Key Investment Parameters

  1. Key Investment Parameters
Key Investment Parameters

Brief Checklist :-

  • Industry analysis: Size of Opportunity, Number of Competitors, Current and historical capacity utilization of the industry, sectoral growth rates, threats of substitutes to the industry, any regulatory threats etc.
  • Company analysis: Moat, Leader in their businesses, networking effect, Margin analysis, cost competitiveness, source of growth for the company, decoding margins and operating leverage in the business, capital efficiency (ROE + ROCE).
  • Cash Flow analysis: DCF, balance sheet analysis (avoid debt/highly leveraged companies, contingent liabilities).
  • Strong corporate governance: Very critical for us.
  • Other Parameters: Promoter’s pledge, their other businesses if any.
  • Past Dividends and corporate events, equity dilutions.
  • Valuations: DCF, EV/EBITDA, P/E, deal multiple valuations.

Finally, the price which we pay for the stock is a function of all the above parameters. We plan to have highly focused and research driven process to select stocks for our portfolio. There are over 5000 listed companies in India. While investing in a diverse set of companies across industries may seem attractive, but managing them and staying put through tough times is a different ball game. To tackle this we maintain our portfolio to 20-25 stocks, this helps us stay focused, devote our time to companies in which we have high conviction and avoid high churn rates. We follow our investment framework rather than the market sentiment. While short term fluctuations do give us opportunities to entry quality stocks at the right price, ensuring enough margin of safety. Long term investing is essentially buying stocks at steep discounts to their intrinsic values and staying invested through various market cycles.

I have a number of filters that things have to get through before I think about them. I can really say no in 10 seconds or so to 90%+ of all the things that come along simply because I have these filters.

- Warren Buffet