Investment Strategy- The Contrarian
A strategy where the investor goes against prevailing market trends.
- Buy Fear, Sell Greed: Invest in undervalued assets during pessimism and exit overvalued ones during optimism.
- Independent Thinking: Take your own decisions on rigorous research, not herd behavior.
- Long-Term View: Ignore short-term noise and focus on intrinsic value of the business
- Patience and Discipline: Wait for the market to correct its mispricing.
Contrarian investing requires conviction, patience, and trust in your research—principles that align with our mission of consistent capital growth
Economic Moats at Fair Value
Moat (noun) means a deep, wide defensive ditch surrounding a castle or town, typically filled with water. (to keep away the attacks) – (Oxford Dictionary)
- Cost Advantage
Ability to produce goods or services at a lower cost than competitors.
2. High Switching Costs
Ability to produce goods or services at a lower cost than competitors.
3. Intangible Assets
Customers face significant effort or expenditure to shift from your end-product.
Example : Enterprise software, long-term contracts, customized eco-system etc.
4. Network Effects
Value of a product increases as more people use it.
Example : Social media platforms, amazon, Stock exchanges.
5. Economies of scale
Larger the operations lower the fixed costs.
Example : R&D costs, Advertising costs, etc that can be spread over more units.
“A good business can quickly become a bad investment when bought at a high price.”
Management Quality of Business
Evaluating Management Quality
“You can’t make a good deal with a bad person”
– Warren Buffet
Business First
Always invest in high-quality businesses; strong management cannot override poor business fundamentals.
Trust, But Verify
After identifying a good business, evaluate management’s capability and integrity.
Forensic Analysis
Use detailed financial and operational analysis to uncover any inconsistencies or red flags.
Leverage Networks
Rely on trusted industry connections to gain deeper insights into the management team.
Balancing Both
Successful investing requires a combination of great business fundamentals and trustworthy management.
“When a Management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact”
– Warren Buffet
Concentration Investing
“Law of Averages is meant for Average Human Beings.”
| 10 Stock Portfolio | Stock | Allocation | Return | Expected Contribution Return to Portfolio |
|---|---|---|---|---|
| 1 | A | 10% | 20% | 2.00% |
| 2 | B | 10% | 18% | 1.80% |
| 3 | C | 10% | 16% | 1.60% |
| 4 | D | 10% | 14% | 1.40% |
| 5 | E | 10% | 12% | 1.20% |
| 6 | F | 10% | 10% | 1.00% |
| 7 | G | 10% | 8% | 0.80% |
| 8 | H | 10% | 3% | 0.30% |
| 9 | I | 10% | 2% | 0.20% |
| 10 | J | 10% | 1% | 0.10% |
| Total Return | 100% | 10.40% |
| 5 Stock Portfolio | Stock | Allocation | Return | Expected Contribution Return to Portfolio |
|---|---|---|---|---|
| 1 | A | 20% | 20% | 4.00% |
| 2 | B | 20% | 18% | 3.60% |
| 3 | C | 20% | 16% | 3.20% |
| 4 | D | 20% | 14% | 2.80% |
| 5 | E | 20% | 12% | 2.40% |
| Total Return | 100% | 16.00% |
- Higher Return Potential
Focusing on a few high-conviction ideas allows outsized gains, when your analysis proves correct.
- Depth of Research
Fewer stocks mean deeper understanding, stronger conviction, and better decision-making.
- Capital Efficiency
Concentrating capital in a few opportunities maximizes returns from the best ideas.
- Easier Monitoring
A well balanced smaller portfolio is easier to track and evaluate, ensuring quicker responses to changes.
- Alignment with Expertise
Concentrated investing leverages deep knowledge and research, outperforming broader market averages.
- Avoiding Mediocrity
Diversification can dilute returns by spreading capital across mediocre ideas; a well balanced concentration avoids this.
Forensic Financial Analysis
Evaluating Management Quality
- P&L Forensics
- CFO / EBITDA
- CFO / Net Income
- (CFO – CAPEX) / Net Income
- Change in Depreciation Rate
- Volatility in Non-Operating Income
2. Balance Sheet Quality
- Cash Yield
- Delta Reserves / (Delta NI – Dividends)
- Provision for Doubtful Debts / 6-Month Debtors
- Contingent Liabilities / Net Worth
- Interest Expense / Borrowings
3.Cash Pilferage Checks
- Non-Operating Expense
- Total Revenues
- CWIP / Gross Block
- (CFO + CFI) / Median Reserves
4. Audit Quality
- CAGR of Standalone Auditor Remuneration /Consolidated Revenue
4. Audit Quality
- CAGR of Standalone Auditor Remuneration /Consolidated Revenue
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