- We look to own quality businesses
- Businesses that have an opportunity to grow in their core business and related areas
- Demonstrated superior operating track record of founder/ core management team
- Solid capital allocation
- Good corporate governance and fair treatment to minorities
- We don’t have a single magic formula and we know it
- Humbly accept that markets are almost always right in the long term
At the core of our investment philosophy is our ability and willingness to be invested for the long-term. As the holding period of securities increases, the advantage of informational asymmetry reduces significantly and it is the investor’s ability to synthesize and comprehend developments that become the real edge. We believe an investor who can control his behavioral biases will have a higher probability of earning disproportionate gains.
Characteristics of a Quality business
- High Return on capital employed
- Consistency of performance and lower variance to business cycles
- Low or no debt on the balance sheet
- Growth funded primarily through internal accruals
- Ability to pay a decent dividend while funding growth
We segregate our investment ideas in three main buckets.
‘Discovered Quality’ where we are happy to pay a high valuation for demonstrated growth and delivery by the business. These would be companies which are well-known by most investors.
‘Quality in a Spot of Bother’ where an otherwise solid business is going through a period of slow growth/pain given external factors or the company is embarking on an investment phase that may pressure near term earnings growth for a brighter future.
‘Emerging Quality’ where we think the business is demonstrating very good execution in an industry where they have competitive advantages that the market is yet to appreciate – the investment in this bucket will tend to be lesser known/smaller market capitalization companies.
We believe that in tough markets (and bear markets will follow bull markets just as night will follow day), it is the quality of the business and the depth of our research and understanding that will help us avoid a permanent loss of capital.
We strongly believe in Warren Buffet’s words on investing –
Rule No. 1 : Never lose money
Rule No. 2 : Never forget rule No. 1
This is the reason why we choose to invest in businesses with a proven track record of consistent and profitable growth and steer clear from deep turnaround plays or companies in highly cyclical sectors.
“ To Finish first, you must first finish ”