These turnarounds are not regular occurrences. Q: Do you only invest in turnaround stocks.Ī. The key, however, is to bet on businesses within the sector that have a competitive advantage over others. We prefer to pick up stock with sufficient margin of safety. If times would have been good these shares would have been available at either fair price or at a premium. This enables us to invest in companies with a substantial margin of safety. Our hypothesis for the company that we are looking at would be that it would do better than the others because of its inherent competitive advantage.īusiness turnarounds do not happen overnight, it takes time. We will have our list of companies where we would wait for a catalyst to trigger the investment call. So our investment will only be after there is clarity on the external environment. Take for example the steel sector which saw a change after the government put hurdles for importing cheap steel.
Their scenario will change only when external environment changes, either because of macroeconomic issues or on account of regulatory issues. But the difficult past should not be for the company alone but for the entire sector. We look at businesses that are turning around, the ones that have had a difficult past. Q: Madhu the first question I would like to pop up to you is Vallum Capital has a unique investment strategy, can you take us through your buying and selling decision-making process?Ī. Madhusudan Sarda in an interview to Moneycontrol Research’s Shishir Asthana shares the recipe for his successful investment strategy.
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Madhu is a voracious reader and uses his free time to catch up on reading on latest developments in industry and technology to keep abreast with the fast-changing global economy. Simply put, if Rs 1 lakh was invested with Vallum Capital on its inception, the investor would be sitting on around Rs 10.5 lakh now - a 10-fold increase in just seven years. In fact, in the calendar year 2017 Vallum Capital gave a return of 68 percent excluding commissions. To add the cherry on top, the growth excludes the firm’s commission on trades. With their “Catch them young and ride them to their prime” strategy, the firm has, in its seven years in existence, grown clients’ money at a compounded annual growth rate of 40 percent. Madhu, currently co-manages a fund with Manish Bhandari at Vallum Capital. This discipline, he says, can be attributed to the business background he has.
The obsession with a thorough due diligence before every investment also comes from the pressure of managing other people’s money. He approaches investing like a businessman would before a joint venture. Madhu has been dabbling in stocks from the age of 15 when he used to monitor his father’s portfolio.
A chemical engineer by qualification, Madhu, as he is commonly known, attributes this aspect of probing to his educational background. Sarda, the Executive Director of Vallum Capital, who has about 18 years of market experience under his belt, likes to test every thesis and hypothesis. Unless you are the kind who does not believe in taking sermons at face value. When the guru of value investing, Warren Buffett asks you to stay away from a type of investing, you pay heed. “Both our operating and investment experience cause us to conclude that turnarounds seldom turn…and the same energies and talent are much better employed in a good business purchased at a fair price than in a poor business purchased at a bargain price.”….Warren Buffett, Letters to Shareholders, 1979.
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