Learning from Legends – Valley Forge, TCI, and Rainwater

It can be greatly beneficial to learn from world class investors and apply aspects of their philosophy to your own investing practices. While you can’t substitute their conviction for your own, reviewing their methodologies, business traits they look for, and stock portfolios can be useful learning tools. In the world of investing, there are no bonus points for being unique, whether that be in methodology or in stock selection. There’s no reason to completely reinvent the wheel if some of the best have already figured out strategies for generating outsized returns.

Several recent podcasts have been released featuring Dev Kantesaria from Valley Forge Capital Management, Chris Hohn from TCI Fund Management, and Joseph Shaposhnik, who recently launched his Rainwater Equity ETF (NYSE:RW). All are exceptional investors with long track records of success, and in this post we’ll briefly review some of the key points from those podcast interviews.

Dev Kantesaria – Valley Forge Capital Management

Invest at the intersection of growth and predictability

Valley Forge puts a strong emphasis on growth plus predictability, with Dev admitting he’s willing to pass up on some growth in exchange for predictability. Put simply, you need predictability in order to forecast and have conviction in an investment. Valley Forge also focuses on companies that can grow with minimal capital reinvested back into the business and demonstrate strong pricing power. Oligopolies are a firm favorite, such as Visa and Mastercard, but they’re also cognizant to the fact that not all oligopolies are rational.

Despite being popular in other investing circles, Dev has stated that Valley Forge isn’t a big fan of serial acquirers, even if they are fantastic, well-run businesses. Relying on acquisitions to grow creates greater unpredictability than organic growth, as there are a lot of factors that can change the success of a deal. Price paid, integrating the new business, performance, and frequency of deals all add variability beyond the existing business operations.

Another preference is for companies that don’t hold extra cash on the balance sheet, as it keeps management from making mistakes. Excess cash should be returned to shareholders through buybacks and dividends, although the tax treatment of buybacks make them the preferred option.

Valley Forge’s Portfolio

Valley Forge runs a highly concentrated portfolio predominantly focused on financial market infrastructure and service companies. This includes businesses like credit rating agencies and payment processors. Portfolio turnover is low.

Chris Hohn – TCI Fund Management

Focus on high barriers to entry

TCI’s investing philosophy is simple. Find businesses operating in industries with high barriers to entry whose products/services are essential spending. A favorite that Hohn has talked about is irreplaceable physical assets, such as rails, airports, and toll roads. A freight rail network or a large international airport in a capital city are both assets that are essentially impossible to recreate, regardless of available capital. This makes it easier to forecast that these businesses will still exist decades from now.

Another business advantage TCI looks for are companies with highly technical intellectual property, such as aircraft engines. Despite strong growth in air travel (and number of aircraft), the engine market has remained an oligopoly where there have been no new entrants for over 50 years.

Hohn also talks about the importance of pricing power, and how it’s even more important than overall business/volume growth. An example he’s used is that a business with a 20% profit margin pricing 1% above inflation will grow profits 5% faster than revenue. Importantly, with pricing growth there is no additional cost to the company. They don’t need more raw materials or higher labor costs to increase sales. This enables these increases to flow directly to the bottom line. Recurring sales are also important, but the predictability of when they occur is less so.

TCI looks for industries with rational competition, such as the aircraft engine makers, and puts valuation secondary to business durability. Hohn has also mentioned that he believes large companies are more likely to beat smaller companies over time, due to more money for R&D, scale, and incumbency. He also warns that investors often underestimate the forces of competition and disruption, and that avoiding losses is essential to long-term success.

TCI’s Portfolio

Similar to Valley Forge, TCI runs a highly concentrated portfolio but instead of solely focusing on financial market infrastructure, they also focus on physical infrastructure. Portfolio turnover is quite low, with the average holding period for names in the fund being over 8 years.

Joseph Shaposhnik – Rainwater Equity ETF

Recurring revenue is king

Rainwater’s portfolio is centered around high-quality businesses with large amounts of recurring revenue. Shaposhnik’s philosophy is that businesses are difficult to forecast, but recurring revenue is more predictable and in turn makes a business easier for management to operate. Recurring revenue gives executives greater visibility into future cash flows as well as the ability to forecast operating expenses. This in turn allows them to better plan for investing in future projects, acquisitions, and other deals.

Management incentives are also important, as they can incentivize growth at the expense of shareholders or in alignment with them. And of course, along with incentives the overall quality of the management team is also key.

Rainwater’s Portfolio

Unlike Valley Forge and TCI, Rainwater is relatively diversified, and by their own term “focused.” The fund has ~20 holdings across a wider array of industries but is predominantly focused on software, aerospace, financial markets, and business services. Position sizing is based on conviction in the durability of the investment and the potential risk of loss from the investment. The fund isn’t run with the mindset of optimizing for the highest projected return, but rather tries to optimize for businesses that are the most durable and provide reasonable returns.

Commonalities

All 3 investors have generated exceptional returns over the long-term. While they’re slightly different in their philosophies, there are a few key similarities between them. First and foremost is predictability. Predictable earnings/cash flows are essential to a business’ long-term success. They enable management to do a better job running the company as well as make it easier for investors to establish conviction. This means no highly cyclical commodity businesses, startups, or industries like pharmaceuticals where patents are constantly expiring. Another similarity is finding exceptional management teams.

Other commonalities include Valley Forge and TCI both emphasizing the importance of pricing power as well as rational oligopolies, and TCI and Rainwater emphasizing the importance of avoiding losses/protecting against downside. All 3 firms own some combination of financial market infrastructure companies, while TCI and Rainwater both have considerable exposure to the aerospace industry as well.

It’s worth noting that these firms likely agree on even more, even if it wasn’t explicitly called out, but there is only so much that can be said in a few podcast episodes.

Differences

There are a few notable differences that jump out at a glance. First, the difference between Valley Forge and Rainwater on acquisitions. Several of the largest holdings in Rainwater are known for being serial acquirers, a significant contrast from Valley Forge. Second, TCI puts a much larger emphasis on businesses with physical assets, such as railroads, compared to the others. These businesses also come with higher operating capital requirements, a metric Valley Forge avoids. Rainwater has limited exposure to high capex through waste collection company Waste Connections but otherwise prefers asset-light.

Takeaways

The Durable Value Creators portfolio applies metrics and methodologies similar to these funds, but hearing their thoughts laid out back-to-back-to-back really helps drive home core investing fundamentals. The current DVC portfolio has serial acquirers, as well as organically growing infrequent acquirers. Some businesses have high recurring revenue, but all have at least some level of recurring sales. All of the current companies in the portfolio also have low or relatively low capital expenditure demands. Predictability is something I’ve always subconsciously thought about, but hearing it repeated and emphasized really drives home its importance.

To summarize, look for businesses with predictable growth, pricing power, and recurring revenue led by strong management teams. Whether that predictable growth and pricing power comes from irreplaceable physical assets or asset-light network effects is up to the individual investor. Finding businesses with these attributes enable investors to better predict future business performance, strengthen conviction in their investment, and reduce portfolio turnover. Valuation is a factor, but long-term growth, durability, and predictability are more important.

Relevant Links & Sources

We Study Billionaires | TIP680: Investing in Exceptional Businesses for the Long Run w/ Dev Kantesaria | Dec 6^th 2024

In Good Company | Sir Chris Hohn: Strategic Investing, Long-Term Value and Purposeful Philanthropy | May 14^th 2025

We Study Billionaires | TIP 731: Owning Best-in-Class Businesses w/ Joseph Shaposhnik | Jun 20^th 2025

Disclosure

This post expresses opinions solely of the author. The author is not receiving compensation on behalf of and has no business relationship with any company whose stock is mentioned in the post. Data, forecasts, and predictions shared in this post are for informational purposes only and are not guaranteed to be accurate or correct. This post is not an endorsement to buy, hold or sell. Investing carries risk. Always do your own due diligence before making investment decisions or putting capital at risk in the market.