Claremont's playbook for buying quality stocks without the crazy price tags

The past year in markets has been defined by stark contrasts. On one side, we’ve seen a frenzy of momentum-driven investing, with capital flooding into a handful of dominant tech names. On the other, high-quality businesses have been left behind, creating opportunities for patient investors.

Bob Desmond, Co-Portfolio Manager at Claremont Global, sits firmly in the second camp. He runs a concentrated, high-conviction portfolio and is highly selective about what makes the cut. In 2024, his team only added four new stocks – a number that might surprise those who assume fund managers are constantly chasing the next big thing.

I sat down with Bob to discuss his approach, how he’s navigating today’s bifurcated market, and where he sees value beyond the obvious plays.

Focus on process, not noise

A big part of Claremont Global’s success comes down to patience. Bob and his team spend years tracking companies, waiting for the right entry price rather than chasing momentum.

“We follow companies for a long time before we buy them, sometimes years,” Bob told me. “The key is the entry point. It’s about being disciplined and waiting for the right multiple.”

Last year, Claremont only made four new investments. This wasn’t due to a lack of effort but rather a reflection of their valuation discipline. When stocks are running hot, Claremont simply waits for them to come back into range rather than stretching their criteria.

A bifurcated market

Bob sees today’s market as split into two camps: a handful of high-momentum stocks dominating the index and a broader set of quality names that have been overlooked.

“Momentum-driven markets are tough for us in terms of relative performance,” he admitted. “But they’re great for hunting – because when money crowds into a few names, it leaves great businesses behind.”

So how does he gauge market sentiment? He looks at traditional indicators like the S&P 500 valuation (currently at 22x earnings, above its long-term average of 16x) and credit spreads. But he’s also developed an unconventional signal: Bitcoin.

“Bitcoin has almost become the new risk-on indicator,” he said. “We used to look at the VIX, but now Bitcoin rallying 50% on political news tells you a lot about where animal spirits are.”

While valuations remain elevated, Bob notes that some areas of the market are starting to show value – particularly in steady, cash-generating businesses that have been left behind.

Where Bob Desmond is finding value

One of Claremont Global’s most interesting recent buys is Jack Henry (JKHY), a US-based banking software provider for smaller banks and credit unions.

“Smaller banks can’t afford dedicated IT teams like the big players,” Bob explained. “Jack Henry provides plug-and-play solutions for their entire tech stack.”

Despite compounding earnings at 15% annually since the 1980s, the stock fell out of favor as investors chased more exciting tech plays. Claremont picked it up at 26-27x earnings, well below its historical premium.

Another name he likes is IDEXX (IDXX), a veterinary diagnostics company with over 50% market share. The business benefits from strong pricing power and steady demand, but its valuation had stretched to 70-80x earnings during the COVID boom.

“We picked it up at 35x earnings,” he said. “Still a full multiple, but much more reasonable for a company with its growth profile and return on invested capital.”

Another high quality name that recently met their valuation threshold is Amazon (AMZN), which they added to the portfolio last year.

“We’d followed Amazon for years, but it had always been too expensive,” Bob said. “Last year, we got the chance to buy it at 30x earnings, with improving margins and $150 billion in operating cash flow. That was compelling.”

On the flip side, Claremont steers clear of high-flying names like Nvidia (NVDA) and Tesla (TSLA).

“Semiconductors can be very cyclical, and product cycles change fast,” he explained. “Nvidia has done incredibly well, but for us, it’s too much of a moving target. We prefer established monopolies with strong network effects.”

Where to from here?

With a portfolio trading below its 10-year average multiple, Bob feels good about where Claremont is positioned.

“The market overall is expensive, but the businesses we own are trading below their long-run valuations,” he said. “That gives us confidence in our ability to deliver strong returns over time.”

While risks remain – geopolitics, tariffs, inflation – Claremont’s approach remains unchanged. Stick to high-quality companies, wait for the right price, and let time do the heavy lifting.

“Our job is to stay patient and let the opportunities come to us,” Bob concluded. “That’s how you generate real long-term wealth.”

A global portfolio of 10-15 quality growth businesses for the long term

Claremont Global is a high conviction portfolio of value-creating businesses at reasonable prices. For further information, visit their website or fund profiles below.

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Claremont Global Fund (Managed Fund) (CGUN)

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Claremont Global Fund (Hedged) (Managed Fund) (CGHE)

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