Process & Philosophy
We decode the market’s whispers and transform trends into actionable intelligence.
With every insight, we light the path to smarter, sharper investments
Identification of superior businesses
The first step to long term investing is identification of quality businesses. As a first step we have used financial filters to identify businesses which have a long-term ability to generate superior business returns. Since we are investing for the long term, we would tend to exclude businesses which have high volatility, and which do not lend themselves to any meaningful certainty of business returns over the long term. In effect we are seeking businesses whose products are less affected by outside forces. In addition, we are looking for long runaways to growth. Having a well-run business is not an end-all. Ability to grow most of the time is dependent on the market available to a business to expand. Finally, we are looking for businesses which have ability to defend their returns- which allows them to continue to growth without compromising on returns. Generally, the added kicker in small companies is the added returns which follow due to scale expansion.
Deep and deeper dive
Identification of a set of companies which have performed well financially over the long term is only the first step in defining our investible universe. Deep dive in the business is a considered look at their businesses across a range of parameters. On financial side, these include long term approach to capital structure, leverage, and ability to manage working capital. On the business side these include but are not limited to – product and market position, key sources of competitive advantage, market size and ability to gain market share, innovation, and ability to adapt, operating efficiencies, cost structures and flexibility to weather downturns, key areas of risks in both operations and markets with mitigation ability. We believe that a look at these qualitative factors requires significant long-term experience across business cycles and that is a key differentiator for our team at Alturas.
Finding companies with highest level of discretion and governance
Analysis of business factors typically would yield a set of competitive and superior companies capable of producing above average long-term business and therefore stock market returns. The final gating factor for our investment in management quality and business depth. The first level of check is a closer look at balance sheet including accounting quality and auditors' remarks over the years. Secondly, management understanding management actions – including treatment of minority shareholders is also key to long term protection for investors. Finally, we would not invest in any company without investing management philosophy, vision, and strategic direction. We intend to look closely at management depth, hiring philosophy, compensation structures and board composition. While management quality is used flippantly in the industry as a catch all phrase, we intend to make this into a rigorous process.
Valuation and cycle considerations
We invest in a focused set of ideas and identify many companies that meet quality standards. Our last step is to select an investible universe for our fund, considering valuations, business cycle, and risk. We limit sector concentration and ensure valuations offer enough comfort to avoid return drag from multiple compression even if earnings are strong.
Macro matters, timing matters – this is an edge
Recent market experience has once again shown the importance of macro environment for stock markets. The strategy of selecting stocks without considering macroeconomic factors may be less effective when valuations are high or when macroeconomic conditions are changing. The oft repeated mantra of bottom-up stock picking is clearly ineffective in periods of macro instability. We intend to use hedging as a tool for protecting investor returns in these extreme scenarios. We believe that this will add a layer of in the investing process that will help in smart timing and capital protection.
Building for the long term with focus on ethics and compliance
Alturas is building a long-term business which creates wealth for our investors and in turn drives growth as we expand into other products in the future. As a result, we do not intend to increase our first fund beyond a pre-defined size, to prioritise performance over fee. Sponsors of the fund are not taking compensation to invest resources in best quality people and infrastructure. We believe that our own business has to be run with the same principles that we would look for in our investee companies. We hope to instil this culture of long term thought process across our organisation and this in turn will drive long term strong relationships with our stakeholders – be it investors, employees or service providers. The importance of ethical standards and compliance can not be emphasized enough. These values should not be driven by the regulatory requirements but by the DNA of the organisation. We aim to create gold standards in ethical and compliance behaviour in our organisation with zero conflict of interest and a culture of compliance. This would help us align our goals with our investors and achieve growth over the long term.