Value Investing

IAIP’s Kolkata chapter organized an interactive session on Value Investing with Ashish Kila, Chief Investment Officer, Perfect Research. The session began with a discussion around the current market volatility, long-term impact of oil prices and the market outlook in near and short term. It was emphasized that severe bouts of volatility create opportunities to acquire good companies at decent valuations. Though, volatility can shake investor confidence in short-term, it has always played out to the advantage of a long-term investor.  

The conversation flowed from market overview to building a portfolio of wealth creating stocks!

Ashish shared some key allocation strategies, which highlighted his unique investment style while taking a sizeable position in a stock. He follows a dynamic allocation methodology wherein his allocation to a stock changes as the stock becomes cheaper. To start with he might have a 2% allocation to a stock if is a bit expensive (on various absolute/relative parameters). This is what he calls the tracker position. If the valuations of stock turn a bit inexpensive he might increase his position in it to 5% and potentially to even 10%. The inexpensive valuations in the stock need not come from the price side. The P/E might become cheaper even as the Earnings increase year on year.

Ashish explained his thought process through various easily relate able examples. He has been an early investor in Agro tech Food (The stock discussed was for educational purpose.) He used the Agro tech food example to explain the idea of capacity to suffer as the company is going through the traditional J curve impact in its business. Ashish thinks of himself as a part owner of the business he is invested in and believes in investing in companies which have conference calls. In his opinion conference calls and AGMs are one of the best places to know more about the inner functioning of the company. He exhorted all present to participate actively in these two forums and prepare well to ask prescient questions to the management.

There was a detailed discussion on the 4Cs of investing

Cloning:- Keep your eyes open and follow your role model.

Checklist:- Financial ratio, Management integrity, Valuations.

Capital allocation:-Concentration Vs Diversification and bet sizing.

Checkout:-Conviction to hold and finally book out. Focus should be on business performance and not stock market performance. Conviction is one of the most important aspects ignored by the market participants.

Ashish was generous to share his model portfolio which he uses only for his proprietary investment. He also shared the rationale behind selecting a particular stock.

There was a brief Q&A session on general investment concepts, stock ideas, continuous learning and other related subjects.