Over the long term, only businesses with strong competitive moat are able to create shareholder value. We seek to invest in businesses which have a strong competitive moat or are gradually widening their moat. The competitive moat that attracts us are those driven by strong brands, distribution strength, inherent cost advantages, technology/IP and high switching costs. These businesses demonstrate high capital efficiency and are typically cash flow positive. We do not invest in businesses whose moats are primarily driven by regulations and political linkages.
Our Philosophy
What we look in any business before investing?
Competitive Moat
Margin of Safety
Our valuation of businesses is absolute and not relative. We seek to maintain valuation discipline by investing only at a discount to the intrinsic value resulting in a margin of safety. This may entail staying in cash in periods of unreasonable euphoria in the markets and investing in periods of extreme distress. We steadfastly follow the principle of ‘Be fearful when others are greedy and greedy when others are fearful’.
Corporate Governance
The Indian market is notorious for promoters indulging in activities which destroy value for shareholders (especially minority shareholders). We believe stable long-term returns are generated by partnering managements which treat minority shareholders as equal partners. We avoid businesses with weak corporate governance practices and only invest in businesses led by ethical management teams.
Sectors
We prefer to invest in sectors that have long term growth opportunities. We avoid investing in highly regulated sectors, sectors linked significantly to commodity prices, ‘fad’ driven sectors and sectors exposed to technological disruption. We also avoid sectors that over a long period only generate accounting profits and not cash flows.