The Criticality of Succession Planning in Consistent Compounding
All businesses face the event of succession of key management personnel, whether it be promoters or professionals. However, succession planning is a process that is not adequately engrained in the DNA of most organizations due to the variety of challenges involved in this process. As a result, many great businesses with strong competitive advantages fail […]
Importance of Lethargy Tests in Consistent Compounding
Consistent compounding requires focus and discipline over long periods of time. However, just like assembly line workers in a manufacturing process may find themselves bored by the repetitive nature of their work; consistent compounders also run the risk of boredom / fatigue / complacency in the long run. This can then lead to mistakes cause […]
Mean Reversion: Universal Truth or Human Delusion?
The concept of ‘mean reversion’ is part of both, our everyday life as well as investing. However, inadequate understanding of the ‘mean’ leads to several mistakes in the application of this concept. When it comes to equities, over the long run share prices revert to their fundamentals and hence, clarity of thought around fundamental strengths […]
CCPs avoid price hikes to strengthen pricing power
Most firms hike product prices to offset the impact of inflation in raw material costs and operating expenses. However, several firms in Marcellus’ CCP Portfolio – e.g. Asian Paints, Relaxo Footwears, Abbott India, Dr. Lal Pathlabs – have historically avoided hiking product prices meaningfully. These companies focus on deriving incremental operating efficiencies, thereby negating the […]
Enduring Greatness in a Disrupted World
The frequency of disruptions faced by businesses has been rising over the past three decades. While most of these disruptions have been around technology, an event like Covid-19 will also be added to this list. While such events can potentially topple market leaders, Consistent Compounders use these events to disrupt their competitors. Key characteristics which […]
Consistent Compounders fall less and recover sooner and sharper
In FY20, Marcellus’ CCP PMS has delivered healthy absolute returns (+7.6% vs -25.0% for Nifty50 Total Return Index) alongside resilience during the recent stock market correction (since 1st Jan 2020: -12.9% for Marcellus CCP vs -29.1% for Nifty50 TRI). Beyond the period of business disruption from the ongoing lockdown, fundamentals of Marcellus’ CCP companies are […]
CCP’s performance in FY20 fully supported by earnings growth
The performance of Marcellus’ CCP portfolio over the past 12 months has been fully supported by fundamentals. The CCP stocks have seen more than 30% YoY growth in profits during 3QFY20 and 9MFY20 vs 28% portfolio performance since 1st April 2019. In fact, CCP stocks have seen more than 20% annualized growth in profits over […]
Prudent Capital Allocation is Critical for Consistent Compounding
The most sustainable way for a firm to compound profits over the longer term, is to sustain high ROCE alongside a high rate of capital reinvestment. However, such businesses face the challenge of consistently finding avenues for incremental capital redeployment in areas which deliver high ROCE. Some of the most common capital allocation mistakes made […]
The conventional DCF method undervalues longevity of a business
An investor looking to buy and hold stocks over a long time period, needs to be able to differentiate between businesses which can deliver longevity of consistently healthy free cashflows and those that run a high degree of uncertainty in their fundamental prospects. This differentiation is essential, both, in order to avoid premature exits from […]
Are consistent compounders too big to grow?
Marcellus’ Consistent Compounders Portfolio consists of companies which have already delivered consistently healthy growth in their fundamentals over the past decade or longer, and where we expect the firms to deliver consistent compounding over the next decade as well. However, given the long and consistent historical track record of these companies, some investors are concerned […]
The Lenders In Our Portfolio Will Gain From The Ongoing Crisis
Great lenders (banks as well as NBFCs), which are Consistent Compounders, benefit significantly in the aftermath of a financial crisis. This is because: (a) when the competition struggles to raise funds during & after a crisis, great lenders have access to adequate liquidity; and (b) as competition’s ability to lend reduces, great lenders can […]
Consistent Compounders benefit disproportionately from tax rate cuts
The superficial approach of choosing winners from the recently announced tax rate cuts, is to look for companies paying the highest rate of tax and then expect a 10-15% increase in their profits. Instead, the real winners will be determined by the ability of a company to either: (a)reinvest the incremental cash flows back into […]
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