PhilosophyApril 25, 2023 2023-09-02 9:14
The conundrum at hand can be comprehended by examining the following two charts, which compare (a) the expansion of a business’s fundamental value (measured through EPS growth) to (b) the growth in its share price.
The chart on the left depicts the perception of an investor, whereby the growth in fundamental value of a business and its share price are assumed to be closely correlated. This suggests that upon identifying a business that consistently delivers growth in fundamental value, the share price growth occurs in tandem. For instance, if the fundamental value of a business increases by 20% each year, the share price is expected to rise by a commensurate 20% annually.
The chart on the right illustrates what transpires in reality, which often differs from an investor’s initial perception. Even if a business is identified that has the potential to grow its fundamental value by, say, 20% annually, the growth in share prices is not necessarily synchronous each year. In the first phase, the markets tend to become excited upon discovering such a business, causing the share prices to surge ahead of fundamentals (point A through B). However, at a certain point (point B), the market realizes that it is paying an excessive premium for what is being offered. Consequently, while the fundamental value continues to rise, share prices remain stagnant for an extended period (till point C). This phase between points B and C could easily extend for ten to twenty years.
At Buoyant, our area of expertise lies in obtaining a comprehensive understanding of various sectors, and our investment philosophy centers around generating superior risk-adjusted long-term returns by investing through different cycles. To this end, we adopt one of the following two approaches. Our first approach involves adopting an aggressive stance aimed at achieving superior returns. Conversely, we adopt a defensive stance geared towards capital protection under our second approach. This strategy entails alternating between the weights of our Core and Satellite portfolios.
Research Buoyant’s operational structure differs from that of most investment managers in that it consists of three portfolio managers – Sachin, Jigar, and Viral – also the company’s co-founders. Each oversees specific sectors they have tracked over the past two decades. This approach has historically eliminated familiarity bias and is reflected in our returns (see images below for details).
Non-model portfolio Our philosophy is that managed accounts, such as a PMS, should not be operated as a model portfolio. With us, investors are not fully invested on the initial day. This structure enables investors to concentrate on crucial allocation decisions, rather than attempting to time the market.
Skin in the game Buoyant, as a corporate entity, and its promoters invest through the company. As of latest available data, 6% of our assets under management (AUM) consisted of promoter capital, which is managed in the same manner as we handle investors’ funds.