Our investment process is guided by our investment themes, and simultaneously dictated by a bottom-up approach seeking to identify the scope for optionality inherent in the business model.
Conscious that we are investing in publicly-traded stocks, rather than companies (the scope of Private Equity/Venture Capital funds), our research process integrates drivers like liquidity, free float, and market conditions, allowing us to construct a clear picture of both upside potential and also the potential for losses.
Our research process seeks to answer the following 10 questions, which also demonstrate how our top-down thematic approach, bottom-up analytical approach and technical considerations converge.
Theme and Narrative: Where’s the transformation story? Or is it just a better version of its previous form? Is it driven by our overarching themes of transformation, or simply a cyclical turnaround story?
Company: What does the company do? How well do we know the company?
Management and Insiders: How well do we understand management’s strategies? How well do we know the management team? How have they treated minority shareholders?
Business Model: How good is the underlying business model, in terms of competitive edge and operating leverage? How do they make money?
Earnings and Optionality: Where are earnings going? Is there room for an inflection, for things to get exponentially better (or worse)?
Fundamental Risks: Are there other risks that we cannot quantify, e.g.political/corruption/regulatory risk, and is it worth taking those risks for the returns we envision?
Market Participants: Who makes the price in the company’s stock price? Is it local institutions, foreign investors, passive funds or even the company’s owners themselves?
Market Risk: Can we effectively mitigate market risk around this company, especially in terms of stock liquidity, margin of safety around valuation and price levels and correlations to macroeconomic factors e.g. FX risk?
Portfolio Fit: How does this particular company fit in with the rest of the portfolio? Is this the best choice we have to gain exposure to our themes?
Investment Plan: How do we plan to execute our investment in the stock, with respect to size and risk management?
Where research determines if a stock is a good potential long or short idea, turning an idea into a live position and sizing it optimally also faces a stringent process of risk management.