You can control the risk you take. You cannot control market returns
We began by managing our own wealth on not finding intermediaries whose interest aligned with ours.
Both the investment approach and return expectations we experienced left a lot to be desired. The former was not always in the investor’s best interest, while the latter promised unrealistic returns. We also realized that many equity research firms base their investment decisions on flawed financial models. They tend to be pro-cyclical and end up churning their portfolios more often than needed. This approach, while beneficial to the intermediary, is detrimental to investors in the long run. This led us to develop an investing framework that helped us achieve good market returns without hyping return expectations. Years of investing our own funds and fine-tuning research, evolved our own investing systems, philosophy and above all– a distinctive school of thought, that we call Global Rational Analysis Framework, or GRAF.
Our Guiding Philosophy – Austrian School of Economics
The beliefs and findings of the Austrian School of Economics do not arise only from model-based predictions. They believe that the human and social element plays an equally important role in understanding prices, market movements, and money and value creation. They are staunch advocates of the free market approach and prefer minimal state intervention; a complete contrast to the popular Keynesians, who believe that state intervention, policy controls and taxes are essential to control and predict market movements.
You will find that we tend to use EVERY investment tool available to us. In fact, combining fundamental, technical, quantitative and behavioural analysis effectively is the essence of our proprietary investment style – Global Rational Analysis Framework (GRAF).
Only if a stock resides in our “estimated business value” of the company, do we consider investing in it. Stocks are classified as Moat (companies with long term competitive advantage & valued on a discounted cash flow), or Asset Based Valuations (based on balance sheets, stocks are identified as cheap due to low liquidity or weak market price.)
Post identifying fundamentally sound stocks, determining how the company stands vis-à-vis the rest of the market and gauging whether the stock is facing “headwinds” or “tailwinds” from other participants, helps us time our investments accordingly. This is an essential timing tool, and helps us determine strategic entry and exit points before we invest.
These help us judge asset and commodity prices against their historical data and determine how far away they have moved from their average price, making it easier to identify potential investing entry and exit points. Statistical analysis of asset classes is useful in determining whether they are cheap or expensive, when compared to their historical pricing data.
We recognize the human element in the investment world, to avoid falling prey to emotional decisions like market greed and fear. We have a process to identify and use such market sentiments. Hence, we have a predetermined exit price for all our investments. The small upside loss eliminates greed and ensures we always miss a stock peak.
How our Portfolio Managers Manage Portfolios
Choose good companies
We will endeavor to ensure that the universe of stocks we choose will be “good companies” i.e. exhibiting good balance sheet strength and good Quality of Earnings characteristics. We will determine this via our proprietary analysis tools, using the Rational Investment Framework.
Stay liquid when returns are low
When prospective returns are low, the stocks selected will be defensive, large cap and liquid. Usually these stocks are shunned at such times because market participants tend to overweigh speculative & “story” stocks. However, we keep a portfolio concentrated with moat stocks & eschew no-moats/ cyclical stocks.
Select cheapest stocks in acceptable universe
Multi-Act will use its proprietary margin of safety index value to try to ensure that the stocks selected and the weighting of the stocks is skewed such that the Portfolio comprises of ”cheapest” stocks in their acceptable universes.
Portfolio Management Services (SEBI Registration No. INP000002965) are offered through Multi-Act Equity Consultancy Private Limited (CIN: U67120PN1993PTC074692), which is a wholly-owned subsidiary of Multi-Act Trade and Investments Private Limited; Investment Advisory Services (SEBI Registration No. INA000008589) are offered through Multi-Act Trade and Investments Private Limited (CIN: U65920MH1997PTC109513).