LinkedIn recently reminded me that it’s my “One Year Work Anniversary” at Alderway, so I figured what better time to reflect on the lessons I’ve learned so far and distil some of the wisdom from my investing heroes - Charlie Munger, Howard Marks, Seth Klarman, and others - showing how their insights are shaping our daily work at Alderway.
First Principles
The first lesson is that in times of economic uncertainty, like now, timeless principles of risk management, patience, and discipline are more crucial than ever. Rather than chasing speculative, high-growth startups, we’ve chosen to focus on stable, profitable, later-stage businesses as the backbone of our strategy - a smarter path to strong returns.
Why Stability is Sexy
Charlie Munger famously taught that "The first rule of compounding: never interrupt it unnecessarily."
In volatile times, investing in businesses with a proven track record offers just that - a chance for uninterrupted growth. At Alderway, we focus on later-stage businesses that have weathered the scaling storms, built solid customer bases, and reached sustainable profitability. For us, these businesses represent the sweet spot: dependable returns with reduced risk.
Profitability: A Foundation for Long-Term Value
As Seth Klarman wisely states, "Risk is not knowing what you're doing."
With later-stage businesses, the guesswork, while not eliminated, is significantly reduced. These companies have refined their operational models, discovered their Structural Advantage, and are generating reliable profits.
At Alderway, these types of businesses form the foundation of our strategy, as their strong cash flows and profitability not only mitigate risk but are essential to compounding returns.
Another hero of mine, Guy Spier often emphasises that steady cash flows can shield companies from market turbulence - this insight is directly aligned with our approach.
Clarity in Exit Strategies
Investing in later-stage companies also provides clearer, more reliable exit options. The late Sam Zell famously said, “Liquidity is king,” and at Alderway, we take that to heart.
We work with businesses that offer straightforward paths to profitable exits, whether through strategic acquisitions or sales to larger private equity firms. In today’s market, this kind of predictability is invaluable, ensuring both us and the entrepreneurs we partner with can convert our positions into tangible returns—without the long, uncertain wait associated with earlier-stage ventures.
Prioritising Capital Preservation
Howard Marks, known for his rigorous focus on risk management, teaches that in uncertain markets, preserving capital is key.
At Alderway, we echo this sentiment, emphasising sustainability and resilience over risky expansion. This focus on capital preservation is especially critical in the current investment cycle, where protecting capital is as vital as seeking growth.
As Brent Beshore of Permanent Equity says, "Steady compounding beats chasing outsized gains."
Conclusion: Wisdom from the Greats, the Alderway Approach
As I continue learning from the great investors I admire, I find myself incorporating their principles into Alderway’s strategy. Whether it's Munger’s emphasis on compounding, Klarman’s focus on understanding patience, discipline and resolve, or Marks’ philosophy of risk management, these insights drive our mission.
At Alderway, we believe that investing in de-risked, later-stage businesses isn’t just a safe play - it’s a strategy that compounds value and transforms patience into strong returns.
Lastly, I’m reminded of Vitaliy Katsenelson’s philosophy from his extraordinary book, “Soul in the Game”. Vitaliy does a beautiful job of describing how balance is essential. According to him, “A life with ‘soul in the game’ is one where your actions are driven by passion and purpose - not just by money or external success."
At Alderway, we're not just investors – we're stewards of capital and partners in growth. By embracing the wisdom of investing greats and focusing on stable, profitable businesses, we're aiming to build a foundation for enduring success – with our soul in the game every step of the way.
What investing principles guide your decisions? Who are your investing heroes? Get in touch, I'd love to know.
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