We are purely an advisory firm and unlike a PMS where you have to write a cheque along with power of attorney to the fund manager, under our advisory model the money stays in your existing broking account under your name and full control, while we guide you which stocks to buy, when to buy, for how long to hold & finally when to exit.
Further, unlike a PMS or Mutual Fund which charge 1.5-2% of your capital as annual management fee in addition to a 10-20% share in profits (in case of PMS), we charge a nominal flat fee irrespective of your portfolio size and returns.
As a thumb rule, an investor should not be paying more than 2-3% of the portfolio as advisory fees per annum. Therefore to justify Treasure Trove's annual subscription fee one should have a minimum capital of Rs 7 lacs. If you have a lower capital to start with, but are confident of adding at regular intervals, then also you may opt for the service. For smaller portfolios index or mutual funds (via monthly SIP) could be a more cost effective way to invest in a diversified portfolio.
While researching stocks we do not constrain ourselves on market cap or sectors. We look at small caps, mid caps as well as large caps. Wherever we see value and find opportunity to make high absolute returns with limited downside risks, we go ahead with researching it in more depth, making Treasure Trove a collection of sector-agnostic multi-cap stocks.
Anywhere between 20 to 25 stocks.
Treasure Trove is not a tip-service with any fixed number of new stock ideas or frequency, as that's very counter productive for investors. For us new stock addition is a function of availablity in basket and whether we are able to find better opportunities compared to what we already hold.
We manage risks by investing in opportunities where we feel downside risk is limited, business prospects are good and management is ethical, even if that means buying at fair price (rather than cheap). Return is a function of how our portfolio companies execute (earnings growth) and market cycle/sentiment (valuation). Over 3-5 years horizon, our goal is to outperform markets by generating higher returns.
Markets are inherently volatile; even for blue-chip stocks a 20-25% movemenet between 52-week high and 52-week low occur every year, 30-40% every 3-4 years and 50-60% every decade. However, we don’t look at volatility / drawdowns as a risk. For us risk only has one meaning which is ‘permanent loss of capital’ i.e. when stock prices fall and we have to exit at those lower prices (with little hope of recovering). To avoid the permanent loss of capital, we invest in businesses with strong balance sheets (mostly debt-free), run by a competent and ethical owner-operator with skin-in-the-game at reasonable valuations.
Subscribers could allocate to stocks based on their risk profile and with the help of our Sizing Guide - Low / Medium / High. As a thumb rule, low could have anywhere between 3-5% weightage, medium 6-7%, and high 8-10%. As a risk management practice, it is generally not prudent to allocate beyond 10% on one stock. There would be some stocks where we initiate with a low sizing and over time it could be upgraded to medium or high level as conviction goes up due to the thesis getting stronger or valuation getting more favourable, and subscribers could adjust the allocation accordingly.
Our starting point isn’t any index rather we follow a bottom-up stock picking strategy where we assess downside risks, visibility of earnings, size of the market opportunity, management competence & integrity and judge attractiveness at prevailing market prices.
It is not going to be all multi-baggers only, which are infact far and few, and only clear in hindsight. We have had our fair share of lemons too - stocks which we eventually sold at a loss despite holding them for years. Currently, we have some stocks in our portfolio with drawdowns of as much as 40%, some of these can become permanent loss of capital if earnings cycle doesn't improve or investment thesis fails and we book loss to move remaining capital to better opportunities. Going forward too, there could be stocks where we eventually lose. However, that is part & parcel of investing in equity market. Betting on stocks involves dealing with uncertainties and making decisions with incomplete information. Given it is a moving target where investment thesis keeps evolving, no one can get it right all the time, no matter how strong the research process is. Even the best of investors and fund managers globally have not got it right beyond 6 out of 10 positions as per Peter Lynch.
Ultimately what matters is how we do at the portfolio/basket level despite losing on some positions, as the winning positions more than make up for the losing positions - maximum one could lose in a stock is the invested capital, however there is no upper limit to returns in positions where we get it right. When we move four steps forward with winning positions, the losing positions could take us one or two steps backwards, finally what matters is if we are happy with moving net two-three steps forward. The 80:20 rule applies in investing too - 80% of the gains come from 20% of the positions. To win a cricket match, not every player has to hit a century, and ultimately what matters is winning the match (portfolio returns) and not how every player performed (individual stock performance) and our focus is on winning the game (portfolio returns). It is extremely important for the subscribers co-investing with us to be aligned in this thought-process.
You may signup for free and see some of the our existing holdings with detailed initiating coverage reports at http://investor.stalwartvalue.com/users/sign_up
We hope these reports will give a fair idea on our research process and indicate the kind of depth we go into.
To know more about our process, we suggest you to go through Our Focus on website’s Treasure Trove page. Also, you may read our blog where Jatin has shared some of his old work and thoughts on investing.
Price is a function of two factors- Growth in earnings per share (depends on how well company does) and Valuation i.e. P/E multiple (depends on market sentiments). We prefer to invest in companies where earnings growth prospects are high and valuations have scope of re-rating. Having said that, being human we understand our limitations in predicting the future and hence refrain from sharing any target price or any kind of excel-based forecasting where next quarter’s EPS is forecasted to second decimal point. We will stay invested as long as the thesis is playing out well or till we find better opportunities. Either ways, we will keep you posted with our thoughts through regular (generally quarterly) updates on all our positions.
All our stock ideas are fundamentally backed and are only for investments, implying a long term horizon (at least 3 years). We keep stocks on 'buy' rating until they stay in the buying range post which the rating gets changed to 'hold' and eventually 'exit'. We do not issue any kind of trading recommendations and hence no stop loss.