How to Apply the Right Valuation Metric

Applying valuation methods like PE and DCF indiscriminately across all companies and sectors is risky. A 2-bucket valuation approach helps an investor simplify the manner in which one selects an appropriate valuation method.

Demystifying Investing in Equities

The human mind is unfortunately wired to fall prey to the behavioral biases of “greed” and “fear” which compels an investor to make sub-optimal decisions at most times. Investment advisers have further complicated the investment process by encouraging the pursuit of investment options with high past returns achieved in a recent investment horizon, overlooking the long term objectives of an investor. Unfortunately investors have paid the price for this numerous times most recently post the 2009 global financial crisis.
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Warren Buffet is fond of saying, ‘Investing is simple but not easy.’

We think by this he means investing is simple because there are few rules that need to be followed; but it’s not easy as in a real market context with volatile price moves one is bombarded with all sorts of contradictory cues thereby making those rules very difficult to follow.

Multi-Act was set up as a possible solution to one family’s search for the “right answer”. While endeavoring on this journey and after having witnessed various cycles as an investor in the market, we have built what we believe is a robust Investment framework with a few rules that we believe makes investing simple and an organizational DNA that forces us to adhere to those rules making investing easy.

Today we would like to take an opportunity to showcase the framework which has worked well for us while managing money. These video modules guide an investor what rules have worked for us and perhaps help in avoiding falling prey to the behavioral biases.

We are hopeful that these video modules will demystify the process of rationally investing in equities and allow investors to make optimum decisions on your portfolio, enabling you to achieve your long term objectives. Read Less..

Returns are driven by asset allocation and the major driver for various asset classes is the macroeconomic environment. Hence, understanding the macroeconomic scenario is critical in making investment decisions.

Long term investing involves looking for opportunities in company stocks which enjoy sustainable competitive advantages or moats. This video lists identifiable moats and details how to identify them for investment decisions.

Investing in a business without barriers to entry is tricky, especially when the industry is doing well. Capital cycle theory helps an investor approach such businesses rationally and makes the investing decision simple.

Most valuation tools are based on reported earnings which can be manipulated by creative accounting. This video discusses a Quality of Earnings analysis process to arrive at more reliable numbers and keep biases in check.

Modern spread sheet models incorporate the users’ primal behavioral biases with too much attention to short term volatility and no long term focus. This video outlines the 3 important factors that drive equity returns.

Behavioural biases can often interfere with our investment decisions. We discuss various biases and their origins, and share some real world examples biases at play in the markets; as well as how to overcome them.

Investors can be successful if they have a rational approach. This video provides an insight into Multi-Act’s Global Rational Analysis Framework (GRAF) which helps make the investment decision both simple and easy.

Any investment idea has two aspects – the historical numbers and the narrative. The grading process tries to strike an ideal balance between the two, and helps classify businesses into high quality and low quality.

One critical question investors have to answer is: ‘is the price right?’ Applying a ‘Margin of Safety’ as a disciplined tool keeps behavioural biases in check while taking investment decisions. This video explains how.

Artificial credit impulses injected by central banks can render traditional measures of assessing intrinsic value of businesses meaningless. This video lays down why the current monetary regime seems to be on shaky ground.