Investment Approach

1. Cannot know the ‘macro future’ (economies, markets or geopolitics with any reasonable certainty

  • Macros matter, but mining it as investment edge is nearly impossible
  • Share price growth more a function of earnings growth

2. Portfolio optimization(balance of aggressiveness /defensiveness) is critical

  • In long-term, trading is a zero sum game
  • In the short-term however, things fluctuate between ‘flawless’ to ‘hopeless’
  • Balance is adjusted based on earnings / credit / investors’ psychology cycles

3. Risk is not volatility of returns

  • It is (a) likelihood of permanent loss of capital and (b) opportunity risk

4. Creating wealth should be a source of pleasure

  • Taking too much risk interferes with that

When management with a strong reputation take up business with reputation of bad economics, it is the reputation of business that stays intact
– Warren Buffet


  • Sectors that can grow faster than GDP
  • Companies that can grow faster than the sector
  • Absolute growth / MOAT / HH Index (consolidation / fragmentation)
  • Leverage – 2 edge sword, not always bad – but understanding of cycle critical

Management (M)

  • Competence / Capability
  • Capital allocation / incremental capital allocation
  • Revenue growth / margins / returns – superior compared to industry
  • Corporate governance: No-go; employ several checks and balances

Valuations (V)

  • PE is a state of mind – stocks are expensive for a reason on most occasions
  • Things don’t move from very cheap to fairly priced and stop there (and vice-versa)
  • Investor psychology is important barometer; reverse DCF helps

  • A) BMV or potential BMV

    Examples: Financials / Consumers / Automobiles and Ancillaries / IT
    35% to 70% of portfolio

  • B) Cyclicals

    Profit cycle vs credit cycle / envisage what happens at bottom of cycle – pick survivors
    Examples: Metals / Paper / Commercial Vehicles / Engineering and Construction
    10% to 35% of portfolio

  • C) Turn around cases

    Case-by-case basis / promoter interest should be aligned with shareholders’ interest
    Examples: Companies in pipes / textiles
    5% to 20% of portfolio

  • D) Buy very cheap / sell cheap

    Businesses that will not be able to graduate to large-cap businesses
    Examples: caustic soda / some plastic business
    0 to 10% of portfolio






A large part of the non-systematic risk can be diversified away with 25 stocks

Most mutual fund schemes have more than sixty (60) stocks in the portfolio – needless diversification without effectively reducing the risk

In addition, all mutual funds tend to have two key biases –
Index hugging (do not deviate much from the index even in an actively managed fund)
Herd mentality (many funds buy the same story without taking contrarian calls)

Buoyant Capital runs a concentrated portfolio of 18 – 27 stocks







Volatility of returns is NOT risk
Risks are:

  • Possibility of permanent loss of capital – it occurs when
  • Thesis does not play out as anticipated
  • Corporate Governance issues, not anticipated earlier, emerges
  • Cycle (profit / credit / investor psyche) goes against, AND
  • You lose hope of things reversing


  • more structure in thought-process
  • Opportunity cost – it occurs when
  • You are doing well, but think could have done better


  • Clear definition of the amount of risk we are willing to take for the stated return
  • Frequent check of defensive / aggressiveness framework
  • Draw-downs are part of equity investing; 1000 baggers have had 50/70% drawdowns in upcycle