Investment Principles

In order to achieve our objective which is to protect your wealth, beat the FD rate of return and outperform benchmark equity index over 3-5 years, we base our decisions on one or more of the following investment principles.

Consistently Profitable Companies

Companies that have demonstrated consistent operational and financial track record over the years. These are often dominant, brand-owning and inflation agnostic consumer companies with pricing power.

Ethical and Passionate Management

Management – love for the business or job, long term performance, treatment of the shareholders, how they treat themselves relative to their shareholders or owners. Apart from running the operations efficiently, we expect managements to allocate their capital and retained earnings wisely. Additionally, catalysts like buy-backs at reasonable valuations, annual dividend pay-out ratios, high quality acquisitions at sensible prices act as inputs in our investment decisions.

Focused Diversified Portfolio

We do not expect to own more than 20 companies in our portfolio at the maximum. Our process incorporates a long-term investment horizon, multi-year holding periods and low turnover. We do not sell our investments because of short term events. We will ensure adequate diversification to manage risk.

The Sell Decision

  • Our initial hypothesis is wrong,
  • Company / industry fundamentals are deteriorating and/or
  • We find a company with similar or better quality at cheaper valuations.
To minimize errors in analysis or events which could adversely affect intrinsic business values, we adhere to a policy of avoiding commoditised or Business to Business (B2B) companies.

2.Ethical and Passionate Management

We look for the logical things in the management – love for the business or job, long term performance, how they treat the shareholders, and importantly, how they treat themselves relative to their shareholders or owners. Apart from running the operations efficiently, we expect managements to allocate their capital and retained earnings wisely. Additionally, catalysts like buy-backs at reasonable valuations, annual dividend pay-out ratios, high quality acquisitions at sensible prices act as inputs in our investment decisions. Obviously, no management team is perfect, so we are often stuck making a judgment call. And we don’t want to wait forever to find the perfect team.

Motivated by a calling — Passion to serve customers well, to nurture top performing employees, to constantly cut cost, to invest in technology and to achieve excellence in business.

Reasonable Compensation, Low Related Party Transactions, Candor on Business Prospects, Fair to Partners, Generate high Return on Capital Employed (RoCE)

Prudent Capital Allocation of earnings – Reinvestment, Buy-backs, Dividends or Acquisitions.

3.Buy ‘Big’ at Fair Valuations

Good ideas tend to be clustered together and may not come at even time intervals. We try to be disciplined by being patient enough to buy our target companies with adequate ‘margin of safety’ and courageous to load them up when valuations are attractive. Till we get the right opportunity at fair valuation or any catalyst trigger, we park the investments from new as well as existing clients in liquid debt funds. We have the willingness to invest heavily when the odds are favourable, as a result of prudence and patience in the past.

In all, we don’t expect to own more than 15 companies in our portfolio. Our process incorporates a long-term investment horizon, multi-year holding periods and low turnover. We do not sell our investments because some macro news may make investors nervous or for profit booking. We sell when:

  • Our initial hypothesis is wrong,
  • Company fundamentals are deteriorating and/or
  • We find a company with similar or better quality at cheaper valuations.

AiAlpha’s approach, process, advice and relationship is radical from the market behaviour.We are totally comfortable with all eggs-in-one-basket ie concentrated strategy because we own a great collection of fine businesses that are well-managed and are in good shape for whatever the future brings.