How to develop and construct an

investment philosophy
Samir Arora
www.helioscapital.in

September 2022
Calcutta
Private and Confidential
1
Important Notice

The contents of this document are only for information purpose. The contents of this
literature should not be considered as an advertisement and are not an offer for sale or
solicitation for investments in any Helios India PMS/AIF. All data/information used in the
preparation of this material is dated and may or may not be relevant any time after the
issuance of this material. The Investment Manger takes no responsibility of updating any
data/information in this material from time to time. The recipient of this material is solely
responsible for any action taken based on this material.

Private and Confidential 2

Helios Capital Management: Founder
Samir C. Arora
Samir Arora is the main founder & fund manager at Helios Capital. From 1998 to 2003, he was
the Head of Asian Emerging Markets at Alliance Capital Management in Singapore (both fund
management and research, covering 9 markets). From 1993 to August 2003, Samir was the
Chief Investment Officer of Alliance Capital’s Indian mutual fund business and, along with
managing Alliance Capital’s Asian Emerging Markets mandates, managed all of Alliance
Capital’s India-dedicated equity funds.

In 1993, Samir relocated to Mumbai from New York as Alliance Capital’s first employee in India
to help start its Indian mutual fund business. He also managed ACM India Liberalization Fund
an India-dedicated offshore fund from its inception in 1993 till August 2003. Prior to 1993, he
worked with Alliance Capital in New York as a research analyst.

At Alliance Capital, India-dedicated mutual funds managed by Samir received over 15 awards during his tenure, including
AAA rating from Standard and Poor’s Micropal for four years in a row (1999 to 2003) for the India Liberalization Fund. In
2002, he was voted as the most astute equity investor in Singapore (rank: 1st) in a poll conducted by The Asset magazine.
More recently Helios Strategic Limited has been nominated for the Best India Fund by Eurekahedge in 2006, 2007, 2008,
2010, 2011, 2013, 2015, 2016, 2018 & 2020 and has won the award four times. Helios Strategic Limited has also received
the AsiaHedge Award 2018 for its long term (five years) performance.

Samir Arora received his undergraduate degree in engineering from the Indian Institute of Technology, New Delhi in 1983
and his MBA (gold medalist) from the Indian Institute of Management, Calcutta in 1985. He also received a master’s
degree in finance from the Wharton School of the University of Pennsylvania in 1992 and was a recipient of the Dean’s
scholarship for distinguished merit while at Wharton.

Samir’s philanthropic interests are in the area of helping the cause of children and differently abled. He is one of the
founders of “not for profit” Ashoka University and has funded a lifetime student bursary at Singapore University of
Technology and Design.

Private and Confidential 3

It is not the philosophy that gets me, it’s the pomposity. If they’d just
laugh at themselves! If they’d just say, “ I think it is like this, but von
Leipzig said it was like that, and he had a good shot at it too”.
If they’d explain that this is their best guess.

Richard Feynman

Private and Confidential 4

Philosophical question 1:

Why equities?

Private and Confidential 5

Private and Confidential 6
Worldwide equity risk premium relative to long bonds returns:
1900-2000

Geometric Arithmetic
Country
mean mean
Australia 6.3 8.0
Belgium 2.9 4.8
Canada 4.5 6.0
Denmark 2.0 3.3
France 4.9 7.0
Germany * 6.7 9.9
Ireland 3.2 4.6
Italy 5.0 8.4
Japan 6.2 10.3
The Netherlands 4.7 6.7
South Africa 5.4 7.1
Spain 2.3 4.2
Sweden 5.2 7.4
Switzerland + 2.7 4.2
United Kingdom 4.4 5.6
United States 5.0 7.0
World 4.6 5.6
* All Statistics for Germany exclude 1922-23 + Premia for Switzerland are from 1911

Risk premium: Premium received by investors from investors in equities rather

then in government bills/bonds

Private and Confidential 7

Private and Confidential 8
Barton Biggs concludes that in 20th Century countries that he calls
“stable, lucky ones” that were spared catastrophe (US, UK, Australia,
Canada) had inflation adjusted returns for stocks trumping those for
bonds and bills.

Surprisingly, the asset class returns in the loser countries (Germany,

Japan, Italy, France) show the familiar pattern of stocks beating bonds
and bonds beating bills.

Even in those countries in which the most extreme forms of risk were
manifest, the risky asset class of stocks produced superior returns and
the safe asset classes of bonds and bills underperformed.

Wealth, War & Wisdom

(From foreword by David Swensen, CIO Yale University)

Private and Confidential 9

Private and Confidential 10
Total Real Return Indexes: 1802-2003

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Returns Between September 1929 & November 1954

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Equities ✓

Private and Confidential 13

Philosophical question 2:

Why Indian equities?

Private and Confidential 14

India vs. Warren Buffett

For the past 25 years (July 31st,1997 to July 31st, 2022) Indian Equity Market
Index has given higher returns than one would have got from investing in
shares of Berkshire Hathaway (and yes in US$ terms)

NSE500 Index (US$) (+10.28% p.a.) vs. Warren Buffett (+9.45% p.a.)

Private and Confidential 15

India: Long term out-performer

Private and Confidential 16

India Rising - despite the negatives
1. Political Uncertainty: 3. India Specific Issues:
8 coalition governments US sanctions post India conducting nuclear
3 different governments in 2 years between tests in May 1998
1996 and 1998 Limited war with Pakistan in Kargil in 1999
a government that lasted only 13 days in 1996 Serious stock market scandal in 2001
Prime Ministers that many have not heard of: Terrorist attack on Indian parliament in 2001
(H.D. Deve Gowda /I.K. Gujral)
26/11 Mumbai
17% fall in market in a day due to surprise
change of govt in 2004 Corruption cases & arrest of
billionaires/government ministers/senior
bureaucrats in 2011/12
Back-to-back drought years in 2014 and 2015
(for only the 4th time since 1900)
2. Global Issues:
Asian Crisis in 1997,
AND …
Russian crisis (India had historically strong
trading ties with Russia) in 1998 More recently:
Bursting of technology bubble in 2000
9/11 Demonetization
Global Financial Crisis in 2008 COVID
Lockdowns

Private and Confidential 17

Equities ✓
Indian Equities ✓

Private and Confidential 18

Philosophical question 3:

What investment philosophy?

Private and Confidential 19

There are two sides to everything

Private and Confidential 20

There are two sides to everything

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There are two sides to everything

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There are two sides to everything

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There are two sides to everything

Private and Confidential 24

Read a lot and choose and one or more combinations
that make sense to you

Private and Confidential 25

Equities ✓
Indian Equities ✓
Fundamental Analysis
(Long & Short, Growth & Value) ✓

Private and Confidential 26

Philosophical question 4:

Time horizon: Short term, long term or

really long term?

Private and Confidential 27

No matter how great the talent or effort, some things just
take time.

You can’t produce a baby in one month by getting nine

women pregnant.

Warren Buffet

Private and Confidential 28

What is Long Term?
➢ Indian business channels 1 day

➢ Income Tax Department 1 year

➢ Closed End Funds 3 years

➢ Fund Manager Number of years he expects

to be in his job + 1 year

➢ PE Funds 7 – 10 years

➢ Warren Buffett “Our favorite holding period is

forever”

➢ Helios Capital Long term is a series of “1 to

3 year” terms

Private and Confidential 29

Long Term Investing: Caveats

➢ Long term does not mean “Buy and Forget”

➢ In reality “Long Term” is a series of “Short Terms”

➢ Long term per se does not make a bad investment into

good. High price paid for a good investment can itself
make it bad.

➢ Long term view works with much more reliability on

equities as a class rather than on individual stocks per se

Private and Confidential 30

Why Long Term?

➢ Short Term is random

➢ Markets are volatile and can trade above/below fair

value for long periods

➢ Good investments are difficult to find so if you have

them keep them

➢ Power of compounding

➢ Taxes

Private and Confidential 31

All this sounds good, BUT

Say a BIG NO if your investment decision requires you to

• evaluate “very long term” quality of managements

• evaluate “very long term” health of businesses and project their

long-term growth

Private and Confidential 32

Evaluating managements: Built to Last
Successful habits of visionary companies
• Clock building, not time telling
• No tyranny of the “or”
• More than profits
• Preserve the core/stimulate progress
• Big hairy audacious goals
• Cult-like cultures
• Try a lot of stuff and keep the stuff that works
• Home-Grown Management
• Good Enough never is

Sample chosen had visionary companies that outperformed the market by

15x from 1926 through 1990

Visionary Companies identified: 3M, American Express, Boeing, Citi, Ford, GE, HP, IBM,
J&J, Merck, Motorola, Nordstrom, P&G, Sony, Walmart and Walt Disney
Collins has subsequently argued that "The book never promised that these companies
would always be great, just that they were once great."

Private and Confidential 33

Evaluating Managements: Good to great
Collins and his research team identified a set of elite companies that had made the
transition from good to great - and sustained that performance for at least fifteen
years. Collins used a large team of researchers who studied "6,000 articles,
generated more than 2,000 pages of interview transcripts and
created 384 megabytes of computer data in a five-year project".

• Level 5 leadership
• First who, then what
• Confront the brutal facts
• Hedgehog concept
• Culture of discipline
• Technology Accelerators
• Flywheel

Great companies identified this time: Abbott, Circuit City, Fannie Mae, Gillette,
Kimberly-Clark, Kroger, Nucor, Philip Morris, Pitney Bowes, Walgreens and
Wells Fargo

Private and Confidential 34

"The basic message of Built to Last and other similar
books is that good managerial practices can be
identified and that good practices will be rewarded by
good results. Both messages are overstated. The
comparison of firms that have been more or less
successful is to a significant extent a comparison
between firms that have been more or less lucky.”

Daniel Kahneman in “Thinking Fast and Slow”

Private and Confidential 35

Fortune: Most admired companies
1990 2000 2010 2020

Merck General Electric Apple Apple

Philip Morris Microsoft Google Amazon
Rubbermaid Coca Cola Berkshire Microsoft
P&G Intel J&J Walt Disney
3M Berkshire Amazon Berkshire
Pepsico Cisco P&G Starbucks
Walmart Home Depot Toyota Alphabet
Coca Cola Lucent Tech Goldman Sachs JP Morgan
Anheuser Busch Walmart Walmart Costco
Dupont Coca Cola Salesforce

Private and Confidential 36

Fortune Most Admired management (Oct 1999)
General Electric, which, in addition to being No. 1 on this year's all-star list, received the
highest marks for the quality of its management team, is known as a prime breeding ground
for future CEOs.

Here leadership is synonymous with performance. "You've got to prove yourself every day,"
says GE's legendary chairman, Jack Welch. He adds that at GE it doesn't matter where
you came from, which school you went to, or what country you were born in.

"It's a true meritocracy," he says. "Young people get a great chance with us, and you don't
have to wait your turn--we have CEOs in their 30s.

"Half of those in GE's management training program come from outside the U.S., and most
who rise to be CEO of one of GE's many business units have had experience in at least
two divisions. GE's executives receive similar compensation plans no matter where in the
world they work.

And Welch has designated a number of areas--like GE's six sigma quality program and its
e-commerce efforts--that allow young managers to gain added visibility within the company.
"These are ways for people to get out of the pile," Welch says.

I don’t have to tell you what has happened to General Electric

Private and Confidential 37

Evaluating long term growth
• Predicting growth over next 10-20 years implies that one is not able to justify the investment in
medium term. Be extra careful if you need 20% type growth over 10-20 yr periods to justify the
investment

• Very (very) few companies grow at 20% p.a. even for 10 years and at no point is it easy to
forecast such growth with confidence

Source (www.screener.in) Revenue growth over past 10 years

✓ Asian Paints: 12.0% p.a.

✓ Infosys: 14.0% p.a.
✓ Tata Elexi: 17.0% p.a.
✓ Havell: 8.0% p.a.
✓ Voltas: 4.0% p.a.

Private and Confidential 38

Conclusions
• There is no question that long term compounding works in markets. There is also no question
that long term wealth has been created by holding on to quality companies for real long term.
However, there is no easy way to identify these stocks ahead of time and your philosophy has
to incorporate that

• Even Warren Buffett (the guru of consistent compounding) has not had as much success in
identifying long term consistent compounders. In fact, he has made money by initially buying
some of the businesses at the right price (but has then lost performance by not selling them
in time):

From 12/31/2000 to 07/31/2022

American Express 7.03% p.a. (4.33x)
Coca Cola 6.44% p.a. (3.85x)
Gillette
Washington Post
Wells Fargo 4.98% p.a. (2.86x)

S&P 500 7.48% p.a. (4.75x)

Source: Bloomberg, Returns include dividends

Private and Confidential 39

It is extremely improbable that 20 stocks selected
from, say, 3000 choices are going to prove to be the
optimum portfolio both now and a year from now at
entirely different prices (both for the selections and
the alternatives) prevailing at that later date. If our
objective is to produce the maximum after tax
compound rate, we simply have to own the most
attractive securities obtainable at current prices

Warren Buffett, January 18 th, 1965

Private and Confidential 40

Helios View: How long term a view in (initially) choosing
stocks?

• Sweet spot for (initial) investing horizon is 1 to 3 years for one can visualize
industry trends /disruption/ company strengths and strategy/government policies/
current management/ market preferences/ external environment etc. more easily
over this horizon. If company continues to do well, there is absolutely no
reason to not hold the same stocks for another 1 to 3 years horizon and so
on.

• Longer term winners normally surprise even themselves, their managements

and their investors with their growth/success and can therefore not be generally
identified well in advance with high degree of confidence. Buying stocks after
screening via our 8 factors has consistently led us to owning many of the long-
term winners in our market.

Private and Confidential 41

Holding an investment for a very long
term, does not make you a “long term”
investor

Private and Confidential 42

AFTER OWNING HDFC BANK FOR 26 YEARS, WHY DO WE
SAY WE ARE NOT LONG-TERM INVESTORS IN THE BANK?

w w w.helioscapital.in
Private and Confidential 43
Equities ✓
Indian Equities ✓
Fundamental Analysis
(Long & Short, Growth & Value ✓
1 to 3 years horizon at a time for
long book ✓
1 to 6 months horizon at a time for
short book ✓

Private and Confidential 44

Philosophical question 5:

Diversification or concentration?

Private and Confidential 45

Concentration strategy has many supporters
Diversification is a protection against ignorance. It makes very little
sense for those who know what they’re doing
Warren Buffett
An investor should act as though he had a lifetime decision card with
just twenty punches on it.”
Warren Buffett

bet seldom but bet big and hold for the long term
Indian investors who follows Buffett closely
Or...
There are only 25 companies worth following (forget about owning)
or something to that effect
Many Indian investors who have read books on Buffett

Private and Confidential 46

Diversification is a protection against ignorance. It makes
very little sense for those who know what they’re doing

We don’t know we are ignorant till something unexpected happens

What if you didn’t know you were ignorant and were concentrated?

Imagine that there are only 100 investors who know what they are
doing and are concentrated

If concentrated funds do better, what if you buy (say) 3 such funds?

Do you still do better?

Private and Confidential 47

An investor should act as though he had a lifetime
decision card with just twenty punches on it.

Overconfidence, Under-Reaction, and Warren Buffett’s

Investments, John S. Hughes, Jing Liu & Mingshan Zhang

Data:
From 13f filings April, 1980 to December, 2006.
2,140 quarter-stock observations on publicly traded holdings + 275 observations
for which Berkshire Hathaway has received SEC approval for confidential
treatments that, as a consequence, surface in later reports.

Findings:
Median holding period: One year
Approximately 20% of stocks held for more than two years
30% of stocks are sold within six months

Private and Confidential 48

Concentrated investors make two implicit assumptions

• Very few companies do well and are worth owning

• It is possible for them to identify these companies in advance

and therefore place a large bet on these names

Private and Confidential 49

To win at the game understand the field

Private and Confidential

50
 S&P 500: Large number of companies do well each year
1 YEAR DATA S & P 500 INDEX MEMBERS
50th Best 100th Best 150th Best 200th Best 250th Best # >Index S&P 500 INDEX
50 100 150 200 250

2005 39.9% 27.3% 16.1% 9.1% 4.7% 245 4.9%

2006 42.3% 31.0% 24.1% 18.7% 14.4% 234 15.8%
2007 38.3% 23.7% 14.5% 5.9% -1.2% 203 5.6%
2008 -8.3% -18.3% -26.7% -33.4% -39.8% 229 -37.0%
2009 100.0% 68.2% 52.1% 42.8% 33.1% 290 26.4%
2010 53.1% 39.4% 31.2% 23.8% 18.3% 276 15.1%
2011 28.7% 19.2% 13.1% 8.0% -0.5% 228 2.1%
2012 43.2% 30.6% 23.9% 18.7% 14.6% 229 16.0%
2013 69.1% 57.0% 46.6% 40.0% 34.3% 255 32.4%
2014 40.6% 30.2% 23.8% 19.6% 14.5% 257 13.7%
2015 25.4% 17.4% 10.1% 3.5% -1.6% 223 1.4%
2016 38.5% 30.3% 23.0% 17.5% 12.8% 254 12.0%
2017 50.2% 39.2% 31.0% 23.7% 17.9% 213 21.8%
2018 19.5% 9.4% 3.6% -2.6% -8.2% 218 -4.4%
2019 57.6% 45.6% 39.8% 33.7% 29.1% 227 31.5%
2020 43.7% 30.9% 22.4% 14.1% 8.1% 168 18.4%
2021 62.4% 49.4% 41.2% 33.4% 27.0% 235 28.7%

Cummulative 38668.3% 8241.6% 2625.7% 931.5% 318.8% 234 454.6%

AVG
*Upto 31-Dec-2021
# A bso lute To tal Returns

Private and Confidential 51

S&P 500: Large number of companies do well over any period

2 YEAR DATA S & P 500 INDEX MEMBERS

50th Best 100th Best 150th Best 200th Best 250th Best # >Index S&P 500 INDEX
50 100 150 200 250

2005 & 2006 64.2% 49.0% 36.7% 26.6% 20.6% 241 21.5%
2007 & 2008 -0.7% -11.7% -22.0% -30.3% -39.8% 220 -33.5%
2009 & 2010 161.9% 110.7% 89.7% 70.3% 53.6% 281 45.5%
2011 & 2012 55.6% 40.8% 31.3% 22.4% 15.2% 228 18.4%
2013 & 2014 105.1% 83.4% 71.9% 57.8% 48.5% 237 50.5%
2015 & 2016 42.8% 30.6% 22.4% 16.2% 9.7% 218 13.5%
2017 & 2018 50.3% 35.2% 25.5% 15.7% 5.2% 194 16.5%
2019 & 2020 102.3% 79.5% 62.1% 48.5% 33.7% 172 55.7%
2021 62.4% 49.4% 41.2% 33.4% 27.0% 235 28.7%

Cummulative# 9514.02% 3285.7% 1506.1% 673.3% 273.5% 224 454.6%

AVG
*Upto 31-Dec-2021
# A bso lute To tal Returns

Private and Confidential 52

S&P 500: As you hold stocks for longer periods, returns may
go down (but still large number of companies do well each year)

3 YEAR DATA * S & P 500 INDEX MEMBERS

50th Best 100th Best 150th Best 200th Best 250th Best # >Index S&P 500 INDEX
50 100 150 200 250
2005, 2006 & 2007 98.6% 62.4% 45.2% 25.6% 10.7% 192 28.2%
2008, 2009 & 2010 43.3% 25.6% 13.4% 6.5% -4.1% 270 -8.3%
2011, 2012 & 2013 122.8% 92.9% 76.9% 62.9% 50.1% 228 56.8%
2014, 2015 & 2016 68.0% 52.2% 42.5% 34.4% 24.8% 228 29.0%
2017, 2018 & 2019 106.4% 78.6% 67.4% 49.2% 32.3% 187 53.1%
2020 & 2021 101.9% 74.3% 60.2% 46.8% 32.2% 180 52.3%

Cummulative# 4341.3% 1765.0% 1012.6% 541.3% 247.8% 214 454.6%

AVG
*Upto 31-Dec-2021
# A bso lute To tal Returns

Private and Confidential 53

 India Example: All markets are same same (OK similar similar)
Top 300 Indian companies by market cap at start of period
1 YEAR DATA
30th Best 60th Best 90th Best 120th Best 150th Best # >Index NSE 500 INDEX
30 60 90 120 150

1 2005 122.0% 87.5% 67.0% 49.9% 38.3% 147 38.8%

2 2006 93.8% 61.6% 44.3% 30.5% 18.3% 107 36.2%
3 2007 204.4% 125.3% 96.2% 65.2% 50.1% 122 64.6%
4 2008 -27.1% -45.0% -54.7% -61.6% -68.7% 98 -56.5%
5 2009 233.6% 172.8% 144.4% 116.0% 99.0% 162 91.1%
6 2010 62.0% 45.4% 34.2% 22.4% 15.4% 147 15.7%
7 2011 3.3% -7.0% -15.6% -22.5% -32.7% 138 -26.2%
8 2012 89.0% 69.8% 53.3% 41.2% 31.6% 142 34.1%
9 2013 38.2% 19.1% 6.5% -2.2% -8.5% 93 5.4%
10 2014 114.4% 91.3% 78.1% 62.8% 45.4% 168 40.0%
11 2015 40.6% 27.5% 18.3% 10.2% 2.6% 157 0.6%
12 2016 45.8% 26.5% 15.4% 7.8% 1.2% 127 5.3%
13 2017 100.4% 73.8% 64.1% 52.8% 40.2% 158 37.7%
14 2018 24.7% 9.9% -0.4% -7.4% -13.8% 94 -2.1%
15 2019 49.1% 22.3% 14.6% 4.3% -2.0% 106 9.0%
16 2020 67.3% 42.8% 28.8% 18.5% 9.0% 123 18.3%
17 2021 102.5% 71.0% 54.3% 45.5% 33.4% 164 31.8%

Cummulative 773289.1% 49281.7% 8761.7% 1730.5% 372.6% 133 959.5%

AVG
*Upto 31-Dec-2021
# A bso lute To tal Returns

Private and Confidential 54

India: Large number of companies do well over any period

Top 300 Indian companies by market cap at start of period

2 YEAR DATA
30th Best 60th Best 90th Best 120th Best 150th Best # >Index NSE 500 INDEX
30 60 90 120 150

2005 & 2006 239.3% 174.3% 118.7% 84.4% 63.4% 115 89.0%
2007 & 2008 18.2% 0.4% -11.1% -27.3% -41.0% 120 -28.5%
2009 & 2010 324.8% 257.5% 197.7% 161.3% 132.3% 161 121.1%
2011 & 2012 57.3% 33.6% 11.9% -2.2% -14.3% 117 -1.0%
2013 & 2014 137.9% 89.7% 65.8% 49.3% 34.5% 124 47.5%
2015 & 2016 62.9% 42.3% 25.9% 15.9% 5.2% 146 5.9%
2017 & 2018 90.0% 63.6% 50.8% 37.3% 23.4% 121 34.8%
2019 & 2020 98.0% 61.6% 39.8% 25.3% 8.7% 110 29.0%
2021 102.5% 71.0% 54.3% 45.5% 33.4% 164 31.8%

Cummulative 78988.3% 15969.6% 4302.8% 1383.8% 386.0% 131 959.5%

AVG
*Upto 31-Dec-2021
# A bso lute To tal Returns

Private and Confidential 55

I think you get the point by now

Top 300 Indian companies by market cap at start of period

3 YEAR DATA *
30th Best 60th Best 90th Best 120th Best 150th Best # >Index NSE 500 INDEX
30 60 90 120 150

2005, 2006 & 2007 600.1% 318.1% 242.9% 187.6% 138.3% 103 211.1%
2008, 2009 & 2010 96.0% 51.4% 25.0% -7.9% -25.3% 114 -3.9%
2011, 2012 & 2013 86.1% 41.6% 13.4% -8.2% -25.4% 100 4.3%
2014, 2015 & 2016 223.4% 150.5% 97.9% 74.8% 54.0% 159 48.2%
2017, 2018 & 2019 137.4% 77.2% 61.0% 38.1% 18.0% 102 46.9%
2020 & 2021 159.1% 113.6% 80.1% 56.3% 37.7% 123 56.0%

Cummulative 50683.43% 8401.1% 2688.5% 817.8% 232.8% 117 959.5%

AVG
*Upto 31-Dec-2021
# A bso lute To tal Returns

Private and Confidential 56

Concentration: Other issues

On what basis will you concentrate?

• Longer term winners normally surprise even themselves, their managements

and their investors with their growth/success and can therefore not be generally
identified well in advance with high degree of confidence

• Most common answer is “we will buy companies with good managements”
✓ How will you know the management is good?
✓ Show me a company that delivers high stock performance, and I can
always find something positive to say about the person in charge
✓ How will you separate the Halo Effect?

Private and Confidential 57

How would you have chosen these stocks in real time?
• Report* on Nestle (dt. 25/3/1999)
EPS growth P/E ROCE ROE
12/98 14.7% 54.6 35.4% 36.3%
12/99E 32.8% 41.1 40.0% 42.4%

• Report* on Hindustan Lever( dt. 21/1/1999)

EPS growth P/E ROCE ROE
12/98E 31.5% 47 65.4% 47.7%
12/99E 29.4% 38.4 69.6% 49.1%

• Performance of Nestle and HUL since then

Nestle Hindustan Lever NIFTY
From 31/3/1999
to 31/3/2004 1.26X 0.76X 1.78X

Performance 31/3/1999 +52.8X +19.9X +22.7X

to 31/7/2022

Motilal Oswal reports

Private and Confidential 58

Back to 1997: On what basis would you have concentrated?

• Nestle is up 109x since then but you could have easily chosen Colgate
(up 19x) or Hindustan Lever (up 42x)

• Instead of RIL (up 145x), you could have concentrated on favourites of

that time Grasim (up 45x), ACC (up 29x) or ITC (45x)

• Instead Infosys is up 537x and Hero Moto up 98x

• Someone may have concentrated on Tata Motors (up 7.9X)

Date from March 31 st, 1997 to July 31st, 2022

Private and Confidential 59

Poster boy of concentration: Berkshire
Top holdings of Berkshire have hurt performance of BRK

Performance S&P 500 BRK/A

Coca Cola 1988 to present 12.30% 10.7% 14.55%

Pepsi 1988 to present 12.92%

Wells Fargo 1990 to present 12.30% 10.55% 14.29%

American Exp. 1996 to present 10.51% 8.87% 10.58%

Berkshire’s top holdings have done worse than Berkshire=>

Berkshire’s other investments have done better than its top holdings
Performance: End of relevant calendar year to July 31st, 2022

Private and Confidential 60

Concentration: Other issues

People will ask: Why are you buying the 20th stock- why not buy more of the 5th
stock or the 12th stock (or some such bull) ?

• 20th stock (or whatever number) you are buying is not randomly selected. It is
a stock that you like from all angles (in our method where we have “no reason
to reject”) but because it is a new idea or undiscovered or down a lot recently
you cannot have or should not have 100% confidence to place a large bet

• There is real value in differentiating between good and bad, not so much
between good and good.

Private and Confidential 61

Concentration: Other issues

• If I take a small exposure, it won’t move the needle

• It is difficult to follow properly more than 10 odd companies

• A different order of the same annual returns will give the same
cumulative life returns on paper, but life will be very different

• Be the casino, not the gambler

Private and Confidential 62

No one knows anything about anything beyond a point

• We only hear of the winners of concentrated strategy because people

who were concentrated and wrong disappear from the scene

• Concentrated portfolio generally leads to missing a large part of returns

in the early phase when initial discovery of the stock and acceptance by
the market gives high returns (high conviction required to buy a stock in
a concentrated portfolio will necessarily imply a long wait to gain the
necessary conviction)

• Funds may be concentrated but clients are anyway rarely so for they
anyway end up buying a number of (even) concentrated funds

Private and Confidential 63

Be the casino, not the gambler

Private and Confidential 64

Equities ✓
Indian Equities ✓
Fundamental Analysis
(Long or Short, Growth or Value ✓

Long term view (in steps of 1 to 3 years for

long book) ✓
Short term view for short side
(1 month to 6 months) ✓

Thoughtful diversification ✓

Private and Confidential 65

Philosophical question 6:

Valuation trade offs?

Will you buy a good company even
though it is (very) expensive or a bad
company because it is cheap

Private and Confidential 66

 The Good news is here that you don’t
have to choose.
You can reject a good company because
of its valuation and a cheap company
because of its quality*
(*since we know that a large number of
companies do well each year/period)

Private and Confidential 67

• Why does it have to be one or the other?

• Why can’t we own one stock because it has very high growth prospects and
another because it offers good value?

• Diversification also allows us to buy different stocks with different valuation

parameters.

• We may not know what is the “right” valuation, but we can more clearly
REJECT “wrong” valuation
• (For example: If a consumer company has traded for decades at valuations
of around mid 30s we don’t know whether in today’s environment the
multiple should be 35 or 39 but we know that it should not be (say) 65

• We can more easily argue that BAAP does not work

Private and Confidential 68

• Investing is about exchanging one financial stream for another,
therefore valuation should matter (quality of company is not
enough justification to buy any stock at any price)

• Even auctions of things bought for love

(paintings/cars/antiques/rare stamps) stop at some point

• BAAP investing lays very high emphasis on “quality of company”

and very low emphasis on “valuation of company”
(“ We like stories” Phil Rosenzweig in The Halo Effect)

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What is a “quality company”

“When a company posts high profit and its stock price is

moving upward, people tend to infer that its product and
services are of a high quality, that it is innovative and well
managed, that it is good at retaining people…

The Halo Effect, Phil Rosenzweig

Private and Confidential 70

Halo Effect:
May 2000: Price/share of CISCO: US$ 80
“Is John Chambers the world’s best CEO?..”, Fortune
“CISCO must be considered one of America’s truly outstanding companies”
“No net worker has ever had the laser focus on customers that CISCO has had from
Day one”
“John Chambers is the most customer-focused human being you will ever meet”
“John and (CFO) Larry Carter run such a tight ship, it’s almost unbelievable”
“Everyone flew coach”

May 2001: Price/share: US$ 15

“Cisco Fractures its Own Fairy Tale”, Fortune
“Cisco had exhibited a cavalier attitude towards potential customers”
Cisco’s sales techniques had been “irksome” and had “alienated” customers
“Acquisitions, forecasting, technology, and, yes, senior management-all have failed
Cisco in the past year”

Private and Confidential 71

If you buy good companies run by good managements and hold them for the long
term, you make lot of money

(but how many years did you take to figure out that it was indeed ”good
management” running a “good company”)

• If you start by first choosing the best performing stocks over the past 10-20
years (known only in hindsight) to study, any analysis of how they have done in
various phases in the past (during 2008, during taper tantrum, during
demonetization etc.) will naturally show positive results.

“The illusion of validity is found whenever predictive judgements are made, because
of a common failure to distinguish between stages of the prediction task: evaluating
cases on the evidence available and predicting actual outcomes”
“Noise: A flaw in human judgement” by Daniel Kahneman et al

Private and Confidential 72

If we see that a number of companies started by college drop-outs have
done well (Ford, Gates, Zuckerberg, Amancio Ortega, Larry Ellison,
Sheldon Adelson, Ralph Lauren) can we can say investing in companies
started by “school drop-outs” is a good strategy
Samir Arora

Narrative fallacies arise inevitably from our continuous attempt to make

sense of the world. The explanatory stories that people find compelling
are simple; are concrete rather than abstract; assign a larger role to talent,
stupidity, and intentions rather than luck; and focus on a few striking
events that happened rather than on the countless events that failed to
happen
Daniel Kahneman in “Thinking Fast and Slow”

Private and Confidential 73

Aside: Good example of contorted back testing
“Shameless cloned portfolio”
• The “shameless portfolio” comprises of five of the highest conviction ideas of
select cloned managers
• Having been in the industry for 18 years, Mohnish Pabrai picked out eight value
managers (plus himself) who have done well in the past and look poised to do
well in the future.
• Most interestingly he did not use Berkshire as one of the cloning candidates

• The shameless algorithm avoids unprofitable businesses and certain industries

like utilities and REITs. If the manager’s highest conviction idea is in a blocked
industry, it looks at the 2 nd highest conviction idea of the same manager before
moving to the next one.

The performance of this back tested model had to be good simply because Pabrai
was choosing fund managers he already knew were successful over the “back
tested” period (and also rejecting ideas from sectors/themes he knew had not
worked), so the back testing does not prove anything

Private and Confidential 74

“Free lunch portfolio” looked really free at first glance

“Free lunch portfolio” of Pabrai

3 strategies five stocks each (total 15 stocks) based on certain unique criteria that, extensive back
testing shows, identify winners

• “In sample” performance was S&P up 5.4% p.a. and Free lunch portfolio up 17.1% p.a. over 18
years (S&P cumulatively up 155.0% during this period and Free lunch portfolio up 1582.7%)

• Of-course we should not fixate on short-term performance, but the 2017 performance, at a
minimum, provides further evidence of the soundness of these strategies (15/12/2017)

Private and Confidential 75

But what happens when you reach “out of sample”
real life

The “free lunch” turned out to be very expensive

• 2018: Portfolio down 17% S&P down 2.9%. Keep the faith and do not over-react to short term
negative performance …And we think it makes sense if you follow it for a decade, or two, or
longer (19/12/2018)

• 2019: Portfolio up 21.7%, S&P up 31.2% The Free Lunch is only 2 years old, so we can't draw
any meaningful conclusions about its long-term performance yet (23/12/2019)

• 2020: Portfolio up 3%, S&P up 16%.

• 2021: Portfolio up 25% S&P up 28%. Portfolio has managed to keep up with S&P 500.

• Since inception on January 1, 2018, Free Lunch portfolio is up 7% p.a. while the S&P is up
17% p.a (23/12/2020) (Keep the faith, we are just getting warmed up)
• This year does not look any better if I see the portfolio as of December 31st, 2021

Private and Confidential 76

If history was a good indicator, good stocks would
never change
• The fact that many companies did well in the past 20 years is beyond question

• Strong returns may have been made in these companies because, inter alia,

they were trading at much lower valuations at the start of the period

did better than expectations

were starting from a smaller base

in an environment with less competition

and have delivered strong performance due to both earnings' growth and re rating

• Investing philosophy needs to incorporate how one could have known 20 years ago that
these were the stocks to bet on at that time
• If we are looking at past 10–20-year history to get comfortable with a stock, obviously we
could not have bought these stocks 20 years ago for they did not have good history (or in
most cases any history)

Private and Confidential 77

Learn from the Masters: This time is not different
➢ Great growth companies can be bad investments at the wrong price:
Aswath Damodaran

➢ Selling, in particular, can be a challenge; many investors are tempted to

become more optimistic when a security is performing well:
Seth Klarman

➢ Even the world’s greatest business is not a good business if the price is
too high: Lou Simpson

➢ There is nothing at all conservative, in my opinion, about speculating as

to just how high a multiplier a greedy and capricious public will put on
earnings: Warren Buffett

➢ For the investor, a too-high purchase price for the stock of an excellent company
can undo the effects of a subsequent decade of favourable business
developments: Warren Buffett

Private and Confidential 78

But should you look at cash flows or
price earning multiples

Private and Confidential 79

• Obviously, we should look at cash flows because earnings may not convert to
real cash due to long working capital cycles, low inventory turnover, high capital
requirement etc.

• But it is precisely for such reasons that different companies in different sectors,
with different moats, capital requirement etc. get different multiples on earnings

• So, you cannot use the same answer (again and again) for different questions

• In the long term (for quality companies) earnings growth and cash flow growth cannot
be too different. In any case how does one predict cash flow 10 years into the future
being materially different from earnings growth-unless the company is currently very
inefficient and has just started to bring in some efficiencies or is currently loss making
etc.

Private and Confidential 80

Most of the time “Keep it simple” works best
➢ When you buy one share you pay the price to get the earnings of one share (EPS) for ever. So how can the
price at which you buy this EPS not matter at all?

➢ The fact that EPS of different companies does not similarly convert to cash or is not as predictable or stable
or growing or whatever is the reason why you pay different prices for EPS of different companies (OR all
earnings are not the same)
➢ Some companies may be better or worse in converting EPS to cash but broadly EPS and CPS are closely
related over time, particularly for “quality” companies

➢ Cash per share is ultimately closely related to earnings per share because after company has become
efficient in converting earnings to cash (low or zero or negative WC, low capital intensity naturally or through
outsourcing, variable cost structures etc.) growth in cash earnings cannot be very dissimilar to earnings
growth

➢ In any case if cash earnings are higher it should reflect in better earnings also as extra cash earns an
income or can be deployed for additional growth in following years.

➢ If company earns higher ROCE/ROE it should result in higher EPS in later years so ultimately everything
reduces to EPS (whether immediately or a few periods later)

➢ None of the evidence presented by supporters of “P/E does not matter” BAAP shows that investors made
strong returns from starting points with high P/E. What they mostly show is that after years of strong returns
and re rating the P/E has now become high but that does not in any way show that P/Es do not matter.

Private and Confidential 81

Equities ✓
Indian Equities ✓
Fundamental Analysis
(Long or Short, Growth or Value ✓
Long term view (in steps of 1 to 3 years for long book) ✓
Short term view for short side (1 month to 6 months) ✓

Thoughtful diversification ✓
Accept inability to predict management or business
quality, years into the future ✓
Valuation should not be so high that it neutralizes the
“quality” of business ✓

Private and Confidential 82

Helios Investment Philosophy & Strategy

Private and Confidential

❖ Simply put, every successful investor’s investment mantra is to

✓ Buy good companies and hold them for the long term

Private and Confidential 84

De Omnibus Dubitandum

Private and Confidential 85

❖ Questions that arise:

✓ What to Buy (or how to define good)?

✓ How long term is long term and how to know today how the
company will do in the long term?
✓ What to do if company becomes very expensive during this
holding period- or what to do if returns from holding the
company come in much faster (or much higher) than expected?
✓ Owing companies that are clearly accepted as good is fine but
how to identify and buy into companies before they are widely
accepted as good?

Private and Confidential 86

HOW MANY STOCKS TO OWN AT A TIME?

w w w.helioscapital.in

Private and Confidential 87

S&P 500: Large number of companies do well each year
(1/3rd do really well), contrary to commonly held view
1 YEAR DATA S & P 500 INDEX MEMBERS
50th Best 100th Best 150th Best 200th Best 250th Best # >Index S&P 500 INDEX
50 100 150 200 250

2005 39.9% 27.3% 16.1% 9.1% 4.7% 245 4.9%

2006 42.3% 31.0% 24.1% 18.7% 14.4% 234 15.8%
2007 38.3% 23.7% 14.5% 5.9% -1.2% 203 5.6%
2008 -8.3% -18.3% -26.7% -33.4% -39.8% 229 -37.0%
2009 100.0% 68.2% 52.1% 42.8% 33.1% 290 26.4%
2010 53.1% 39.4% 31.2% 23.8% 18.3% 276 15.1%
2011 28.7% 19.2% 13.1% 8.0% -0.5% 228 2.1%
2012 43.2% 30.6% 23.9% 18.7% 14.6% 229 16.0%
2013 69.1% 57.0% 46.6% 40.0% 34.3% 255 32.4%
2014 40.6% 30.2% 23.8% 19.6% 14.5% 257 13.7%
2015 25.4% 17.4% 10.1% 3.5% -1.6% 223 1.4%
2016 38.5% 30.3% 23.0% 17.5% 12.8% 254 12.0%
2017 50.2% 39.2% 31.0% 23.7% 17.9% 213 21.8%
2018 19.5% 9.4% 3.6% -2.6% -8.2% 218 -4.4%
2019 57.6% 45.6% 39.8% 33.7% 29.1% 227 31.5%
2020 43.7% 30.9% 22.4% 14.1% 8.1% 168 18.4%
2021 62.4% 49.4% 41.2% 33.4% 27.0% 235 28.7%

Cummulative 38668.3% 8241.6% 2625.7% 931.5% 318.8% 234 454.6%

AVG

Private and Confidential 88

Similarly in India: Top 1/3rd of companies perform substantially
better than index
Top 300 Indian companies by market cap at start of period
1 YEAR DATA
30th Best 60th Best 90th Best 120th Best 150th Best # >Index NSE 500 INDEX
30 60 90 120 150

1 2005 122.0% 87.5% 67.0% 49.9% 38.3% 147 38.8%

2 2006 93.8% 61.6% 44.3% 30.5% 18.3% 107 36.2%
3 2007 204.4% 125.3% 96.2% 65.2% 50.1% 122 64.6%
4 2008 -27.1% -45.0% -54.7% -61.6% -68.7% 98 -56.5%
5 2009 233.6% 172.8% 144.4% 116.0% 99.0% 162 91.1%
6 2010 62.0% 45.4% 34.2% 22.4% 15.4% 147 15.7%
7 2011 3.3% -7.0% -15.6% -22.5% -32.7% 138 -26.2%
8 2012 89.0% 69.8% 53.3% 41.2% 31.6% 142 34.1%
9 2013 38.2% 19.1% 6.5% -2.2% -8.5% 93 5.4%
10 2014 114.4% 91.3% 78.1% 62.8% 45.4% 168 40.0%
11 2015 40.6% 27.5% 18.3% 10.2% 2.6% 157 0.6%
12 2016 45.8% 26.5% 15.4% 7.8% 1.2% 127 5.3%
13 2017 100.4% 73.8% 64.1% 52.8% 40.2% 158 37.7%
14 2018 24.7% 9.9% -0.4% -7.4% -13.8% 94 -2.1%
15 2019 49.1% 22.3% 14.6% 4.3% -2.0% 106 9.0%
15 2020 67.3% 42.8% 28.8% 18.5% 9.0% 123 18.3%
15 2021 102.5% 71.0% 54.3% 45.5% 33.4% 164 31.8%

Cummulative 773289.1% 49281.7% 8761.7% 1730.5% 372.6% 133 959.5%

AVG

Companies are ranked by their returns in each calendar year

Cumulative returns calc ulated by assuming perfect foresight in buying the 30th, 60th, 90th, 120th & 150th ranked stock each year and holding for
one year(Buy/Sell at end of calendar year close)
Source: Bloomberg/Helios Research

Private and Confidential 89

What to do?

Start with what not to do

Private and Confidential 90

“…Conviction is higher in the paths we chose not
to follow because those decisions were made
before we chose the ultimate course. This is true of
everything we do in life; every decision we make.”

Samir Arora

Private and Confidential 91

“Via negativa (acting by removing) is more
powerful and less error-prone than “via
positiva (acting by addition)”:

Nassim Nicholas Taleb in “Skin in the game”

Private and Confidential 92

What to buy? Start with what not to buy
• In practical terms, it is difficult to know what is good than to know what is bad. We therefore
focus FIRST on rejecting “bad” along (ANY of) the 8 factors below and only them on
choosing between the “cannot be rejected on any factor”

❖ Good theme (size of opportunity)

❖ Favourable industry dynamics
❖ Low potential for disruption
❖ Strong management/background/strategy
❖ Good corporate governance
❖ Clean accounting
❖ Medium term positive triggers (in most cases projected financial performance)
❖ Reasonable Valuations

• There is real value in differentiating between good and bad, not so much between good and
good

Private and Confidential 93

Preferred themes: Invest in “Non-Zero Sum” situations
“NON-ZERO SUM” THEME 1: “NEW” For Private Sector / Compete With Government of India

▪ India has allowed privatization of sectors w/o privatizing its incumbent government owned companies
▪ “Non-zero sum” as all private companies have potential to win at the expense of government companies
▪ Private sector companies can win at the cost of government owned companies due to better manpower, product,
customer experience, technology, etc.
▪ Major Sectors: Financials (Banking, Insurance), Healthcare, Education, Infrastructure (rarely)

“NON-ZERO SUM” THEME 2: “New” for India / Demographic / Lifestyle Changes

▪ Invest in under penetrated, even in middle class (mostly urban), secular theme
▪ “Non-zero sum” as everyone has potential to grow due to low penetration
▪ “Unorganized to Organized” is a new sub theme triggered by demonetization/introduction of GST/online
▪ Major sectors: Air conditioning, Wealth Management and Financial Products, Mortgage, Retail, E-Commerce, Tourism,
Luxury, Leisure, Casino & Gaming, Liquor, Branded Goods, Home Delivery, WFH, QSRs, OTT plays, New Emerging
Technologies (Ed-tech, Fin-tech, etc.)

“NON-ZERO SUM” THEME 3: “New” New / Factor Cost Advantage

▪ Capitalize on India’s “Global competitiveness”
▪ “Non-zero sum” as in these sectors Indian companies do not yet compete with each other
▪ Major sectors: IT, IT Services, Contract Research, pharmaceutical, speciality chemicals

Private and Confidential 94

Themes to avoid
Commodities

• Global (and not Indian) demand and prices are main determinants of returns in most cases

“One Billion Consumers” Stories

• Sectors where the investor has to rely on the billion plus Indian population to justify opportunity does not appeal
to us for it invariably implies already well penetrated sectors
• There are ample opportunities of growth in various sectors which are under penetrated even in urban India

State owned companies

• Limited freedom to operate

• Investors who espouse value in many such companies miss the basic point that many of these are not
companies but essentially departments of the government of India

Bet on India, not on Indians

• Big picture, we are negative on Indian companies aggressively expanding abroad. Investments in far flung
locations are more difficult to manage (for managements) and more difficult for us to analyze

Private and Confidential 95

Beyond the Theme: Checklist
▪ We FIRST research for reasons to “reject” and not for “reasons to buy”. Ideas may be rejected on even one
“egregious” factor. Normally rejection is based on more than one factor.
▪ 2 levels of rejection. First level is to reduce total universe to “Helios research universe”. Second level of
rejection is intra “Helios research universe” to arrive at “cannot be rejected on any factor” list.

Industry Dynamics:
✓ India connection  Local factors or global factors
✓ Penetration  Dependent on government policy
✓ Protected by high tariffs  Competitors/Intensity of competition
✓ Natural monopoly/duopoly  Size of the Opportunity
✓ Capital Intensity  Potential for disruption
Potential for disruption:
✓ New Technologies/new business models  Competition from PE funded companies
✓ Disruptor or disruptee  Covid/ work from home etc.

Company Management/Strength:

✓ History  Key strengths of the company/Barriers to entry

✓ Growth Discipline  Capital allocation

Corporate Governance:
✓ Related party transactions  Options/warrants
✓ Independent directors  Suspicious price movements
✓ Conflicts of interest

Private and Confidential 96

Beyond the Theme: Checklist
Financial Analysis:
✓ Long term trends of Growth/ROCE/ROE  Trends in leverage
✓ Book value accretion vis a vis reported profits  Cash Flow vis a vis earnings
✓ Losses taken to Balance Sheet  R&D Capitalization
✓ Related party transactions  True cost of FX debt
✓ Sell down of receivables  Increased trade payables to show better WC
✓ Early recognition of revenues  Shifting of expenses to later periods

Medium Term triggers:

Triggers can be good results, resumption of growth- essentially more confidence in the future from here on. Triggers
may also be external- expected government policies, court cases, clarity on pending issues, M&A, restructuring, change
of management etc. We some time use medium term expected triggers to search for stocks that may benefit from the
event. Even in such cases, we expect to hold the stock beyond the trigger point in most cases. Sometimes medium-term
triggers (events) may be used to delay a final opinion on the stock.

Valuation:
High Confidence in reasonable returns:
• This group has high quality, consistently performing companies with clear strengths (moat) and high visibility of earnings.
• We do not expect these companies to get (further) re rated but are happy with their expected growth for the next many
years.
• We sell these stocks if valuations become too high and are at risk even if growth is intact.
Reasonable confidence in high returns:
• We own a portfolio of companies where we expect higher returns from a combination of high growth and re-rating of the
company if it delivers on its potential.

Private and Confidential 97

Summary: What to buy?
• What normally prevents a stock from doing well is the presence of even ONE of the
following factors.

❖ Bad theme (size of opportunity)

❖ Unfavourable industry dynamics
❖ potential for disruption
❖ Chinks/weakness in management/background/strategy
❖ Poor corporate governance
❖ Low quality accounting
❖ Negative medium term triggers (in most cases projected financial performance)
❖ Unreasonably high valuations

• Eliminating the bad significantly increases the probability of arriving at the good and reduces
the cost of any error

• From the universe of stocks that “cannot be rejected on any factor” we build our portfolio of
good companies and “emerging” good companies.

Private and Confidential 98

Time horizon: How Long term a view in (initially) choosing
stocks?

• Sweet spot for (initial) investing horizon is 1 to 3 years for one can visualize
industry trends /disruption/ company strengths and strategy/government policies/
current management/ market preferences/ external environment etc. more easily
over this horizon. If company continues to do well, there is absolutely no
reason to not hold the same stocks for another 1 to 3 years horizon and so
on.

• Longer term winners normally surprise even themselves, their managements

and their investors with their growth/success and can therefore not be generally
identified well in advance with high degree of confidence. Buying stocks after
screening via our 8 factors has consistently led us to owning many of the long-
term winners in our market.

Private and Confidential 99

How many stocks to own at a time?
A robust portfolio needs to have 2 kind of stocks:
• “Good” Stocks: Offer “High Confidence in reasonable returns” (10 to 15 stocks, ~50 to 60% weight)

➢ This group has higher quality, consistently performing companies with clear strengths, size of opportunity
and high visibility in earnings

➢ We do not expect these companies to get (further) re-rated but are happy with their expected performance
over the next few years

➢ We sell these stocks if valuations become too high or if there are some fundamental changes which make
us reconsider our case for the company

➢ Expected long term compounded returns are 3 to 5% p.a. higher than market benchmark

• “Emerging” good stocks: Offer “Reasonable confidence in high returns” (15 to 25 stocks, ~40 to
50% weight)

➢ A portfolio of companies where we expect higher returns from a combination of earlier discovery ( or re -
discovery) of stock and re-rating of company if it delivers on its potential

➢ Some of these stocks may be mid-cap but they could also be large cap companies where we see trigger for
sustained recovery or re-discovery by market

➢ Expected medium term compounded returns are 5 to 10% p.a. higher than market benchmark

Private and Confidential 100

When to sell?
• Long term does not mean “Buy and Forget”:

• Even though we buy stocks with an initial view of 1 to 3 years, we also

believe that the long term is a series of short terms. This means that even
though we hold most stocks for a reasonable period, we evaluate them
continuously to confirm that our original hypothesis on the stock is intact.

• Stock may be sold for company specific fundamentals, valuation reasons or

risk control reasons:
If there is deterioration in fundamentals or an unexpected negative
development, stock will normally be sold to zero
If stock returns significantly outperform underlying earnings growth over
an extended period, stock weight may be trimmed or sold completely
High valuations may be acceptable up to a point for quality companies but
we don’t believe in “Buy/Hold at any valuations”

Private and Confidential 101

Investing isn’t complicated.

Just buy stocks when they sell for less

than they’re worth.

How to know what they’re worth?

That’s very complicated !!!

Private and Confidential 102

Nobody said it was easy

No one ever said it would be this hard

Private and Confidential 103

Thank You!

Private and Confidential 104