Monthly
Communiqué
February 2014
Dear Investors and my dear Advisor friends;
At the outset, let me express a heartfelt thank to all my investors and partners for providing the feedback about our new
factsheet which we have changed since the past few months. This change had most certainly helped us in
communicating with you in a better fashion, leaving scope for 2 way interactions unlike the traditional way of writing
monthly commentary.
In the last couple of months we have hosted our flagship events – the 18th edition of our annual Wealth Creation Study
by Raamdeo Agrawal and then we hosted the 3rd edition of one of our flagship events the Motilal Oswal AMC Value
Investing Forum on the theme of “Stocks Forever”.
This year's Wealth Creation Study was dedicated to studying how some companies create uncommon wealth by
generating uncommon profits. We discovered some parameters which would help us identify emerging wealth creators.
Although successful emergence of new companies into becoming creators of wealth is rare, we found that a strong company in a non-cyclical business,
i.e. one that experiences stable demand for its goods and services at the industry level, helps new businesses. On the other hand instead of focusing only
on new or emerging or mid caps, we found that identifying and investing in “enduring” wealth creators is relatively less risky and has potential to create
similar wealth. The logic is that in the “emerging” space one may identify future winners but the probability of success is lower; on the other hand
sticking to identified winners is a safer strategy as chances of them “enduring” their winning characteristics is higher. If you wish to read the study or see
the video of Mr. Agrawal's presentation and the panel discussion please click on the link below:
Videos:
www.motilaloswal.com/Financial-Services/Knowledge-Centre/Videos/17
www.motilaloswal.com/Financial-Services/Knowledge-Centre/Videos/18
Download Report:
www.motilaloswal.com/Financial-Services/Research/Detailed-Report/Wealth-Creation-Study/7971
In the second event i.e. the Value Investing Forum, we presented on the theme of “Stocks Forever”. Key findings that we presented were to highlight
how our philosophy of Buy Right : Sit Tight results in wealth creation over the long term. It is our belief that maximum wealth is created by identifying
good quality companies and then riding their entire growth cycle. Investing can be a game of chance and the best of investors may get only a slight
majority of their decisions right. The problem arises in the world of investing because investors whether professional or amateur, don't like to sell at a loss
and hence they nurse the losing investments but they like to see profits and hence they quickly sell the investments where they are making a gain. On the
other hand, long term multiplication of wealth is obtained only by holding on to the winners and deserting the losers. Don't get me wrong, the problem is
not with booking profits. When an investor buys or sells their holdings, they may persist with the losing ideas and book profit on the winning ideas. That's
where the problem starts compounding. When you book profits on winning ideas, you are forced to take a decision on reinvesting the proceeds into a
companies where the hit and miss ratio is likely to be the same and you can imagine what will happen next. It results in a downward spiral. On the other
hand if you book losses on the losing ideas the moment you realize you made a mistake, then you are taking fresh investment decisions and the chances
are that this will also have a few losing ideas when the intention has been to get out of losing ideas and into profitable ones. So the portfolio has now
accumulated some losing ideas from profit booking and from the stop loss activity. Visit below URL to see how “BUY RIGHT : SIT TIGHT” works.
Video:
www.motilaloswal.com/Financial-Services/Knowledge-Centre/Videos/AM
As always, I would be happy to take your feedback. So, incase you wish to share your views, please feel free to write to me at
aashishps@motilaloswal.com
Aashish P Somaiyaa
Managing Director and CEO
Motilal Oswal Asset Management Company.
Our Investment philosophy - BUY RIGHT. SIT TIGHT
Buy Right
Q-G-L: Q denoting Quality of the business and management, G
denoting growth in earnings and sustained RoE and L denoting
longevity of the competitive advantage or economic moat of the
business. We are a value biased investment house. But Value to us does
not necessarily mean buying cheap stocks only – value to us also means
buying those companies whose earnings longevity and earnings
growth are not priced in by the market. We like to buy a good business
for a fair price rather than buying a fair business for a good price.
Sit Tight
Buy and Hold:
We are strictly buy and hold investors and believe that
picking the right business needs skill and holding onto these business to
enable our investors to benefit from the entire growth cycle, needs
more skill.
Focus:
Our portfolios are high conviction portfolios with 15 to 20
stocks being our ideal number. We believe in adequate diversification
but over-diversification results in diluting returns for our investors and
adding market risk.
*Data Source: Bloomberg and Internal Research, Data as on 31st Dec 2013.
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