Alpha Invesco's mission is to deliver superior investment results with risk under control & to conduct our business with the utmost integrity.
"Don't Be Scared Of Temporary Underperformance If You Have To Outperform Over The Long Term."
Uncertainty Vs Risk - Biggest opportunities come during the times of uncertainty. Entire street is focused on next 4 to 12 quarters. We have a time horizon bigger than that, which leads to an edge & we can embrace uncertainty for a much bigger gain. We look for a business where underlying economics is improving & things are looking up with certain symptoms of change. We prefer pockets where valuations reflect the point of maximum pessimism, either due to near term uncertainties, balance sheet concerns, external factors or other concerns which prove to be immaterial over a period of time. We like stocks where there is large undervaluation and the business already has a substantial revenue base along with leadership position in their respective segment. It pays to buy such companies when they are facing temporary problems & are available cheap. These companies can improve profitability by correcting their cost structures & leveraging existing capabilities. Such businesses, if operating in potentially large profit pool sectors, can have sustainable & predictable profit growth over a period of time.
Independent & Long Range Thinking
In todays scenario, everybody has the same information. There is no information edge & how you evaluate a business is more important than anything else. In our view, the ability to have independent opinion & to be a contrarian is very critical to outperform over a period of time.
Risk Control & Avoiding Large Drawdowns
Our highest priority remains to protect capital, avoid permanent losses & large drawdowns. Market cycles give us enough opportunities. And if we just avoid the losers, the winners will take care of themselves & perhaps the portfolio performance.
Staying Away From Macro Forecasts
We believe consistently excellent performance can only be achieved through superior knowledge of companies and their securities, not through attempts at predicting what is in store for the economy, interest rates or the securities markets. Therefore, our investment process is entirely bottom-up, based upon proprietary, company-specific research. We use overall portfolio structuring as a defensive tool to help us avoid dangerous concentration.
Emphasis On Consistency
We believe in consistency & having a higher batting average over a period of time, than having spurts of super normal profits or abysmal losses.
Ear To The Ground
Our research is not just about numbers. We also focus on socio economic relevance of our investee companies, latest developments on the ground, talking to dealers-distributors-ex employees-competitors, management meets to have a better handle.
Stock Selection -
We rigorously look for companies that satisfy these 5 criteria's,
1. Businesses with strong unit level economics
While the street is obsessed about headline numbers, it really gives an edge if there is a clear understanding of the unit level economics. Slight changes in cost structures can lead to huge delta in earnings. Profitability can go up exponentially. We look for such 'symptoms of change' in undervalued securities.
2. Competent management & ability to generate strong cash flows
We look out for businesses where operating profits are converting into real cash flow growth, working capital cycle improvements & higher cash generation over a cycle. The idea is to bet on businesses that are run by capable entrepreneurs with experience in their industry.
3. Existence of strong entry barriers
Without entry barriers there is no re-rating in the valuations. Entry barriers in terms of product / services superiority, distribution network, or tight credit supply to the entire industry that can drive above average profitable growth.
4. Possibilities of strong growth
Companies that are gaining market share, entering new geographies, extending their product lines. Companies that are using cash flows from established operations to build newer verticals. There exists huge option value in such situations.
5. Low valuations
Entry valuations decides the return one makes. We like out of favor businesses or themes where current stock price reflects depressed earnings & no interest from market participants. Low EV / Sales, Total Assets / Market Cap, Improving Return On Assets