Dev Kantesaria is one of the best performing investors of our time. Yet, most people have never heard of him, or his seemingly boring, multi-bagger investments. 

Dev is the founder and managing partner of Valley Forge Capital Management. Over the last two decades, Dev has not only delivered remarkable returns for investors but has also shared much of his investing wisdom with the public along the way. 

Here’s a sneak peek on how Dev finds and holds wonderful companies hiding in plain sight:

1. Temperament & Long Term Focus:

“Are you willing to wait a few extra minutes to get the second cookie or will you eat the first before the time is up?”  

Dev relates patient investing to the classic cookie test, arguing that many investors are often too bothered with weekly headlines and quarterly results. Instead, Dev tries to identify “long secular tailwinds” in “predictable” markets. Put simply, things that will grow for a long time, and do so in a predictable fashion.

2. Concentrate on a Handful of Great Ideas

“Why own your 15th best idea?”

Kantesaria is often critical of the active management industry en masse due to the tendency to over diversify while simultaneously charging high management fees. Dev argues that this model often gives investors the short end of the stick as it essentially functions as a “closet ETF”. 

Kantesaria’s portfolio, however, looks starkly different. He maintains a concentrated portfolio of just 8 companies with the top 5 making up 90% of the portfolio. When asked why he maintains such high concentration, he simply states that he owns “the best businesses in the world and why own your 15th best idea”.

3. Maintain a Narrow Fishing Pond

Kantesaria isn’t afraid to say “no” to new investments. If a potential business doesn’t possess certain qualities, he’s more than happy to eliminate the business from his “fishing pond”. 

Here’s a short list of the qualities Kantesaria looks to avoid:

1. High Capital Requirements

   • A business that needs ample capital re-investments often leaves little capital for shareholders in the form of dividends or buybacks.

   • Example Industry: Automotive Manufacturers

2. Highly competitive/minimal differentiation versus competitors

   • Often signs of a narrow moat and minimal defensibility as an incumbent

   • Example Industry: Airlines

3. Early-stage industry without a proven winner

   • Uncertainty is the enemy of good stock returns.

   • Example Industry: Autonomous Vehicles

4. Speculation of a "turn-around" stock

   • Dev has zero tolerance for a faltering business.

5. A step change in the business model

   • Instead of looking for the next big thing, Dev prioritizes industries that are unlikely to change in the future. 

Holdings and Total Returns:

Kantesaria’s concentrated quality approach has led to superb returns for investors. Although Valley Forge's returns are not public, it is estimated that the fund has returned nearly 15% per year since 2007. That has drastically outperformed the S&P 500's 10% annual return over this same time frame.

Best Investments:

1. S&P Global

Dev has found and held several wonderful investments over the last couple decades, the first and most prominent of which is S&P Global. 

S&P Global is a credit ratings agency and financial data company that is deeply embedded in the financial world. Given the reputational advantage S&P possesses along with the digital nature of its business, S&P requires very little capital outlays in order to grow, a characteristic that Kantesaria looks for. 

Kantesaria initially purchased shares in the after-math of the 2008 crisis likely around the $20 mark, making the stock a more than 25-bagger for him and his firm. 

2. Intuit

Valley Forge initiated a position in software giant Intuit in 2016 near $100 per share. Today, the stock trades at more than $600 per share. 

Intuit is home to several notable software brands such as Quickbooks, TurboTax, Credit Karma, and many more. Across virtually all of these business lines, the switching costs for customers are quite high which has led to strong pricing power for Intuit. 

Additionally, while there are significant fixed costs required to build the platform, the incremental cost to service customers is quite low resulting in highly profitable growth as Intuit has scaled. 

3. Fair Isaac Corporation

Fair Isaac Corporation (FICO) is perhaps Kantesaria’s best ever investment. 

Valley Forge first began buying shares of the credit score monopoly in 2018 but has continuously added over the years. 

As FICO has been able to raise prices in recent years, the company has seen a rapid increase in earnings thanks to the low variable cost nature of the business. In fact, since 2020, FICO has added $423 million in revenue while adding just $44 million in operating expenses. Talk about low-cost growth. 

FICO has returned more than 1,000% since his initial purchase.