Investment Process
Ideation
We have multiple sources of idea generation around our strategy. We have meticulously built several automated alerts/screeners inhouse which throw up potential ideas, in addition to connecting the dots through our reading/research of newspapers, magazines, research papers and interaction with partners/industry experts. For example, we picked up one of the biggest themes for starting our research in the chemical sector out of a general conversation with a Chinese friend, leading to investment in several many multi-baggers.
We have different alerts, filters and screeners for each of our baskets - Magic, Compounder and Opportunistic.
Automated Quality check
Once we have shortlisted the ideas, they are subjected to automated quality checks built in-house by our team. By inserting the stock ticker, the screen is populated with all the preliminary level data required to analyse the company, including all the red alerts – this helps us decide if we should pursue the investment opportunity further.
Deep Dive
Having cleared our automated quality checks stage, we assign a research team member to deep dive into the business and management which usually takes anywhere between 2 weeks to 2 months depending on the company, business and our level of competence. Once we have understood the business and company and it fits our criterion of progressing further, we seek deep interaction with management. Our interactions are usually at the multiple levels of the organisation, both formally and informally. We like delving deep into softer aspects of the management and culture. We lay emphasis on all past management commentary and their follow through.
Forensic Analysis
Using our core expertise, we subject every idea to CLEAR framework for forensic checks. For details Read More
Research Note
All our above findings are captured in our Research note which is in a prescribed format and a checklist. We follow the checklist to avoid any kind of bias and to operate out of pre-conceived notions. Checklist Manifesto by Dr Atul Gawande is a great guide on the subject where he says that most senior professionals make judgement errors when they operate out of instincts rather than a checklist. He assigns a large number of medical errors due to non-adherence of checklists by surgeons including something as basic as washing hands. We would like to wash our hands before we start any operation. A checklist will help us in doing so.
Investment Committee
Our Investment Committee (IC) deliberates along with the research team. The IC may accept/reject the idea or may direct further investigation if certain aspects are not covered/well covered or in light of emergence of a new aspect out of discussion. The IC scrutinizes various risks involved including hypothesis failure, liquidity risk, market risk etc.
If the stock is approved by the IC, it also discusses the investment size and price range. The final decision on timing of the purchase is left to the Portfolio Manager.
