Consistency Leads to Greatness
AIF & PMS Experts have recently curated an astounding session with Siddhartha Rastogi (Chief Operating Officer, AMBIT Asset Management) and Manish Jain (Fund Manager, Coffee Can Portfolio, AMBIT Asset Management). The two aficionados were in conversation with Mr. Vikas Agrawal (MD & CEO, AIF & PMS Experts India) following an enlightening session ahead.
Risk is everywhere! As an investor, what we can do is, increase the probability of consistent returns. That’s how an investor can generate wealth. We can’t assure that one will win every time, but what we can assure is that if things are done in the right manner, it will certainly pay off. That’s what is known as greatness. Greatness has been explained in thousands of ways in this world. However, it has always been believed that to be great, one has to have a bright coming future and the best way to look into the future is to learn from what has happened in the past! When something is being practiced on a loop, the chance of falling down because of unawareness reduces. That’s where the concept of consistency comes into play!
Good Return is an outcome of holding great business!
To create a portfolio, we need to have a business owner’s mindset. Once we associate ourselves with the company, then only we understand the company’s processes and stakeholders and is able to make the right decision. Good financial position and management capabilities with consistent profit growth across a long period of time give a Great portfolio that will deliver returns in the long run. Short-term cycles are not really considered to be a much impactful factor. Consistent profit growth always merges with great equity returns and always meet at a common point.
For example – There can be divergence seen in intra sector performance. Companies functioning in the same sector can differ in their performance because of several reasons. Taking an example of HDFC bank and SBI returns, though both belong to the same industry, it is 22.8% (PAT) & 9.8% (CAGR) of HDFC and 21.8% (PAT) & 6% (CAGR) of SBI.
The concept of consistency differentiates between a good company and great company. There is always going be to changes, a cycle, management terms etc. in short-term, but what remains in the long term is always the quality.
Difference between a good company and a great company
Essentially the difference between good companies and great companies is the consistency in the EPS growth. Everywhere the common thing is the consistent profit growth and the important factor is the business owner mindset. Any inconsistency, decline and irregular growth is the first sign of quitting the queue of being a great company.
A great portfolio always comprises of two things:
- Of companies that have consistent growth in profits across a long period of time.
- Of investors who have a business owner mindset and not equity investor mindsets.
What makes a business great?
There are several constituents that collectively contribute for a great business. Some of the constituents that lead to success –
- Management (Integrity + Capability): The combination of integrity and capability makes a great management and a great management makes for a great business. It is essentially the first factor to look into. Safari is a big example for that. With organized management, it was able to make its presence in no time.
- The unconventional approach in conventional situations: One of the success stories for this approach is the story of D-mat. It has succeeded in an industry where no one succeeded by doing something common in an uncommon way.
- Prudent capital allocation: Many companies have lost returns for their shareholders for multiple years in the past just for the reason that the capital allocation is not so prudent. One of the factors that differentiate the great companies from the good companies is that in case of downturn, they know either how to reinvest the money into a fruitful business or return it to their shareholders. PI Industries are an example for the same.
- Constantly looking ahead and innovation: Innovation is something which can never be over-emphasized. Nestle is a setting example as it had 30 new products in last 3-4 years. It can include success as well as failures, but even the smallest of the innovation can turn the stone into a new era.
- Specialization: It counts for the niche focus, i.e., something which is very small today but have the potentiality of becoming big tomorrow. It is the segment where not so many people are focusing on. Aavas financiers is an example of the same. It focuses on the self-employed segment, retail segment and it has only surged in the last 3-4 years in terms of returns.
- Strong brand and trust: In a consumer-facing business, if one has a strong brand, 90% of the battle is already won. Taking an example of titan, in their initial days, they were the only retailers in that segment. There were questions on their presence but eventually, it has built a solid pillar for its brand in the coming time. Even another example is Tanishq Jewellers which is a mark of trust as it guarantees authenticity.
The companies which are able to adopt all the above qualities, have helped them to not only survive this uncertain time during this pandemic but also to achieve success. The biggest example we can see here if of Avenue supermarts.
What makes a great portfolio?
Good risk-adjusted returns is an outcome of good processes characterized by:
Source: AMBIT Asset Management
- Stringent quantitative filters: Nobody guarantees returns, people only sell thought process, and if by any chance one deviates from that particular thought process, the trust is broken. This is a philosophy which is never compromised on. It has to be a fund which is determined and uncommon.
- Experienced team and deep dive research: There has to be a handful of experts to generate the exceptional returns. It is very important to have own projections, research methodology and not dependent on someone for a second-hand research.
- Focus on earnings growth + earning quality: It is very important to have a business owner mindset. All along focusing on earnings growth, on profit growth on the portfolio will automatically give good returns.
- Risk management: Consistency through discipline is the only key to risk management. It’s not the long – short, not the derivatives, but only consistency with which a good return can be generated, no matter what other factors are counted on.
The ardent session was followed by the brainstorming Q&A round. In case you missed the opportunity to associate with the experts, we are providing below the link to connect with them on YouTube!
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