Value investing is easy to understand but hard to practice. Our job is to buy something for less than it is at least worth and generally hold on till we can sell at a price above its fair value.
The portfolio consists of three categories: event-driven opportunities, fundamentally strong companies and cash.
The core investment strategy is to exploit corporate event arbitrage opportunities in the listed capital markets that inherently have limited correlation to economic cycles and market volatility. These opportunities are driven by corporate events like mergers, acquisitions, delisting and buyback of shares through a “tender offer”. The risk-return pay-off in most of such deals is deal-specific and hence has a limited correlation to market cycles.
Fundamentally strong companies
Portfolio construction involves a filter-based approach to create an investible universe of 30-35 stocks and in-depth bottom-up research of such companies in the universe to assess sustainable competitive moats. Selected stocks that deliver healthy compounded earnings growth over long periods of time.
Such a portfolio is monitored for the sustainability of moats on a continuous basis through extensive primary research. Repeating the filters annually helps keep the investible universe updated and also such a universe is continuously researched for developing or strengthening of moats to augment the portfolio.
We invest only when we find opportunity, else the funds stay in a liquid fund.