Home : Investment Philosophy

The investment philosophy and principles practiced at Fair Value Capital are derived from the work of the late Benjamin Graham, whom we consider to be the guiding light in this field.

Fair Value specializes in Deep Value Investments in the Indian equity markets. We seek absolute long-term returns for our investments while minimizing investment risks. This entails a constant lookout for undervalued investment opportunities, through extensive bottom-up fundamental research, which satisfy our extremely stringent and demanding standards.

Over the years we have developed rigorous proprietary investment tools and models that help us identify opportunities that fall within our investment paradigm, helping us generate exceptional Absolute Returns for our clients, having low correlation with the general market.

Apart from straight equity investments, we also specialize in Special Situation investments. Such opportunities become available from time to time due to corporate actions such as publicly announced corporate restructurings, mergers, de-mergers and buy backs.

The Price Value Paradigm

 

We at Fair Value are on a constant look out for Price Value Mismatch opportunities

 

Potential opportunities are subjected to a rigorous and comprehensive appraisal of their Intrinsic Value and only those opportunities, which are available at a comfortable discount to their Intrinsic Value, are taken for further detailed research and analysis, thus affording both, a healthy Margin of Safety, as well as a high upside potential.

The foundation stones of our investment paradigm

 

Intrinsic Value

 

Every business/asset represents a stream of future cash flows, which determines the “Intrinsic Value” of that business/asset. It is the estimate of this Intrinsic Value, which forms the very basis of all our investment decisions. No charts, technical analysis or any other school of thought that diverges from the fundamental idea of Intrinsic Value finds any use in our valuations and in turn in our investment decision making.

 

Price

 

Price changes everything!

 

We believe that there is a big difference between a “good business” and a “good investment”.

 

That difference is PRICE!

 

A great business at the wrong price might turn out to be a lousy investment, while a mediocre business at a great price can be a phenomenal bargain.

 

We are on a constant look out for such bargains.

Margin of Safety

 

We at Fair Value fully appreciate the magnitude of importance the Principle of Compounding should command and the impact it can have over an extended period of time. We are therefore of the firm belief that the most important rule in investing is to not lose money. Therefore, we, constantly evaluate and re-evaluate the intrinsic value of prospective opportunities and the price at which they are made available to us. Unless we are of absolute and complete clarity of an adequate "Margin of Safety" in the form of a deep discount in the price we pay for the opportunity to its intrinsic value, we are more than happy to let go of these opportunities.

Absolute not Relative returns

 

We seek absolute long term returns for our investments. Our bottom-up approach to investments along with our investment philosophy results in portfolio allocations comprising of Straight Equity, Special Situations, Placeholders and Cash & Bonds, which ensures efficient capital allocation, irrespective of the general market conditions. This helps us generate absolute returns with an extremely low correlation with the Markets Indices.

Each investment is preceded by extensive and in-depth fundamental research and analysis. This fundamental research on a prospective investment- both quantitative and qualitative, starts with a detailed analysis of the financials. Therein, focus is laid on the underlying assets of the business and the cash flows which these assets have generated over the past years along with considered estimates of future projections. An in-depth understanding of the dynamics of the underlying business and the industry within which the business operates is an essential pre-condition for each investment. This may entail, among other things, interactions with industry sources, trade associations and the various important stakeholders in the business-the management, the major competitors and suppliers.

This fundamental research helps us to understand the underlying business and in turn in arriving at a suitable estimate for the Intrinsic Value of the business, which in-turn acts as the cornerstone in our decision-making. At each stage in the investment process, we make sure that our analysis has an inherent conservative bias in all our assessments, to ensure that we leave an ample Margin of Safety as we move along.

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