We follow two types of investment strategies, Trend Following and Special Situations Investing.
Majority of the time, the portfolio is composed of trending/growing companies and some cash. Whenever we encounter a special situation, we allocate some part of the same portfolio into it.
Core Portfolio (combo of good company + stock):
Fundamentally sound businesses
- Companies which have earnings growth behind them and are expected to grow in future
- Strong cash generation
- Receivables should not grow more than earnings and debtor days shouldn’t be too high
- Return ratios above cost of capital
- Ethical management
- Prefer low free float stocks
- Among the leaders in its sector
- Preferably buy regulation/disruption resistant sectors
- High promoter pledging are an absolute no
- Low debt on books
- Good operational metrics
Stock price parameters
- Figure out which sectors/stocks are in uptrend. Invest only in them. Preferably broader market should also be trending up.
- High Price Ratios are not a no go area for us. We don’t get excited by just low price ratios.
- Institutions/Promoter should be increasing their stake in the stock
- Stock should be liquid enough for one’s investment size so that one can get out quickly on bad news
- Regular profit booking depending on proprietary rules
- We always book small losses before they turn into big losses.
- Buy/Sell decisions based on deep understanding of stock demand/supply
When it comes to special situation investments like buybacks, de-mergers, takeovers etc., we look at the following factors:
- Company should have clean, ethical management and it should not be likely that the offer to shareholders get
- Minimum return on offer should be in double digits
- Time period of investment should be less than 5 months
- Stocks where investments have hedging opportunities are preferred