The Buffalo Funds are constructed using our own extensive, in-house research into how and where we believe long-term growth is likely to occur. We do not manage to benchmarks, but let our research and analysis guide our investment decisions. The core principle of this investment strategy is our top-down/bottom-up approach.
We begin by identifying broad secular growth trends, currently numbered at 20+. To qualify, each trend must:
- Be well-defined and measurable;
- Have a life expectancy of at least three to five years;
- Involve industries with long-term growth impetus expected to exceed Gross Domestic Product (GDP).
Some examples of these trends include demographics, globalization, and healthcare cost containment.
Once the overarching trends have been identified, we search for companies that, in our opinion, fit those trend guidelines and perform extensive research to select the companies which:
- Have a strong, reliable management team and business plan;
- Carry little or no debt;
- Generate free cash flow;
- Maintain superior operating margins;
- Possess a competitive advantage in the marketplace.
Once we have identified companies which fit the trend and growth profiles, we perform in-depth valuation analysis to determine the best stocks to buy. We believe one of the keys to reduced investment risk is close attention to stock valuation. Our proprietary scoring method allows us to rate the companies' predictive growth and make buy/sell decisions based on long-term value expectations. We adhere to a buy and hold philosophy which has resulted in low turnover in our fund portfolios and long-term growth potential for our investors.