Investment Philosophy :
A set of guiding principles that inform and shape an individual’s investment decision-making process. Examples of investment philosophies, or styles, include: Value Investing: Seeking relatively undervalued stocks and believing they will eventually produce strong returns. Source : Investopedia
Over last the 2-3 years I have realized the importance of Investment Philosophy and hence I am starting to define my investment philosophy. I believe this will change over time but this is what it is as of now.
I don’t follow a particular screener criteria but I have accumulated a few qualitative and quantitative factors.
I usually prefer companies having
- High ROCE compared to peers (Effective Use of Capital than other)
- The reason can be effective use of Working Capital or High Margin(Pricing Power) or Low Cost Benefit
- Emerging & Long Lasting Moat
- Without this, there is no fun. (Inspired by Sanjay Bakshi)
- Increasing Operating Margins and ROCE
- This indicates the efficiency of management
- Growth visibility
- Near term expansion plans or growth appetite
- Young & Honest Management
- Ambitious, Well Educated, Dynamic and honest management helps us to grow. On whom, we can bet our money.
- Quality of Earnings
- Sales should convert in cash. and Cash should be from Sales. 😉
- Stay away from High Debt
- I always look for Risk Mitigation. When my portfolio is higly concentrated than there is no logic in adding more risk by having leveraged companies.
- Holding the winners and Cutting the losers
- I have developed a discipline to cut losers if they are not performing as per our philosophy or rationale. I am learning to hold longer.
These are the basic points. I will update this as I accumulate my learnings.