WHY BUOYANT?

WHY BUOYANT?

BUOYANT CAPITAL

Why BUOYANT?

Everything, literally everything, goes through cycles. Whether it is cosmic phenomena (the big bang, galaxies, planets) or terrestrial cycles such as the seasons. Whether it is the organic evolution of species or regime changes in human history, cycles are ubiquitously visible, across time and space. 

Cycles are also manifested in modern human affairs if we closely observe social change, economic growth, political evolution and yes, stock markets. Buoyant Capital’s basic investing construct is to decipher underlying cycles in the markets to improve its odds of earning superior returns for investors. It’s working well so far, we must confess! 

We classify all stocks in our universe as being CORE or SATELLITE, terms that are easy to relate to. A CORE stock will typically have a steady business trajectory and growth prospects, cleaner cash flows and more of a secular character that is easily apparent over time. A SATELLITE stock is one that, under the influence of good conditions, can grow business volumes, revenues and profits very quickly, but this may not be sustainable over longer periods as the good conditions fade 

How do we position the portfolio in line with our reading of the cycle at play? We turn defensive when we see the odds loaded against investors (difficult times coming up), only to turn aggressive and load risk when we can sense that better times are round the corner. In DEFENSIVE mode you will see the portfolio veering more towards CORE stocks and sectors, while in AGGRESSIVE mode, Buoyant leans towards the SATELLITE variety. 

Note : we were already in AGGRESSIVE mode when Covid hit the stock markets, in March 2020. Our portfolio fell more than the lead indices. Our guts were mauled, our sentiment smothered. But we noticed that the world was pricing in MUCH more than a year or two or even three years of lost profits. Our key insight was this : the intrinsic value of several good businesses would hardly be affected by two or three years of lost profits. Contrary to convention, we loaded even more ‘risk’ in the portfolio by ratcheting up the SATELLITE component of the portfolio higher! Result: the Buoyant Opportunities PMS delivered brilliantly in the post COVID recovery phase of the markets…

Investors come first at Buoyant. That’s not a hollow sales pitch. We literally live by this motto. 

  • We don’t have account opening (or setup) charges, exit loads for PMS or AIF despite incurring hefty direct expenses for these products. 
  • We’ve capped operating expenses at 25 bps p.a. for our Category III AIF. If we exceed this limit, Buoyant pays the difference. 
  • We’ve negotiated rock bottom brokerage, custody and depository charges for our clients from two of the largest and most respected banks in India – HDFC and Kotak
  • Portfolio information is updated daily and shared online in full detail. 
  • PMS clients are free to switch between fixed and variable plans once a year, on a prospective basis.
  • We don’t charge PMS clients any fund accounting fees, even as we pay 3 bps to our fund accountants. 
  • We remind our (non-individual) clients to deposit TDS on our portfolio management fees and then reimburse them for the same, so that they are compliant with Income Tax law. 

We eat the food we serve you. The shareholders of Buoyant (and the firm itself) are clients of the Opportunities PMS. As a matter of policy, none of the Directors or shareholders of the firm invest in public markets outside of the Buoyant PMS or AIF. Our interests are thus aligned with clients’ interests. 

None of the Directors takes any salary, nor have we distributed dividends to shareholders. Both these actions are seen to be tax inefficient and will lead to a faster fall in our ‘skin in the game’ as external fund inflows rise, whether into the PMS or AIF. We think reinvesting all surpluses generated at the firm into the PMS or AIF kitty is the best capital allocation strategy we can devise for the wealth of the firm. 

Here’s a chart that tells you exactly how much skin in the game we have. Yes, it’s falling over time. But that’s only because inflows into the PMS (and now the AIF) are accelerating beyond our personal (and combined) capacities to invest in our own schemes. All data has a story…

The Buoyant PMS does NOT deploy a model portfolio construct, though we do have a list of preferred stocks and weight caps. Instead, we follow an opportunistic deployment strategy, one in which we buy preferred stocks in parts depending on market conditions and the prices of the stocks in question. This is also dependent on our cross cycle stance that is in play (i.e. whether we are aggressive or defensive at the time). 

Naturally, this means that your portfolio will look different from other people’s portfolios (or the Buoyant PMS aggregate portfolio) for some months (or even quarters, depending on market conditions and our aggression to deploy). The complexity of managing such different portfolios calls for a (you guessed it) software application for portfolio tracking and order generation, something we have invested considerable time, effort and resources to develop. And yes, we continue to refine it every day!

The Capital mindset

Given our propensity to align with cycles, it is but natural that we take sectoral calls before we take a stock specific call. This calls for deep (and long) understanding of a sector to properly gauge whether a cycle is about to build up (or is in the process of topping out). The world’s largest active asset manager (Capital International) has no star fund managers. Instead it has sector specialists who take sector specific decisions much like fund managers within their own sectors. These folks have several decades of research and investing experience in their respective sectors. 

We have a similar mindset. Instead of relying totally on a single (generalist) fund manager, we have sector specialists within the team who decisively contribute to the stock selection and portfolio construction. This increases the odds of reading early signals accurately when cycle changes are on the way.

Performance is a final outcome driven by many causes, with luck certainly NOT being the smallest of them! While you may marvel at our clearly impressive performance, we see it as a natural result of adopting a rational and flexible strategy grounded in age-old investing insights. Our cross-cycle investing framework is sustainable over time and runs very low risk (if any) of getting outdated over time even if it does not deliver occasionally over relatively shorter intervals.