Diageo: Free Cash Flows And Great Brands But Low Organic Growth

Core Insights - The investment philosophy emphasizes the importance of financial performance and valuation in identifying potential investments [1] - Companies are classified based on their Return on Invested Capital (ROIC) into long-term, medium-term, and value traps [1] - The long-term investment criterion is a ROIC greater than 9%, while medium-term investments have a ROIC between 6% and 9%, and value traps have a ROIC of less than 6% [1] - The investment strategy is influenced by Warren Buffett's focus on long-term value creation and Peter Lynch's growth opportunities [1] - The goal is to acquire value opportunities at a 30% discount to intrinsic value with an expected return on equity (ROE) of over 9% [1] Investment Classification - Long-term investments are characterized by a ROIC greater than 9% and the ability to grow intrinsic value [1] - Medium-term investments have a ROIC between 6% and 9% and can maintain intrinsic value [1] - Value traps are identified by a ROIC of less than 6% and an inability to meet their cost of capital [1] Growth Estimation - Growth is viewed as a subjective variable that can be estimated through retained earnings and the company's return on equity [1] - The variability of both retained earnings and return on equity over the past decade is acknowledged [1]