My Investment Philosophy

Welcome to my personal blog!

You may have found me through my Twitter feed - @richard_chu97. If you’re interested in learning more about who I am and how I got started then read my story HERE.

I’m an investment analyst at Saga Partners. I focus mainly on SaaS and healthcare and my investment philosophy has helped identify long-term winners early on. While I had widely known names like DDOG, ZM, CRWD, and AYX in my portfolio when I started sharing monthly updates back in December 2019, I had a massive allocation dedicated to a lesser-known digital health company called LVGO.

How was I able to find and develop so much conviction in LVGO and hold/add to my position through its long period of underperformance? It all comes down to my checklist. A potential investment does not have to follow all of these criteria, I make some exceptions for outperformance in other areas but these are the factors that I have found strongly increase your chances of finding a winning company.

Investment Checklist:

1) Category leader (dominates a niche, see Gartner/Forrester)

2) Recurring revenue (high visibility SaaS model)

3) Large and growing TAM vs market share (>$2B market cap, the potential to 2-3x over the next 3 years, position on S-Curve?)

4) Defensible moat (network effects, branding, IP, partnerships, distribution channels, architecture, switching costs, economies of scale, barriers to entry, talent, etc.)

5) High gross margins (>70%) and organic revenue growth (>40%, preferably w/potential to accelerate)

6) High DBNER (>120%) and gross retention rate (>90%)

7) Progress towards profitability (improving non-GAAP gross and operating margins and cash flows, sales efficiency)

8) Focused, mission-driven company culture, ambitious vision (4/5+ Glassdoor rating?)

9) Founder CEO, experienced management, and high insider ownership (insider buying?)

10) Rapid customer growth with fast sales cycles (preferably bottom-up/land and expand model)

11) Diversified customer base (strong pricing power, few dependencies)

12) Optionality and rapid product development (creating a platform/ecosystem?)

13) User satisfaction/mindshare (external job postings, reviews, conferences)

14) Valuation (sustainable multiple w/opportunity for expansion?)

15) Geographic/industry familiarity (US-based? Can I easily explain their product offering?)

16) Technical indicators (healthy relative strength, volume, accumulation/distribution, moving averages trending up, etc.)

Although selecting a great investment involves a lot more than running companies through this checklist, it helps greatly in narrowing my focus to build a concentrated portfolio of high-conviction stocks (see my monthly portfolio updates for holdings)

If your investment philosophy aligns with mine or you find my approach intriguing and would like to learn more, then subscribe to my newsletter!

What to Expect…

  1. Investment Ideas and Deep Dives

  2. Earnings Reviews

  3. Resharing my Best Twitter Threads

  4. Portfolio Updates

Connect with me on LinkedIn!

And please remember, my opinions are purely my own and are NOT investing advice. I do not make buy and sell recommendations.

To learn more about Saga Partners and our investment philosophy, check out our investor letters and fact sheet HERE and mention how you discovered us!

If you’re interested in learning about opportunities to invest with us, feel free to contact me at richard.chu@sagapartners.com

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