Navigating market cycles with a disciplined, long-term focus on high-quality businesses aimed at reaching your financial summit.
At Grey Street Partners (GSP), we view investing as an expedition—a journey through the inevitable peaks and valleys of market cycles. Instead of being influenced by short-term fluctuations, we focus on the bigger picture - identifying transformative themes and high-quality businesses that are in the growth phase of their S-curve, where innovation, disruption, and market expansion create opportunities for long-term secular tailwinds, allowing for compounding earnings growth.
Guided by the belief that "time in the market" matters more than "timing the market," we maintain a disciplined, long-term perspective. This allows us to help our investors focus on their ultimate financial summit, navigating challenges with clarity and purpose.
The S-Curve
The S-curve, or business life cycle, is a framework that illustrates the growth and adoption of innovations, technologies, or businesses over time through four distinct stages. Known as the S-Curve of Innovation or Growth, it represents a sigmoid (S-shaped) trajectory modeled mathematically by the logistic curve, showing how one variable grows in relation to another over time. This framework highlights how structural earnings growth, a hallmark of the S-curve, drives sustained stock price growth.
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Early-stage companies, often backed by venture capital (VC), are characterized by their focus on product development, initial market entry, and efforts to achieve early traction. While revenue growth during this phase is typically exponential due to a small initial revenue base and rapid adoption by early customers, substantial investments in research and development (R&D), marketing, and operations frequently lead to negative earnings and an absence of surplus cash flow, as these companies essentially begin from scratch.
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In the growth phase, a business concentrates on scaling operations and deepening market penetration to capture a larger market share. This stage is characterized by improved operational leverage, improved increasing free cash flows, reduced financial gearing and growing earnings, though earnings visibility can be volatile as the company continues to capture market share.
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Growth rates slow to sustainable levels as market penetration peaks and competition is intensive. Revenue growth becomes steadier and more predictable, driven by incremental improvements, cost efficiencies, and diversification efforts. Surplus cash flow is strong, often directed toward maximizing shareholder value through dividends, share buybacks, or strategic investments.
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Revenue and market share decline as the product or business becomes obsolete or faces competition from newer alternatives. Earnings growth turns negative, and surplus cash flow diminishes as demand contracts. Companies may pivot to new innovations, reduce operations, or divest from the declining product lines to sustain profitability.
Our Philosophy
Earnings Drives Share Price
GSP emphasizes that revenue growth, margin growth, and free cash flow growth collectively contribute to earnings growth, which is the primary driver of share market returns over time. Put simply, share prices tend to follow profits.
Bottom-Up Approach
GSP utilizes an active and fundamental bottom-up approach to stock selection. This involves evaluating financial health, management quality, competitive position, growth catalysts, and valuation metrics to identify undervalued stocks. This approach aims to identify quality businesses independent of broader economic conditions.
Structural Growers
GSP invests in businesses positioned for long-term growth, driven by secular tailwinds. Unlike cyclical trends, which are short-term and often tied to economic cycles, secular tailwinds are enduring and can last for decades.
Generalists Coverage
GSP utilizes a generalist coverage approach to navigate the vast and evolving global equities landscape, allowing us to adapt to emerging investment themes across any industry, ensuring we identify diverse opportunities.
Long-Term Focus
GSP is dedicated to sustainable, long-term capital growth by investing in listed companies with a business owner mindset. Prioritizing permanent capital preservation over short-term volatility, GSP engages deeply with management, conducts rigorous due diligence, and remains committed to long-term growth.
High Conviction
GSP firmly backs its best ideas with conviction. Studies show that managers' top picks generally add value, while smaller positions often detract from it [1]. Additionally, the diversification benefits of extra positions diminish quickly. This supports our approach of holding a smaller number of well-understood positions [2].
[1]: "The Performance of Mutual Fund Managers' Top Stock Picks". Authors: B. M. Barber, T. Odean. Publication: Journal of Portfolio Management (2018). Summary: This research demonstrates that the best stock picks by mutual fund managers often perform better compared to smaller positions within their portfolios.
[2]: "The Role of Diversification in the Performance of Equity Portfolios". Authors: M. M. G. E. and R. E. H. Publication: Journal of Financial and Quantitative Analysis (2020). Summary: This study shows that the marginal benefits of adding additional positions to a portfolio diminish quickly after a certain number of holdings, supporting the strategy of maintaining a smaller, well-understood set of positions.
Our Investment Process
We employ a rigorous bottom-up research approach to stock selection, guided by a strategic top-down thematic overlay. Our disciplined process combines qualitative and quantitative assessments to identify and invest in undervalued businesses. Rather than simply aiming to buy low and sell high, our research uncovers the true value potential of a business and determines if the market has accurately recognized it. The companies we invest in all hold the following attributes:
Durable business models
Market Leadership
Competitive MOATs
Earnings visibility
Pricing Power
Structurally growing tailwinds.
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The investment process at GSP begins with a bottom-up screening of global stock markets, strategically integrating this approach with a top-down thematic overlay. This dual method allows GSP to identify businesses poised for substantial growth amid favorable structural trends. By meticulously evaluating individual company fundamentals while leveraging broader thematic insights, GSP ensures alignment with long-term growth opportunities in evolving markets.
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GSP reviews a company's investment thesis by analyzing its business model, growth catalysts, structural growth drivers, and risks to growth. Our evaluation includes quality measures such as market leadership, earnings visibility, earnings durability (pricing power), competitive advantages, scalability, corporate governance, disruptiveness, and agility. Additionally, we employ our proprietary qualitative assessment screen to rigorously evaluate these factors, ensuring each potential investment meets our high standards for growth potential and financial health.
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Following the qualitative screen, we delve deeper into the business's qualitative assessment, which may entail meeting with management of a company to assess key points of our investment thesis.
We also delve deep into the business's quantitative quality measures. This includes assessing balance sheet strength, revenue growth, earnings growth, free cash flow growth, and other financial performance metrics, as well as applying various valuation overlays to determine the company's current valuation.
Our industry assessment framework evaluates competitive forces, including the bargaining power of suppliers and buyers, threats from new entrants and substitutes, and the level of rivalry among existing firms.
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At Grey Street Partners, we construct a high-conviction portfolio of our best-ideas, agnostic to indices, regions, and sectors. Our rigorous qualitative and quantitative analysis ensures that each investment aligns with our criteria for growth potential and financial health.
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At Grey Street Partners, we place a strong emphasis on rigorous risk management to protect client capital. Our approach incorporates disciplined stop-loss protocols to minimize losses and utilizes sophisticated portfolio hedging strategies. Additionally, we rigorously assess risks by stress-testing our funds against systemic shocks, including fluctuations in indices, interest rates, currencies, commodities, and historical market scenarios. This comprehensive approach ensures resilience and enhances our ability to navigate diverse market conditions effectively. Stop Loss Protocol - For our flagship growth fund and managed portfolio, we apply a structured stop-loss protocol. At 20%, 30%, and 40% drawdown levels, we conduct a thorough review at each stage to reassess the investment thesis and valuation. If we have not actively de-risked the position by the time it reaches the 40% threshold, the position is automatically sold.
Investment Team
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Huw Davies
Founding Partner & Portfolio Manager
Ma. Finance & Banking
Huw brings over 20 years of extensive experience in financial services, having worked with leading global investment banks such as HSBC and Deutsche Bank. He specializes in thematic areas including the green energy transition, digital transformation, emerging consumer behaviors, and disruptive healthcare. His expertise in identifying growth opportunities within these transformative sectors has been instrumental in managing global growth funds, hedge funds, multi-asset growth portfolios, and a global growth SMA. Huw holds a Master of Banking & Finance and a Professional Diploma in Stockbroking. Outside of work, he enjoys surfing along the coast, skiing on the slopes, and being a footy dad on the weekends.
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Daniel Reaper
Founding Partner & Portfolio Manager
MBA, B. Business
Daniel brings nearly a decade of experience in Private Wealth and Funds Management, with broad expertise across all thematic areas that GSP is invested in, including advanced computing, digital transformation, and next-generation industries. He has a deep understanding of deconstructing business models and competitive landscapes, enabling him to identify disruptive, structurally growing businesses. Daniel has a proven track record in applying a rigorous stock selection process while managing a global growth fund, a global growth SMA, and multi-asset portfolios. He holds a bachelor’s degree in Business with a major in Economics and Finance, as well as a Master of Business Administration (MBA). Outside of work, Daniel enjoys golfing on the Peninsula, running with friends, and is an avid skier, often traveling abroad in search of deep snow.
