JMS is a long-only investment fund focused on intrinsically undervalued SMID businesses. 

Strategy Summary: 

Picture an hourglass: the top represents suppliers and the bottom consumers. We like to find businesses that meet in the middle of the hourglass, controlling the flow. These businesses should be located in vital industries which turn them into 'cockroach-like' businesses (ones that are extremely hard to kill). These 'cockroaches' are able to provide long-term sustainable growth through their natural moats, controlling the flow between customer demand and suppliers regardless of market turmoil. While these characteristics make for an ideal candidate, there are only a handful of tickers to look at. Instead, companies with durable moats and undervalued drivers not positioned in the center of the hourglass serve as alternative candidates.

Philosophy:

"If I have seen further, it is by standing on the shoulders of giants." - Isaac Newton. What you'll notice is that JMS likes to build on the work from the past to create the best possible piece of work today. Why wouldn't someone learn from the mistakes of those before them? By replicating successful long-only investors of the past and adding our own improvements, JMS believes in the ability to "have seen further". So what lessons do we apply from the past? Well, let's look at some of the most successful value investors of all time (Graham, Dodd, Munger & Buffett) and add modern-day knowledge.

Businesses need to be looked at through multiple mental models, as we are aware that variables are related and need to be aware of the effects from relatedness. "To the man with the hammer, the world looks like a nail," said Munger. We find it important to quantitatively dissect businesses while also viewing the qualitative aspects that shape the future of the company and its industry. Ex: How is the company affected by increased unemployment? How does future medical policy affect admission rates? What happens when social trends die down? What happens if the supply chain is disrupted? These are examples of how diversification in thinking is critical in the ability to spot how seemingly unrelated events can amalgamate together.

All of this information creates the illustration of a company's DNA. A company's DNA is how a business fundamentally operates, and can usually be distinguished within the first 90 days of operations. To give you an example, when AT&T spun off Lucent, which was responsible for supplying to AT&T, it was incapable of operating due to its DNA. Lucent now had to compete with the industry instead of having a direct buyer. Lucent was incapable of innovating by stimulating its R&D arm of the business, because it had never done that before (it was not in its DNA). By using multiple mental models, we can understand that just because the spreadsheet says buy, it doesn't mean factors like company bureaucracy can nullify the model. It's the same problem that P&G faced when competing with store brands. Their entire marketing arm was used to generate sales through Walmart ads, and they couldn't shift their DNA to compete with in-store brands, facing mediocre returns as a result.

Why long only? The simple answer - it's rational. To elaborate - With Mr. Market having an average holding period of 0.6 years for NYSE-listed stock, it can be easy to see why valuations are driven by event-based models as opposed to the valuation of future FCF. Time arbitrage is key. Deviating from consensus can be viewed as 'hard' or 'foolish' to those who worry about following the crowd. With long-only investing, you should seek no comfort from sell-side having the same viewpoint, with the goal of isolating noise to understand the core business. In fact, we embrace noise, assuming we can see through it.

The goal is to understand each business through these multiple mental models to a T, allowing the ability to fully commit capital. Why diversify into 100 different stocks when you have conviction that 5 will certainly go up? The most rational thing to do would be to commit all of your capital into these 5 ideas (the opportunity cost of not obtaining the most alpha is viewed the same as a loss).

There's is also the saying of 'hard money vs easy money'. This idea translates to the coverage and market cap of a company. What are the odds you can find a differentiating viewpoint on a mega-cap company? Even if you can, we consider that 'hard money'. Instead, the most rational thing would be to go for 'easy money' - companies that hardly face any coverage at all. This is why JMS focuses on SMID businesses. Having a differentiated and correct opinion on key debates is much easier in niche industries, or for small companies overall.

As for risk, we view risk not as correlation to the market (beta), but rather the risk of each high-conviction business failing to operate fundamentally. To mitigate the risk of competitive destruction and deterioration of economic moats within our businesses, we purchase said businesses with a strong margin of safety. Volatility from event trading occurs when companies undergo re-rating or face temporary pressures, providing attractive entry opportunities to increase margin of safety. "The biggest driver of short-term performance is irrationality and psychology" - Anonymous PM. According to Howard Marks, we can continue to rely on market inertia to acquire mispriced business well into the future, hence why we do long-only investing.

Recommended Resources to Better Understand Our Philosophy:

• Poor Charlie's Almanack - Peter D. Kaufman

• The Intelligent Investor - Ben Graham

• Valuation: Measuring and Managing the Value of Companies - McKinsey

Case Study: Baxter International (NYSE: BAX)

About: $10bn HC manufacturer of critical medical products and solutions down 75% over 5Y trading at 7x EBITDA & 8x P/E

The Debate: 1) When & will IV demand inflect post hurricane? 2) Will Hider execute operational turnaround?

What ST has underwritten

• No recovery in demand for IV products FYE, weak recovery FY26 – hospitals being conservative after Hurricane-Helene

• No potential upside from new management. SP declined 10% after announcement – can’t underwrite upside until multi-quarter perf.

Our Take

1) ST Mispricing IV recovery – 2x multiple contraction priced in due to softened demand which negatively hit OM (volume impact)

• Force-majeure after hurricane to lower minimum volume commitments of GPOs temporarily –> contracts ending

• CVF > 90% or a 10% pricing increases guarantees that either demand inflects back to norm or pricing increases (win/win)

2) Operational excellence from Hider – new management from ATS Corp (3-bagger) to implement Danaher-Esque model

• 350bps OM expansion at ATS. Betting he can execute on ½ the performance. His bread-and-butter in healthcare manufacturing

• No upside underwritten. Even if mgmt. execution is poor, cheap entry paired with a 2-turn re-rate ensures strong upside

3) Re-rate case from unwarranted multiple contractions – strong margin of safety

• ST priced in 2 turns of contraction in Q2 & Q3 from a $0.05 EPS reduction – most of SP decline was due to multiple compression

• EPS missed due to IV conservation, no Novum, and OM miss from volume (reversal of compression when demand normalizes)

How this meets our philosophy: resilient business with narrow moat, mispriced drivers, stellar management, and low risk with cheap entry. While we don't necessarily care about short-term performance, it can aid in finding the right time to enter. In Baxter's case, the current valuation is so cheap that you could enter without regarding volatility, doubling down if anything were to happen.