Our Strategy Does Sound Simple...
We aim to buy quality companies with strong economic moats for the long term ONLY when they seem to be undervalued as per our valuation models. We have observed that we get such opportunities only twice in ten years on average. Buying any kind of stock but at reasonable valuations can make all the difference in your final returns. We do not wish to earn from investing in statistically undervalued stocks unless the opportunity is a big one.
We do not try to invest in the next 100x bagger as well. Sure, we try to research on as many companies as we can, but we are big believers of risk management and try to keep risky bets to a very small percentage of portfolio. Historical performance gives us comfort. We try to limit the amount of forecasting and do not try to predict how the economy might do in the coming years or how business 'x' might turn around from its recent all time lows.
This strategy might seem very boring and easy to execute but trust us, it is not that easy as it sounds. We would have to wait for approximately 5-7 years for such opportunities to arise. Valuation of quality companies is always tricky. The research process has to be to the point. We have to be very vigilant of removing fraudulent companies from our watchlist and then get a true, fair value of their business. Then we would follow a detailed checklist to gauge the business and management quality of the potential investment. Finally, we have to wait for such brilliant businesses to come under our buying range so that we can make the investment call.
However, there is one big disadvantage of this strategy. We tend to remove those companies from our watchlist who remain highly overvalued all the time. For example, Nestle is one such brilliant company which we would love to buy but we cant due to the risk of valuation associated with it. This is one downside we are happily willing to take.