is simple. But simple doesn't mean easy.
The greatest challenge isn't intellectual, it's psychological - the ability to control your emotions, to resist the temptation of constant activity, and to be content with watching paint dry.
In short, to be boring.
My approach is anchored in this idea of zen-like patience. I'm not chasing the flavor of the week or trying to dance in and out with the market's every whim.
I'm looking for great businesses that I can own for years, even decades.
This isn't always comfortable. The constant noise of the market - the daily swings, the endless chatter, the ever-present temptation to just do something - can be deafening. But I believe that the greatest edge an investor can have is the temperament to ignore the short-term static and focus on the long-term signal.
The Art of Deep Value
One way I apply this patient approach is through the lens of deep value. I like to think of it as the art of buying dollars for 50 cents.
When I'm evaluating a potential deep value investment, I put myself in the shoes of an acquirer. If I were to buy this entire business, what would I be paying relative to the cash flows it can generate?
This line of thinking is heavily influenced by the concept of the acquirer's multiple, popularized by Tobias Carlisle.
The acquirer's multiple flips the traditional P/E ratio on its head. Instead of price divided by earnings, it's earnings divided by enterprise value. The idea is to find companies that are cheap relative to the cash they're generating, which could make them attractive acquisition targets.
“The only way to get a good price is to buy what the crowd wants to sell and sell what the crowd wants to buy.” — Tobias Carlisle
This mindset has led me down some unconventional paths, like my recent interest in select Chinese stocks. Despite all the geopolitical turbulence, there are some truly impressive Chinese companies trading at multiples that seem to discount an apocalyptic future.
Take Baidu (BIDU), which I recently added to the portfolio.
Here's a company with a $33 billion market cap sitting on $20.6 billion in cash (that's over 60% of its market value just sitting in the bank). Factor in $9 billion of debt, and its enterprise value comes to $21.4 billion. With NTM EBITDA of $4.3 billion, Baidu's acquirer's multiple sits at just 5x.
That's what you call deep value – an acquirer could buy the entire company, pay off all debt, and recoup their investment in only five years through cash flows alone.
Meanwhile, it's one of the most dominant AI players in the world, with its ERNIE foundation model rivaling GPT-4 in capabilities at just a fraction of the cost. Its Baidu AI Cloud commands a leading 32% share of China's AI cloud market, powering everything from smart manufacturing to urban infrastructure. And on the roads, its Apollo autonomous driving platform has already completed millions of fully driverless rides across major Chinese cities, far ahead of most Western competitors.
Yet the market prices Baidu as if it's a dying search engine, completely ignoring its transformation into an AI and Cloud powerhouse.
At its current valuation, you're essentially getting their world-class AI, Cloud, and autonomous driving business for free. That's the kind of asymmetric bet I love – heads, I win big; tails, I don't lose much.
But of course, deep value is just one arrow in my quiver.
The Power of Compounding
Alongside these deep value situations, I'm constantly on the hunt for "compounders" - those rare businesses with the ability to reinvest capital at high rates of return, growing shareholder value year after year, often for decades.
As Warren Buffett says, "Time is the friend of the wonderful company, the enemy of the mediocre."
I look for a few key characteristics in these compounding machines:
Consistent, robust free cash flow generation (because cash is king)
High returns on invested capital (ROIC) (the crown jewel of metrics)
Sturdy balance sheets (no financial engineering, please)
Shareholder-oriented management teams (because who wants a CEO with a yacht addiction?)
Some prime examples in my portfolio include:
Brookfield Corporation (BN): A leading global alternative asset manager with $900+ billion in assets under management and a 20-year track record of 15% annual returns.
Markel Group (MKL): A specialty insurer that's compounded book value per share at 11% annually for over 25 years while consistently maintaining a combined ratio below 95%. The tortoise that consistently beats the hares.
Amazon (AMZN): The ultimate example of long-term thinking, now generating over $36 billion in free cash flow annually despite continuing to invest aggressively in high-ROIC opportunities. Bezos may be gone, but his day one mentality remains.
These are the kinds of businesses I aim to buy and hold indefinitely, letting the power of compounding work its magic. They may not make for riveting dinner party conversation, but that's precisely the point.
In investing, boring is often beautiful.
Growth, at a Reasonable Price
Finally, while my heart lies with value, I'm not completely averse to growth - provided the price is right. I call this approach GARP: Growth at a Reasonable Price (because even value investors like a bit of spice sometimes).
The key here is balance. I'm looking for companies that offer significant growth potential, but not at the cost of excessive risk or nosebleed valuations.
Some examples in my portfolio include:
Adyen (ADYEY): A disruptive Dutch payment platform growing revenue at 20%+ annually while maintaining EBITDA margins around 50% and requiring minimal capital reinvestment. Because who says growth and profits are mutually exclusive?
Coupang (CPNG): The leading e-commerce player in South Korea that's expanding into adjacent verticals like grocery and fintech, growing 20%+ annually while now generating positive free cash flow. Amazon-like potential at a fraction of the valuation.
The beauty of GARP is that when executed well, it offers a margin of safety on both sides - the value cushion provides some downside protection, while the growth potential gives meaningful upside.
It's like having your cake and eating it too (just don't tell the pure value crowd).
The Courage to Be Inactive
Perhaps the most challenging part of investing well is having the fortitude to hold on - through the ups, the downs, and the long stretches of sideways.
In a world fixated on action, often the most profitable course is to do precisely nothing.
As Charlie Munger famously quipped, "It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent." (Charlie, master of the backhanded compliment.)
In investing, I've found that much of my success has come not from brilliant action, but from avoiding foolish mistakes. By resisting the urge to constantly fiddle with my portfolio, to react to every morsel of news, I give my best ideas the space and time to flourish.
This isn't to say I never sell.
There are absolutely times when selling is the right move - when a company's fundamental story has changed, or when I find an opportunity that's simply too good to pass up. But these are exceptions, not the rule.
My default state is one of patient inaction (or as I like to call it, "active laziness").
The Tao of Investing
Investing doesn't have to be complicated. But simple doesn't mean easy.
The approach I've laid out - a blend of deep value, long-term compounders, and GARP, all underpinned by a bedrock of zen-like patience - may not quicken the pulse or generate cocktail party chatter.
There's little thrill in watching paint dry (trust me, I've tried).
But in my experience, it's the surest path to long-term wealth creation. By keeping things simple and having the temperament to stay the course when others are panicking or euphoric, I believe investors can harness the most powerful force in finance: compound interest.
So that's my approach. It's not flashy, it rarely involves bragging rights, and it certainly won't make you the life of the party (unless it's a really boring party). But it works.
If you're the type of investor who can see the beauty in boring, who can appreciate the power of patience, and who'd rather read a 10-K than watch talking heads scream about the market, then I invite you to join me on this journey.
Here's to staying boring and getting rich slowly,
Brian Coughlin | Coughlin Capital
Disclaimer: The content provided in this newsletter is for informational purposes only and does not constitute financial, investment, or other professional advice. The opinions expressed here are those of the author and do not necessarily reflect the views of Coughlin Capital. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. The author may or may not hold positions in the stocks or other financial instruments mentioned. Always do your own research or consult with a qualified financial advisor before making any investment decisions.