We follow bottom-up, sector and market capitalization agnostic process to identify potential investment ideas. Like many other investors, our investing evolution has gone through initial preference for the statistical bargains and cheap looking stocks on the basis of P/E, P/S, EV/EBITDA like relative valuation parameters to more like a quality at a reasonable price. In the former case we ended up buying assets but in the later case we bought earnings power. 

In the end stock price follows the earnings and that’s what we are interested in knowing as to what will drive the earnings for the companies. We try to find companies which can grow earnings by around 18/20% with RoE/RoCE of around 18/20% with debt equity of not more than 0.5x. These are not stringent conditions but act more like a guiding light and help to narrow down the investing universe. 

We focus our efforts around

Apart from these we also focus on the Business, Management and Valuation aspect of these companies.

The idea is not to be very rigid in our framework as we believe that investing thought process is continuous evolution and one need not close the doors for new learnings. Every time we see that there is under appreciation of change in fundamentals by the markets or there’s divergence in stock price and fundamentals, we like to have a look at those companies.

There are three types of investing edge

We believe the information in today’s day and age is freely available and it’s difficult to create an edge in this space. How you analyse information and what decisions you take with that analysis is the primary source of edge for successful investing. Our primary focus is always to improve the analytical and behaviour part of the investing process. 

Our thought process is guided by these principles

• Process is important than outcome
• Margin of safety
• Risk is permanent loss of capital. Volatility as defined in theory isn’t the risk but opportunity
• Accepting embarrassing returns in the short term. “The market can remain irrational longer than you can remain solvent.”
• Operate within the circle of competence
• Price is not value
• Avoiding instant gratification
• Never confuse brains with a bull market
• We accept/appreciate role of luck in life and in investing
• “Many shall be restored that now are fallen and many shall fall that now are in honor.” – Horace  
• Stocks are part ownership in business
• Know what you don’t know
• Avoiding mistakes are major part of investing success 

What we try to avoid

• Momentum investing / latest market fads
• Excessive leverage 
• High portfolio churn
• Instant Gratification