Marcellus believes in producing wealth with simple and accessible means. Marcellus aims at designing a transparent and trustworthy system for its investors. Their investment approach is based on three primary pillars:
Clean Accounting
Clean Accounting is the initial stage of choosing the best companies. Here Marcellus has over six years of consolidated financials for the universe of firms. Then comes the ranking and comparing part of the firms. Clean accounting framework is taken from Howard Schilit’s legendary text on forensic accounting, “Financial Shenanigans.”
Capital Allocation
The next stage involves building portfolios and holding them for the subsequent ten years without any churn. A return of 20%-30% per year can be expected from this exercise. Portfolios with such volatility are similar to those with Government of India bonds.
Competitive Advantage
The final stage includes judging companies based on their management teams. Marcellus looks for companies with focused management and companies that have deepened their competitive moats over time.
The advantage of the above philosophy can be seen in their returns. The power of compounding becomes strong with such a philosophy. Also, this methodology reduces transaction costs and has aided in overcoming the pitfalls.