How value investing works?
Value investing is buying an asset at significant discount to its intrinsic value. Margin of safety is cornerstone of value investing style. Price and value are two sides of the same coin. Understanding the difference between price and value is the core principle of value investing.
Let’s understand with a simple example: Suppose Mr. Madhav want to buy a smartphone worth Rs.50000. During festive season on e-commerce platform, same handset is offered at discount at Rs.42000. So it is profitable for him to buy the mobile during the festive season as once the season ends, the smartphone price comes back to its original price.
Same condition applies to the value investing. Under value investing approach one tries to identify stocks which are mispriced by the market.
"Investing is buying a fractional interest in a business & buying debt claims on a business" - Seth Klarman
Business Quality
We are investors in businesses. We identify businesses having long runway for growth with strong competitive advantages and strong business model in an industry which can deliver sustainable and profitable growth and in-turns generates superior value over time for its owners/shareholders. We look at businesses that can generate higher return on capital over their cost of capital over longer period of time.
Management Quality
Superior capital allocation is the key hallmark of a management quality. Management quality is multiplicative in nature therefore having management with superior capital allocation skill and high integrity is the cornerstone of investment process. Evaluation of management is done on the basis of capital allocation track record, integrity, vision, ethics and corporate government standards etc.
Valuation
Price is what you pay, value is what you get. Entry valuation is one of the key drivers for future returns. We focus on the stocks which are available at significant discount to their intrinsic value. This helps us to build portfolio of quality companies at reasonable price. It creates better margin of safety with focus on preservation of capital along with superior return generation.
Long-term investment
We believe is in the principle that businesses take its own sweet time to realize its true potential. We stick to the businesses through thick and thin as long as the rationale of our investment thesis remains intact. The long-term investment mind-set helps us to navigate short term market volatilities and filter out day to day noises and thereby participating in the value creation journey of the businesses.
The Brighter Mind Approach
We, at Brighter Mind, follow the value investment principles to design our investment strategies and believe in portfolio construction based on time-tested approach. We look at stock prices as part-ownership in the business rather than a piece of paper traded on exchanges on daily basis.
Brighter Mind strongly focuses on safety of capital first and believes in return of capital over return on capital. Brighter Mind strongly believes in sustainable wealth creation over longer term with business ownership mind-set and ignoring day-to day market noises.
