This conversation is part of our special series, “Best Practices for Building a Great Investment Firm”. We speak with established and emerging leaders in fund management, institutional capital allocation, and family offices to uncover enduring principles for long-term success.
We continue this series with an interview with Saahill Desai, managing principal at DS Advisors, a US-based family office characterized by a patient, value-oriented approach and the distinct advantage of permanent capital.
Six years after our initial conversation, Saahill shares his insights into the evolution of DS Advisors’ investment strategy, highlighting key learnings from navigating diverse market environments, including the global pandemic.
Saahill emphasizes DS Advisors’ deliberate strategic focus on public market investments. Unlike many family offices heavily involved in private equity or venture capital, Saahill articulates the rationale behind choosing public markets, including better control over investment outcomes, more favorable after-tax returns, and a lean cost structure. These decisions have allowed DS Advisors to operate efficiently and transparently, optimizing investment costs.
One compelling aspect is DS Advisors’ deep-dive research process, akin to a private equity mindset but applied to public markets. The firm meticulously studies each business, engaging extensively with management, suppliers, customers, and former employees to fully grasp the fundamental drivers and risks. Saahill details the firm’s long-term, concentrated portfolio strategy, typically consisting of around 12-15 businesses, where commitment to each company often spans five to ten years or more.
Saahill also provides valuable insights into DS Advisors’ perspective on risk management, portfolio construction, and leverage, emphasizing the firm’s cautious yet opportunistic stance on deploying capital. We explored specific examples, including their thoughtful management of significant holdings like TransDigm, and how DS Advisors has adeptly navigated market volatility through a disciplined, research-intensive approach.
Finally, Saahill discusses the implications of emerging technologies, particularly AI, on investment decisions and processes. He conveys DS Advisors’ measured approach — focused on understanding AI’s potential impact on their holdings rather than speculating on AI-driven investments. Our comprehensive conversation offers rich insights into the nuanced, disciplined, and strategically patient philosophy that sets DS Advisors apart in today’s investment landscape.
Our conversation covers the following topics:
DS Advisors’ Investment Philosophy
Patient capital as competitive advantage
Deliberate public markets focus
Strategic Decision-Making
Rationale for avoiding private equity and venture capital
Advantages of controlling internal investment costs
Tax efficiency in long-term investing
Portfolio Construction and Management
Deep research and long-term holding periods
Importance of building positions incrementally
Role and management of liquidity and leverage
Case Study: TransDigm
Investing rationale and due diligence
Navigating pandemic-related market volatility
Management engagement and capital allocation
Emerging Trends and Technology
DS Advisors’ thoughtful approach to AI
Maintaining discipline amid technological change
This conversation was recorded on February 12, 2025.
The following transcript has been edited for space and clarity.
John Mihaljevic: Saahill Desai has been with DS Advisors for twelve or thirteen years. We last spoke six years ago, about halfway through that journey. Saahill, I'm glad to have the opportunity to speak with you again and build on our first conversation. Welcome!
Saahill Desai: John, it's an honor to speak with you. I'd like to thank you for all the great work you do in uniting members of the investing community all around the world.
John: Today, I'd love to talk to you about your process and what sets DS Advisors apart from many other pools of capital. Maybe we could start with the process. You talked a bit about it when we first spoke. I know not much has changed, but I would love to hear how you and your team approach investing these days.
Saahill: We started with a very open mandate. We had a pool of capital to invest and a blank page to write our story.
During the first six or seven years of our organization's life, we tried many different things. We did some private deals. We invested in real estate. Of course, we invested in the public markets. As we reflected at the end of each year on what we were successful in and where we were struggling, we realized that we did need to focus and figure out how we could leverage our competitive advantages to be successful in the market and to compound capital long term.
As time went by, we realized that being a firm with a permanent capital base gave us a competitive advantage in the public markets. We had the good fortune of being able to think long term where other pools of capital might have daily, monthly, or annual liquidity constraints. We've leveraged that edge in trying to craft our investment strategy.
Over in the last seven or eight years, we’ve built what I might consider to be a holding company of about twelve to fifteen businesses. Of course, we don't have any control of them. These are all large publicly traded companies, but we've spent years perfecting our knowledge of those businesses and gone deep in engaging their managements, former employees, customers, and suppliers to truly understand what makes the businesses tick. While we continue to look for new opportunities day in and day out, our core portfolio is driven by this handful of companies that we opportunistically add to and occasionally trim to allow us to maximize our long-term returns.
John: What I find very interesting is that you have this pool of capital and focus strongly on public markets versus many other similar family offices that are also heavily into private equity and venture capital. I believe those two are very small for you. Help us understand how you came to the decision to focus almost exclusively on public markets.
Saahill: It can be broken down into two pieces. First, we tried a bit of everything and realized that we were simply doing better with our public market investments. We had more control over outcomes. We had comparable information. We didn't have to have sharp elbows to be successful. We chased what we were doing well at. On top of that, the more time you spend perfecting your craft, the better you get at it. I think this has certainly been the case. When we last spoke, in some sense, we were in the infancy of our long-term compounder strategy. We've since gone through a pandemic, which has brought to light our strategy and its ability to create a lot of value long term.
Speaking of private equity, hedge funds, and venture capital – asset classes that many of our peer organizations invest heavily in – a couple of elements have made us shy away from them.
First of all, we're a full tax-paying entity. While we don't want the tax tail to wag the investment dog, if you will, we believe we can generate better long-term after-tax returns by extending the duration of our investments. We can do this in the public markets and are not afforded the same ability in alternatives.
Second, we control all of our costs. We've internalized the entire investment activity. As such, we run on a very clear and transparent budget. It's an exercise I'm going through right now with my team to dictate what our budget will be for the next 12 months. As a result, there's an entire cost structure that we're not paying other parties.
Third and perhaps most importantly, as we looked at the returns we believed we could generate in the public markets versus more deal-oriented asset classes – like private equity and venture capital – we realized we could do better. The return profile of some of these asset classes may appear to be nominally high, but when you look over the entire arc of a fund, public markets – especially active management in the public markets – can often deliver much more attractive returns.
John: On the cost point, where would you put yourself in terms of cost efficiency versus some of the alternatives?
Saahill: This is a very timely question. There was an article in Bloomberg yesterday about some of these multi-strategy hedge funds and the value they're able to capture in managing clients’ assets. Bloomberg estimates that somewhere between 50% and 70% of the value created is captured by the managers.
We run our organization relatively efficiently. By my estimates, we spend roughly 25 basis points a year of our AUM on managing the organization. While returns are better or worse in any given year, if we conservatively assume that, on average, we could generate a 10% return – we certainly shoot for far more than that – we roughly spend only 2.5% of our profits every year to run the business.
John: To what extent do you deploy capital with external managers? If I remember correctly, it is a tiny piece, but it sounds like you may use it strategically to establish relationships with managers whom you deeply respect and would like to have a dialog with.
Saahill: That's exactly right, John. We have a small cohort of what I might call emerging managers that we partnered with over the last 8 to 10 years. These are people who – for lack of a better term – we had a meeting of minds with in terms of their investment style, their approach, and their willingness to communicate their thinking to us. We've deployed a small amount of capital to each of those teams to support them in their early stages and establish a collaborative working relationship. I still speak to those individuals on a monthly basis.
In addition to that, we've done what I might call indexing. I don't necessarily consider that allocating as much as a way for us to be more fully invested in the market. Obviously, that is a much more low-cost approach to getting market beta.
John: What kind of concentration do you have in the portfolio? How do you think about your cash in the portfolio or leverage to the extent that you ever would use it?
Saahill: This is something I'm spending a lot of time reflecting on right now.
There’s one other factor I'll share with you. We had a family business that my parents started in 1980. Since we last spoke, we've sold that business. It was publicly traded on the NASDAQ, so our liquidity profile took a step function up at the end of 2018, when the business was sold. We took the call at that point to slowly and methodically deploy the cash we had on our balance sheet.
Today, that still is a meaningful portion of the overall balance sheet. Fortunately, interest rates today are at a much more attractive level than they were a few short years ago, but we believe cash – and specifically liquidity – is a strategic asset because we want to be opportunistic. That being said, we are working on a few projects internally to find ways to increase the yield we earn on our cash by deploying a bit of leverage and balancing short-term liquidity with higher yields that can be achieved through giving up some liquidity.
We take an almost private equity approach to public markets. Our team – and it's all internal – spends anywhere between three and twelve months studying businesses. One of the things I encourage our people to do is not be in a rush to deploy capital but rather understand a business inside and out because our view is that once we're committed to a business, it's a marriage. It's a five- to ten-year relationship we'll be having with that business, if not longer. We have to be fully confident that we are committed to owning that business through thick and thin and leaning into owning more of it if the opportunity presents itself.
In terms of concentration, I mentioned we own about 15 businesses. The largest of those would represent something like 12% of the portfolio, and the smallest would be in the low single digits. We're opportunistic, not just in taking advantage of dislocations in price but even in building our positions. We have in almost no case built a position all at once. Rather, we have legged into positions over weeks, months, and years. That allows us to continuously monitor news coming out of the business, its financial performance, management's communication of their strategy, and capital allocation, whch allows us to make sure we're not caught flat-footed, deploying capital too quickly into a business and missing something important.
John: You get to know these businesses inside out. You have a long holding period. I assume a factor that plays into the holding period is also the taxable nature of the account as opposed to – let’s say – university endowments that embrace strategies with more turnover. Is that right?
Saahill: That's absolutely right. The US tax system affords us the ability to defer taxes indefinitely, as long as we don't monetize investments.
To be clear, we're not dogmatic about that. There have certainly been instances where we made an investment in a business and expected a certain rate of return over a 5- or 8-year period, according to our model, and the stock price exceeded our expectations in a very short period of time so that we found ourselves in a place where our forward-looking return was in the low single digits. That presents a very high opportunity cost to capital. We've certainly been willing to trim on the margin.
What we're not trying to do is turn the portfolio over on a regular basis. It's really saying, “What was a highly compelling investment now looks more like a risk because, according to our expectations, this business doesn't have a lot more intermediate-term growth left, and we're better off redeploying that capital elsewhere, even if it means paying some taxes.”
John: What does the pool of ideas from which you ultimately draw those 12 to 15 top holdings look like? How many companies are you familiar with to the point where they would be strong candidates for inclusion if the price is right?
Saahill: For each business in our portfolio, I would say there's probably at least one more that – at the right price – we would be willing to invest in.
The businesses we own are what I might call monopolistic or duopolistic– businesses that are number one or two in their industry or which sit at a chokepoint in their industry so that they're able to earn outsized returns on capital.
In our team, we've also developed circles of competence – healthcare, aerospace and defense, technology, financial services, insurance. What we try to do is fully understand all the players in an industry, then cherry-pick the handful we believe to be extremely well positioned to accrue value.
First, we get to know the business and the industry inside and out, but over time, we build a model to understand what type of return we can expect based on the current stock price and our understanding of the business's growth trajectory. With some companies, we may shoot for a mid-teens IRR over an 8- to 10-year period. In cases where we believe there may be a little more risk and where the moat is not as well guarded, we may say, “We need to be closer to a 20% IRR for us to feel confident that an investment is warranted.” Again, this is all on paper.
There's a science component to it, which is looking at the numbers, and there's an art or feel component, which is our internal assessment of how risky the business is and how much conviction we have in it. Marrying those two allows us to come up with this 12- to 15-position portfolio we might own at any given time.
John: It sounds like you and your team cover quite a wide range of sectors. How do you divvy up those responsibilities in the team? What's the profile of the other people on your team?
Saahill: We are an industry-agnostic firm at the end of the day. We don't say, “We're only going to stay in a certain set of industries.” If we believe there's an opportunity in a space we don't know well, we will take the time to research it in depth and find the opportunities there.
I have two senior PMs on my team. They each manage a fund within our organization. The mandate I've given them is to run concentrated long-only portfolios with a quality bias, but they have the flexibility to go where the opportunity is. While we haven't had a situation like this yet, if each of them were to find a certain company and say, “This is where I want to deploy the capital I have,” we would allow them to have overlap. Up till now, there's been industry overlap but not specific stock overlap.
At the end of the day, we want the best ideas to rise to the top, and we want our team members to feel entrepreneurial and that they have the license to invest in the best businesses at any given point in time. Part of my mandate is to make sure we're allocating capital at an organization level appropriately across these various companies.
Our two portfolio managers have been with us for seven and fifteen years, respectively. They've already had quite a tenure with us. In each case, they came to us with somewhere between ten and fifteen years of investing experience. They both worked on the sell side as bankers. One of them worked at a proprietary trading desk at one of the banks and then as an analyst at a hedge fund here in New York before joining us in 2009. The other one – after a few years of banking – spent almost a decade at a family office and another half a decade or so at a well-known hedge fund that eventually wound down. In the wake of that wind-down, he was introduced to us and has been with us for over seven years.
These are both individuals who had buy and sell side experience and came to us with an ambition to manage capital on their own. We have a great working relationship in that they have the ability to go where the opportunity is, and we provide them the resources and some modest guardrails to make sure they can be effective in their work.
John: I assume you personally also manage a portfolio within the firm.
Saahill: That's right. Each of my colleagues is responsible for a portion of the overall portfolio. I manage a separate portfolio, which overlaps with their ideas and includes some of the work I do myself.
John: How does your collaboration with outside managers take place? Are there people you’re in established relationships with and talk to often? Help us understand the idea generation process and some of the feedback loops you've built into the process.
Saahill: Are you asking about the individuals we've staked in the past or how we engage with the broader investment community?
John: Primarily the individuals you've staked in the past, but also any other significant relationships you may have and help in your idea generation and assessment process.
Saahill: I'd be happy to shed some light on that. We do a formal portfolio review with the people we've invested capital with. We used to do it monthly, but we've spread it out to quarterly now. We sit down with them for an hour or two every quarter, go through the portfolio, exchange ideas and insights, and try to understand what's going through their minds. These are all long-term investors. The conversation is never really about performance. It's much more about process and insight. It's an opportunity for all of us to learn.
On top of that formal quarterly review, we're constantly exchanging emails, podcasts, articles, and other materials with our colleagues because there is overlap in the individual companies we own and in the things we're thinking about. We want to have an open dialog with them and make sure that they have all the information we have and vice versa. If there's a piece of news or research that may shed some light on something we've talked about in the past, we'd love for them to share it with us. That's how we think about our relationship with those individuals.
The truth of the matter is that it’s certainly not the limit of the people we collaborate with. My colleagues and I have much broader networks across industries and the investment landscape that we're constantly engaging with. The good news in the US is that large holders of companies are publicly disclosed. It's quite common for us to know that another firm owns a piece of a business, and that we might even have an old friend at one of those firms. We do talk to our peers at other firms, understand their thinking, and exchange notes.
It's all about trying to create a mosaic of all the different insights – from primary documents, research, and maybe even more informally from conversations with other holders – that helps inform our thinking and tweak our return expectations to make sure we are making high-quality decisions day in and day out.
John: Let's talk about the companies you favor and consider quality businesses that you feel can be held for a long time because they will keep compounding value. What are some of the common threads to be found in all the types of investments you favor?
Saahill: I'm glad you asked this question because even though we invest across sectors, there are many qualitative factors you see consistently across these businesses.
In almost every case, the company is either the number one or number two player in a segment or sits at a very specific chokepoint where it can provide an invaluable product or service to the broader industry it plays in and extract outsized returns on capital for providing that product or service. Secondly, all these companies tend to be led by very high-quality management teams. In some cases, it's a founder or founder-like individual; in many cases, it's someone who has come up through the ranks of that organization and has been tapped to lead.
The other piece is probably a byproduct of the first two. We spend a lot of time looking at capital allocation. If a company makes a bunch of money at the end of the year, how is the management team thinking about where to put that incremental dollar?
Especially over the last three or four years where we've had quite a strong market, one of the things that’s been encouraging to see is a lot of capital return. Ordinary dividends, special dividends, and – what we like most – stock buybacks at the right prices are encouraging signs that a management team is being thoughtful about maximizing return on capital. Instead of going off and doing ill-founded projects that are value-destructive, they say, “After we've reinvested in the business and considered potential M&A that would be accretive, let’s now return any excess capital to shareholders so they can make the decision about how to deploy that incremental dollar rather than presuming we have a monopoly on good ideas.”
John: The business is obviously key, but it sounds like you also want the people at the helm to be great capital allocators. Is that possible to find? Do you sometimes have to compromise on one or the other?
Saahill: I'd be lying if I said that every single capital allocation decision in every single one of our companies was perfect. Quite questionable decisions certainly happen, but the beauty of the businesses we own is that almost all of them have been publicly listed for at least 10 to 20 years. There’s a long history to track, and we definitely engage with management where we can.
In 2025, the beauty is that almost everything management say publicly is now available through transcripts or other electronic communication. We can understand their thinking much better than maybe 5 or 10 years ago, when those resources were not so readily available.
These decisions don’t always make sense to us out of the gate, but by asking the right questions and talking to other people in the industry, we start to get comfortable with them. In other cases, we say, “This acquisition doesn't seem like a fit, but let's give it time. It's not going to make or break the company. This is a small bolt-on.” In many cases, we've almost been proven wrong – something we were skeptical about turned out to have real strategic logic behind it but it took a few years for that logic to present itself. We've been pleasantly surprised in a few instances.
John: I respect if you don't want to talk any specific case studies or examples, but to the extent that you do, feel free to use one to illuminate your approach.
Saahill: I will take a few minutes to talk about one of our larger positions. It's a business that I'm sure many of your community members will be quite familiar with. The company is called TransDigm. It makes tens of thousands of different parts for commercial and military aircraft. We've owned the stock for about seven years now.
TransDigm is an example of a company that is certainly not the biggest in its space on a revenue basis but makes so many absolutely mission-critical parts that it’s able to earn really high returns on capital because it can charge a premium for the parts in exchange for providing excellent service and very high-quality parts. TransDigm’s growth has been a combination of organic, volume, and pricing growth – like many businesses – but one thing it’s been great at is strategic acquisitions – bolting on smaller, fragmented players onto its platform, rationalizing costs but retaining top talent, and earning outsized returns on those acquisitions.
Last summer, we had the good fortune not just to meet the company’s senior management – who we've spoken to in the past – but participate in an investor day where investors were given access to some of the leaders of the individual business units. We couldn't have been more impressed with the quality of that next level of leadership. It gives us a lot of confidence that a company like TransDigm is not just leaning on a high-quality legacy portfolio but is every day identifying great products and people it can bolt onto the organization.
Perhaps I should also tell you about a few challenges we had with TransDigm, especially in the context of the pandemic. This might illustrate where we believe our permanent capital gives us an edge.
We've owned the company since 2018, but almost exactly five years ago, we had a global pandemic brewing. Airline traffic ground to a halt. TransDigm relies heavily on providing replacement parts to aircraft across the world. If planes aren't taking off and landing every day, the airlines don't need new parts. That business totally ground to a halt. As a result, TransDigm’s stock sold off big. I'll have to check my notes, but I believe it sold off over 60% from its high – at that time – in January 2020, and the company is highly levered. It runs at about six times EBITDA/debt. We were understandably concerned.
However, our team paused and said, “We can't change what's happened. Let's think about what's going on under the hood. What are management doing? What does the business really look like? Is it true that all of its revenue has gone to zero?” We saw a few things that gave us a lot of confidence.
First and foremost, we looked at how management were behaving. They took swift action to reduce the cost structure and said, “We're not going to be producing as many parts. We don't need to be running full shifts anymore.” They were able to reduce the burn on that front. They went to their lenders and negotiated some breathing room on the debt. Those were the two significant pieces we saw from management.
The other thing we realized is that the company had a meaningful business selling parts for military aircraft. At the time, it was about a third of revenue. The realization we came to was that this piece of the business was continuing to chug along. The US and other countries have to maintain their aircraft across the world. If anything, that business was thriving. As it turned out, the company stayed EBITDA-positive through the pandemic, and it was on the back of that military business.
Relatively quickly, by the end of the summer and into the fall of 2020, the commercial business picked back up, and what looked like a dire situation for the company ended up being a 6-month blip. However, the fact that we were patient and didn't have to worry about investors knocking on our door and asking for their money back allowed us to take a long-term view and engage with management to understand how they were reacting. It gave us the ability to add meaningfully to our position during the summer of 2020 and see the company come out of the pandemic even stronger.
Fast forward to today, it has continued its M&A trajectory, but management have realized that they've accumulated a lot more cash on the balance sheet than they believe they can reasonably deploy into M&A or into capex, so they've done a series of special dividends to return capital to shareholders, which we view as lowering our effective cost basis in the stock.
It's been a great ride for us. We think TransDigm continues to have a very high-quality leadership team and a long runway for growth, both organic and inorganic. We remain confident in the company as a business. In terms of acquiring more shares, that's based on price. It’s not a reflection of our belief that – at today's prices – it would be the time to be buying the stock.
Hopefully this illustrates to some extent our thinking on a specific business. I’d be happy to answer questions if there's anything I may have glazed over.
John: That’s very helpful, thank you. Maybe a bit on the balance sheet leverage and how you got comfortable with that. I guess it's a very high-quality business, predictable and all, but what kind of leverage are you willing to take on? In this particular case, would you like it if management prioritized bringing down debt, or do you feel that the balance sheet is quite efficient and should remain as it is?
Saahill: For TransDigm, our view is that the level of leverage is appropriate given the stability of the business. I'm not suggesting that every single business should run at 6 times leverage. I think much of that is a function of how stable earnings or cash flow are, but this is a conversation we have every time we engage with the company, and we've built confidence that it can have real stability in its profitability even in the most dire situation. There was certainly a dip in the commercial operation, but we believe the business supports that level of leverage. In fact, the capital return it has done over the last few years has effectively been taking accumulated cash off the balance sheet to then return to that 6 or so times leverage the company has maintained over its history.
To answer your question, we look at leverage on a company-by-company basis. We don't take a house view that leverage is appropriate at all, let alone that such level of leverage would be appropriate for every single business.
John: Has TransDigm also been an M&A story? Is that something you’ve found a potential source of good ideas when you can find a well-executed M&A roll-up consolidation kind of company?
Saahill: It certainly has been a serial acquirer. That being said, we definitely would not want to fall into the trap of assuming that every serial acquirer is doing value-accretive deals.
You have to look at each situation on its own and assess – both quantitatively and qualitatively – if the M&A a company is engaging in is truly adding value. You also have to look at the trajectory of time. Sometimes, you do M&A today, but it will take two or three years for it to prove synergies, for the strategic logic to play out. We give companies some benefit of the doubt as we evaluate them, but it's been our view that there is probably more serial M&A happening that is value-destructive or value-neutral than truly accretive and value-creating.
This is maybe a mental model we look for and assess, but you have to be almost maniacal about going back over the history of a company and evaluating how much of its growth is driven by the core business growing its customer base, increasing prices, and expanding its footprint and how much is driven by accretive M&A.
John: We live in a rapidly changing world. With AI, you could argue that change is accelerating. Looking out many years may have become more difficult than in the past. How do you think about those macro or technological innovation factors when you evaluate your businesses and potential threats or opportunities that might be coming down the road, maybe specifically related to AI?
Saahill: I'm so glad you asked that question because for the better part of the last two years, AI has been on the tip of everyone's tongue. In our weekly internal investment committee meetings, we’ve thought a lot about how we should view AI.
We've come to a few conclusions. There's no question that AI and related technologies will fundamentally change the way we do things and the way the businesses we invest in operate, but we're also willing to acknowledge that we are not the authorities on these technologies. What we certainly have not done is try to invest in AI because we feel like it's still very nascent, and the winners and losers are yet to be determined. What we have tried to do is learn as much as we can to understand what the trends are and how companies are leveraging AI, and then, on a company-by-company basis, take a hard look and say, “What are the new threats that maybe we hadn't underwritten in our initial thesis?”
There's another component to AI that many of our peers are talking about, which is using AI in the investment process. That's one where we are largely standing pat. Not that there aren't phenomenal ways to leverage AI to distill and aggregate information, but going back to leaning on our competitive advantages, we have an inherently slow and methodical process. Being too dependent on AI resources to speed up or shortcut our process would result in us losing touch with the core decision-making and information absorption we undergo when we look into companies.
To take an example, if I'm looking at a new company today, I might go all the way back to its initial public offering – or at least 10 years back – and read all the Ks and Qs to truly understand the evolution of that business. What was the company saying in 2015? What were its biggest risks then? How has it grown? How have the risks evolved over time? Yes, you can plug that into an AI application and get some feedback on how the company has changed, but I don't think it allows you to make well-informed decisions, so we've largely avoided being too reliant at this point.
John: Let's talk about valuation. You mentioned that maybe TransDigm isn't a screaming “buy” today on a valuation basis. How do you think about the price you're willing to pay to get into a position, and how do you think about selling or trimming based on the valuation in the public markets?
Saahill: This has been a significant learning for us since you and I spoke last, John. I'll take a step back and say that our process is IRR-driven. That incorporates the current price of the stock, our expectations for growth, and then our view of a reasonable terminal multiple.
We monitor every single day what we believe the today IRR for the stock is. Generally, we project that out somewhere between 5 and 10 years. Ultimately, in our model and spreadsheet, we have price targets driven by an acceptable rate of return for that stock. I'll be honest – today, the market is relatively close to its all-time highs, and we don’t see a lot of screaming “buy” opportunities, or really any at all, so we're being patient. This was a tough lesson we learned.
Circling back to the pandemic, 2020 was a steep decline in a steep recovery year. In fact, I believe the S&P was net up for the year. We deployed a bunch of capital in 2020. As a firm, we probably built a little overconfidence in continuing that capital deployment through 2021 and into 2022. If there was any lesson we learned, it was that we have to stay disciplined and not move the goal posts unreasonably. Rather, we need to be very objective, very methodical, and willing to sit on the sidelines when opportunities are not as compelling as our opportunity cost of capital.
The thing about investing is that you make mistakes every day, and you have to learn from them. One of the things we remind ourselves today is to not be overconfident. We're willing to give up a bit of short-term upside if it means keeping liquidity and being disciplined so that we have the ability to lean in strongly when either the whole market or an individual company or industry presents compelling opportunities.
John: When you say “keep liquidity,” what does that look like? How do you get at least some yield on that liquidity? Would you consider moving part of the portfolio into more special situation-type investments that have a timetable and are not as correlated to the overall market when you feel that valuations may be getting out of line?
Saahill: Absolutely. We believe deeply in being focused – doing a few things and doing them really well. Right now, interest rates have come down a bit from their peaks, but you're taking effectively no risk owning Treasuries or money market funds. You can earn in the mid-4s today.
We believe there are a few products or funds out there that can extend our yield by 100 or more basis points, but the other realization we came to is that we don't have to have 100% of our liquidity available to us overnight. One of the projects I'm working on is figuring out how to manage our liquidity more effectively, such that we take some of the capital, give up some liquidity in the short- to medium-term, but are paid for our willingness to give up liquidity and potentially even use some amount of leverage to get that. In this way, we can have our cake and eat it, too. We can maintain liquidity but still earn an attractive yield on our capital.
To be clear, because you asked about special situations, we don’t generally do that type of investing. Most of what I'm talking about amounts to yielding investment opportunities – like real estate, infrastructure, private credit, and the like, things that throw off a consistent cash flow. To us, that's compelling. Getting too far outside of that, we're concerned that the timing of our return becomes a lot more unpredictable, and it's harder for us to underwrite those types of situations.
John: How do you look out over the next five to six years? Are there any particular initiatives you will be pursuing – within the firm or personally – to position yourself and DS Advisors for what's coming over the next decade?
Saahill: I have the great privilege of wearing a bunch of different hats. I wear an investing hat. I run our business day-to-day, and then I get to look into the future and say, “What are the things we're not doing today that we can be doing?” That’s a double-edged sword. On the one hand, you want to stay focused on the things you're good at and continue to perfect your craft. On the other hand, you don't want to be going through life with blinders on and miss an opportunity that could work great.
At the moment, we only have two primary objectives – to keep getting better at stock-picking and investing in the public markets more broadly and to manage our liquidity. We view these as complementary pieces of our portfolio – an appreciating portfolio that will strongly compound capital over time and a yielding portfolio that delivers cash flow we can then deploy. Our hope is that over time, we can create a nice virtuous cycle of generating cash flow and then putting that cash flow into the ground and seeing it grow over the long run.
Outside of those, we're hesitant to start opening up new avenues for growth because we do feel like it would stretch our focus to a place where it would be value- or return-dilutive.
John: Saahill, this has been terrific. I truly appreciate your time and insights, helping us understand your process and what sets DS Advisors apart from other pools of capital. Any parting words or anything we haven't covered that you'd like to touch on today?
Saahill: No, I've hopefully painted a good picture of how we think about investing and how we run our organization. Thank you again for taking the time and for your interest in our organization.
John: Thank you so much, Saahill.
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