Two Minutes Reading for business analysis
Big Tree Capital is a long-term investment firm that runs the Opportunity Fund L.P.. Their philosophy is straightforward: don’t chase trends, but invest in great businesses at the right price. They’ve laid out a clear playbook that everyday investors can learn from.
What Makes a Great Business? 🌳
Not every company is worth owning. A great business has four key traits:
-
Recurring revenue – Customers keep coming back. Think about your daily coffee habit at Starbucks ☕ or the monthly subscription you pay for Netflix. Predictable sales make the business stronger.
-
A durable moat – The company has something that protects it from competition. Apple’s iPhone ecosystem is a good example—once you’re in, it’s hard to leave.
-
High returns – The business generates a lot of profit without needing too much extra money to grow. That leaves more cash for shareholders.
-
Growth – Demand for its products or services is still expanding, not shrinking.
If a company misses any one of these, it’s not truly “great.”
How to Value a Business 💰
Even the best business can be a bad investment if you pay too much. Big Tree Capital looks at owner earnings (the real cash the business can give shareholders, not just accounting profits).
Two useful yardsticks:
-
Owner Earnings Yield = Owner Earnings ÷ Price
-
Owner Earnings Power Yield = Long-term earning power ÷ Price
Then they compare stocks against benchmarks like:
-
Stocks vs. other stocks (P/E ratios in the market)
-
Stocks vs. bonds (if Treasuries yield 2%, your stock should beat that)
The Strategy 🧭
-
Be patient and selective – Great businesses at cheap prices are rare. Most of the time, wait.
-
Diversify smartly – Index funds are fine for most investors, but for those seeking “alpha,” focus on a few strong businesses within your circle of competence.
-
Buy cheap – Often the best time is when a company looks troubled in the short term but still has long-term strength.
-
Sell with discipline – Sell if: You find a better opportunity, The stock price gets way ahead of the business, or You realize it was never truly a great business.
Why This Matters for Investors 🌎
This philosophy helps us avoid the traps of hype, panic, or overpaying. Instead, it pushes us toward calm, thoughtful wealth building—exactly the kind of strategy Warren Buffett and Charlie Munger have followed for decades.
Owning great businesses at fair prices isn’t exciting in the short term, but over years it compounds into life-changing results.
👉 Follow me for more simple, smart investing strategy. ✨ Join the Relax to Rich Club—where we grow wealth the calm, thoughtful way.