The Power of Quantifying the Qualitative Aspects of Investing
Forecasts of the growth prospects of any business are based on several factors, many of which are qualitative in nature, such as management quality, capital allocation discipline, the ability to disrupt rather than be disrupted by unforeseeable events, etc. Investors who arrive at these decisions based on their personal beliefs or myths expose themselves to […]
Amidst the Covid turmoil, CCPs invested in tech & in institutionalisation
Longevity of free cashflow compounding is the most undervalued aspect of a high-quality stock. Besides strength of the existing business, the sources of longevity for a business include incremental reinvestment in areas which will deliver cashflows beyond the next 3-5 years, and the institutionalization of strategy and business execution. In the recent past, most CCP […]
CCP = 25% Free Cashflow CAGR = 25% Share Price Compounding
Capital reinvestments, including tech investments, drive incremental deepening of the Consistent Compounders’ (CCPs’) competitive advantages. This increases the importance of free cashflows in understanding the fundamentals and hence the valuations of our portfolio companies. Over the last 5 / 10 / 20 years, the free cashflows of our portfolio companies have grown consistently at around […]
India’s Greatest Cash Generation Machines Keep Compounding
Marcellus’ CCP Portfolio delivered earnings growth of 74% YoY in 4QFY21 which led to a 11% earnings growth for the full year FY21, almost fully offsetting the drag from nation-wide lockdowns during April and May last year (2020). Unlike the trend for the broader market, CCP portfolio companies’ earnings growth was supported by a strong […]
Why is it rare to find a free-cashflow generative retailer in India?
Modern Retail in India has a huge opportunity to modernize and consolidate this millenniums old sector. However, building and growing a pan-India retail network of stores with high ROCE consistently has been difficult for most retailers. Challenges range from understanding consumer preferences, optimizing store location / size / format, optimizing merchandise selection / procurement / […]
The Science Behind Portfolio Concentration
Diversification in an equity portfolio reduces stock-specific risk but excessive diversification reduces returns, substantially more than it reduces risk. Marcellus’ proprietary framework for arriving at the number stocks in a portfolio is based on the most critical driver of portfolio concentration, namely, the “gradient” of the characteristics that the fund manager seeks within her coverage […]
“Consistent Compounders” Demonstrate Stellar Market Share Gains
Marcellus’ CCP Portfolio delivered earnings growth of 29% YoY in 3QFY21 backed by revenue growth of 19% YoY. Almost all stocks in the CCP portfolio gained significant market share over the past six months from both organized as well as unorganized competitors. The non-Financials part of the portfolio reported 45% YoY growth in earnings during […]
Disrupt, Dominate, Deliver Strong Free Cash Flows and Repeat!
Whilst there are various investment philosophies aimed at swapping disrupted incumbents with new disruptors, such investments entail taking speculative risks around the future dominance of the new disruptor. At Marcellus, we believe that dominance cannot be sustained without disruption, and disruption is not worth investing into if it doesn’t generate substantial free cash flows for […]
SIP vs Market Timers – Who Wins the Consistent Compounding Race?
Over the past 25 months, investors who waited for a market correction before deploying top-ups from their recurring income into Marcellus’ CCP PMS would have experienced a significant drag (of at least 3-5% on annualized returns, if not more) vs SIP based investments. This is due to a combination of three factors: a) low correlation […]
The Maths, Science and Art of Investing in Equities
Equity investing can be a complex business. The variables at play are numerous – not just the macro and micro variables relevant to a stock, but also the psychological factors facing an investor. Maths, Science and Art are subjects that have improved our ability to understand the complexities of the world around us. Whilst decisions […]
Rewards of waiting for a ‘lower purchase price’ in CCP vs others
Share price performance of the Nifty50 and Marcellus’ CCP portfolio constituents over the past two decades shows that the benefits of waiting for lower purchase prices fade away meaningfully as the quality of the portfolio’s fundamentals improves. Investors who make periodic investments in companies with weak fundamentals benefit substantially from timing the purchase prices – […]
The Role of Technology in Consistent Compounding
It is widely believed that new technology leads to disruptive innovation. However, companies that have consistently innovated over longer periods of time have combined existing technologies using a recipe that is heavy on intangibles and difficult to replicate. It is this recipe which enables consistent compounding over long periods of time despite several disruptions in […]
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