The portfolio follows the A Willian J. O’ Neil strategy. Girik Capital’s investment philosophy is based on the following five steps:
- Step One: Automated Screening for superior outcomes
- Step Two: Establishing Leadership
- Step Three: Fundamental Research Overview
- Step Four: Valuation Consideration
- Step Five: Risk Management Framework
Girik Capital focuses on investing in emerging businesses having good governance, growth and efficiency.
Investment Process
Step 1 – Proprietary Automated Screening Process for Idea Generation
- Industry Strength
- Industry strength relative to other industries
- 50% of stock performance is tied to the industry group
- Shortlist leading stocks in leading industries
- Relative Price Strength
- Look for leading price performers
- 52-week and lifetime highs
- Winners show price strength early in a bull cycle
- Earnings Acceleration
- Stable historical earnings
- Accelerating current annual & quarterly earnings
- Immense future earnings growth potential
- List of stocks
Step 2 – Establishing Leadership
- Product/ Service Leadership
- Ability to Scale
- Management Track Record
- Efficient Capital Allocation & Superior Return Ratios
- Governance Standards & Alignment of Interest
Step 3 – Fundamental Research
- Business Model
- Product/service leadership
- Market size & opportunity
- Management efficiency – superior execution & delivery
- Relevance to all stakeholders
- Financial Metrics
- Superior return ratios
- Efficient use of capital
- Healthy free cash flow generation
- Funding of growth ideally through internal accruals
- Low to no debt
- Governance
- No significant related party transactions
- Minority shareholder friendly (E.g., Dividends, Buybacks)
- Alignment of interests – management compensation & ESOPs
- Ideally, no large promoter pledges and sales in the past
- Professionally managed; genuine board of directors; reputed auditors
Step 4 – Valuation Consideration
- Value in Growth
- Expensive in the short run but cheap in the long run
- Accelerating earnings growth combined with leadership ensures multiple premium justifications
- Margin of Safety
- Assessment of longevity of growth and leadership
- The estimated downside risk of going wrong due to overestimating growth
- Traditional Valuation Metrics
- Reliance on traditional valuation metrics can be deceiving
- Trading Multiples (P/CF, P/E, EV/EBITDA) relative to historical averages – significant premium requires serious justification
- “Low P/E” investing can be a value trap
Step 5 – Risk Management Framework
- Portfolio Review
- Weekly fundamental stock reviews
- Ensure balance in portfolios based on industry & stock concentration, market cap weights, and liquidity
- Check for technical / distribution patterns
- Eliminating Losers
- Identify and eliminate investment mistakes actively
- Monitor for any sectorial and stock weakness
- No averaging down on a loss-making position
- Taking Profits
- Riding winners until seeing earnings growth deceleration
- Selling in euphoric tops
- Red flags – crowded trades, consensus bets, excessive media coverage, over-guidance from management