Investment Philosophy

  • Fundamental bottom-up approach
  • Circle of competence
  • Investment screening
  • Risk minimization
  • Ignore market timing

Fundamental bottom-up approach

At Alder Capital, our core approach of fundamental investing is driven by in-depth research of business, management, industry and competition. We don't mind spending disproportionate time on doing on-the-ground research to identify businesses with enduring and scalable moats. We believe great businesses, with disciplined management, would create value over a longer period of time, irrespective of market cycles. We typically invest with a 3 to 5 year investment horizon and tend to concentrate our holding. We like small businesses in scalable niche as much as large businesses with sustainable industry leadership.

Circle of competence

Indian consumerism is expected to demonstrate secular growth over the next decade driven by income effect, demographic dividend and rising aspiration levels. We expect all business from basic necessities, discretionary products and financial services to benefit from this mega trend. We intend to focus our investments into 3 baskets - consumer staples, consumer discretionary and branded B2C businesses. Our knowledge advantage built over years of understanding consumption related businesses, industry dynamics, competitive rivalry and managements enables us to reduce portfolio diversification and increase prospects of consistent returns. Plus the benefit of specialization is it eliminates surprises and results in performance in line with our investment decisions.

Investment screening

All our investment ideas need to clear our good to great screener and our risk-to-return criteria.
  • GTG framework is our proprietary grading system which ranks companies on the basis of innovation, branding, management culture and discipline, strategic assets, industry rivalry, scalability, capital allocation and financial shenanigans. We believe great businesses tend to score high on all these parameters to generate high and consistent return on capital invested. This framework also enables us to think though how businesses in attractive industries are able to adapt to changes to maintain their competitive edge in the long term.
  • We pay more attention to financial analysis of the last 10-15 years rather than just the forecast of the next few years. In the process we like to understand how businesses were managed in a down cycle and how business transformations over the years have led it to achieve cost/growth leadership over peers. Thus we try to assess the level of risk to achieve a minimum level of return over the next few years.

Risk minimization

We believe in risk-adjusted return verses pursuit of just superior returns. Avoiding investments that could have higher probabilities of absolute loss, would not only minimise portfolio volatility but also results in outstanding returns over extended period of time. We are agnostic to any market capitalization or liquidity criteria, as we believe true value of a business with scalable, predictable and profitable business models will eventually be discovered irrespective of such limitations. We do not believe in hedging or leverage strategies.

Ignore market timing

Consumption related businesses tend to have sufficient internal accruals to growth at a normative pace. Cyclical slowdown in such structural growth businesses causes asymmetries in risk-to-returns. Thus we seek these bargains which generate disproportionate returns for seemingly low level of risk. We also believe in a passive investment strategy with low churn, as we feel outstanding businesses are capable of generating compound growth and difficult to come by. Market cycles may make us take a defensive tilt in the portfolio or increase sensitivity, but we refrain from increasing our cash allocation.

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