Investment Philosophy
Non-Linearity
Listed market continually offers non linear opportunities. Every few years, market tends to swing from under-valuation to over-valuation and vice-versa.
Stock prices are slaves to earnings in the long-run but journey is never linear. Hence the opportunity.
Longevity
Survival in the market in the long run is key to success. Focus on risk ensures ability to survive.
Compounding
Investment strategy aims to benefit from the long-term compounding effect on investments done in good businesses, run by great business managers.
Portfolio Construction
Investment Baskets
Secular / Strong Earnings Visibility / Themes:
– Companies with earnings visibility beyond 2-3 years – consumption plays/proxies, capex driven plays (with expanding markets), market leaders in growing markets, etc.
Medium Term / Themes:
– Companies with improving earnings outlook for 1-3 years – cyclical earnings upswing (which could be due to multiple factors like capex cycle revival, government policy changes, supply side constraints, etc.)
Opportunistic Bets / Market Driven Opportunities:
– Delta in earnings due to – balance sheet turnaround, introduction of new product lines, change in business model/management, etc.
Market Driven extremes which can result in – asset-based arbitrage (assets being available at significant discount to replacement cost). – During market extremes on downside, market leaders in asset plays could be available at steep discount to replacement cost. Asset based plays can be evaluated much better during such market extremes.
Capital Allocation
Rationale:
– Capital allocation is one of the key aspect of portfolio construct and over time becomes a key differentiator.
– The way position is initiated, and thoughtfully scaled up and held, can make significant difference to the outcome.
– Each one of these aspects require thorough thought. Few positions over time will contribute disproportionately to the portfolio returns.
– Ability to Evaluate Risk Reward determines capital allocation to a particular position.
Allocation:
– Core Basket (Secular and Medium Term) will have 75-80% allocation.
– Opportunistic/Market Driven will have 20-25% allocation.
Investment Process
