Q. How do take care of the risk that comes along with companies in terms of volatile earnings, management etc?
A. Management, business growth and understanding the downside risk are the most important things that I look for before buying any shares in any company. I believe that best businesses can be ruined by bad management and bad businesses can be revived by the best management. If management is experienced, aggressive, transparent and dedicated to their business, they will protect your investment in order to protect their own wealth and reputation.
A company should have the ability to grow more than the economy and its peers, otherwise the stocks will not outperform. Besides, even if one is 100% sure of the fair price of a stock, one should be mentally prepared to face a fall of 20 to 25% due to factors that one can not foresee and forecast. All big companies were once a small company. If small management has fire in the belly and cares for its reputation, it will make the investor big along with the company.
Q. How much weightage do you give to the dividends, growth and scalability of the business? Do you search for companies with high opportunities in the sector or a pure bottom-up approach is best suited?
A. According to me, dividend is an important part but not the sole criteria to invest. Whereas, growth and scalability is the top most criteria of the business. The company in which you are investing today might have a low dividend yield, but as the company grows faster the dividend payout should also rise in tandem. If the company’s growth is stagnant with higher dividend yield today, it might affect the dividend payout later. I use a bottom-up approach for investing. Although, in back of my mind, the sector also plays a crucial role. It is faster if the wind and the ship sail in the same direction. I like companies which are not very famous thus available at a cheaper valuation. Once a stock comes into the limelight the valuation also rises. Thus, I try to use the theory which says catch them young.
Q. How do you assess the quality of the management?
A. The key to assess the quality of management of any company is their past record and current practices. It needs to be analyzed that whatever the management has predicted about its company or any group company, has been fulfilled or not. Also, how the management has behaved or performed during a slowdown in the past and how much management is devoted towards the company in which we are investing. Other aspects are, is management ambitious enough to grow and what are the future plans and the capability of its team to deliver.
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