accumul8 Investing Philosophy
Buffett meets Lynch and Fisher
“It seems logical that even before buying any stock, the first step is to see how money has been most successfully made in the past”
-Phil Fisher
accumul8 Portfolio aims to invest in Bluechips at Reasonable Price (BARP) to own a collection of outstanding companies a.k.a - “Build your Berkshire”, inspired by Punchcard Investing.
Let us see each of the components of the investing strategy in detail.
A. Bluechips At Reasonable Price (BARP)
While I have spent countless hours reading on these Superinvestors like Graham, Klarman, Templeton, Fisher, Lynch, Schloss, Carret, Soros among others and there is an influence of each of these investing legends, the core philosophy has been influenced by Warren Buffett.
Here is a passage from the 1996 annual letter where Buffett beautifully explains what an individual investor should intelligently do for building a successful portfolio. I have reproduced it verbatim (Emphasis in Bold mine).
“Should you choose, however, to construct your own portfolio, there are a few thoughts worth remembering. Intelligent investing is not complex, though that is far from saying that it is easy. What an investor needs is the ability to correctly evaluate selected businesses. Note that word "selected": You don't have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.
To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing or emerging markets. You may, in fact, be better off knowing nothing of these. That, of course, is not the prevailing view at most business schools, whose finance curriculum tends to be dominated by such subjects. In our view, though, investment students need only two well-taught courses - How to Value a Business, and How to Think About Market Prices.
Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards - so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio's market value”.
- Warren Buffett , Shareholder letter 1996
To summarize, accumul8 Portfolio Strategy has three guiding principles :
Invest ONLY in businesses which are simple and within my circle of competence.
Invest at a RATIONAL price. No Christmas card shopping in January looking for extreme value.
Invest with a 5 – 10-year horizon on companies whose earnings are certain to grow higher
B. Build Your Berkshire (BYB)
The second building block of accumul8 strategy is the concept of owning a collection of outstanding companies best described in 1995 Shareholder letter:
Charlie Munger, Berkshire's Vice Chairman and my partner, and I want to build a collection of companies both wholly-and partly-owned that have excellent economic characteristics and that are run by outstanding managers. Our favorite acquisition is the negotiated transaction that allows us to purchase 100% of such a business at a fair price. But we are almost as happy when the stock market offers us the chance to buy a modest percentage of an outstanding business at a pro-rata price well below what it would take to buy 100%.
- Warren Buffett , Shareholder letter 1995
This is the beauty of stock investing. You get to own outstanding businesses. Imagine you had a 10 million to invest and to start a business. You will seek out opportunities which gives you the best chance of success combining your skills, capital, and business prospects.
You can take this to the next level in the stock market. You can own not one business but a collection of businesses which you love.
This is precisely what we intend to do with accumul8 portfolio- Own a collection of outstanding companies with excellent economic characteristics run by trustworthy management with an aim to harness the power of compounding for accumulating wealth for a lifetime.
C. Punchcard Investing
The third and final building block for the accumul8 Portfolio is a concept which is very close to my heart is what Buffett espoused as “Punchcard investing”.
“I always tell students in business school they’d be better off when they got out of business school to have a punch card with 20 punches on it. And every time they made an investment decision, they used up one of their punches, because they aren’t going to get 20 great ideas in their lifetime. They’re going to get five or three or seven, and you can get rich off five or three or seven. But what you can’t get rich doing is trying to get one every day.”
Warren Buffett
While every purchase cannot be Punchcard wherever the trade qualifies to be one will be highlighted.
Strategy in Action
Over my two decades in the market, I can assure you that these opportunities for picking of these outstanding companies will not come monthly or quarterly based on a set frequency as influenced by the movement of the Sun and the planets (Gregorian calendar).
You get an opportunity to pick up a stake in outstanding companies mainly due to two reasons :
a) Market Crashes - Overall market can by in panic mode: Demonetization, 2008 Financial crash, COVID-19.
b) Exceptional companies surrounded by temporary crisis.
The best thing that happens to us is when a great company gets into temporary trouble...We want to buy them when they're on the operating table.
- Buffett
Let me give a few examples.
1. HDFC Bank
I had been eyeing the stock for a long time, but it is perennially over-valued and expensive. I missed to buy this during the 2008 Financial crisis and so I kept waiting and waiting and then "Demonetization" happened in 2016.
I picked up some quantity and before I could fully seize the opportunity, the stock quickly rebound leaving me want more. My wait continued.
Then COVID-19 happened:
The stock fell to 800 levels. This time I did not repeat the mistake and picked up the stock in decent numbers. Its more than 80% up currently but this is to hold for a “lifetime”- Punch card stock(explained below)
2. Nestle
In 2015, the company went through a mini- crisis when the MAGGI Noodles. A laboratory in Uttar Pradesh found “lead” in samples of Maggi Noodles and there was a public outcry. Nestle had to pull out 500 crores of Maggi noodles which had commanded a 63% market share.
Nestle Stock Price During the Crisis
Nestle comes out in Flying Colors
Nestle, the owner of brands like Kitkat, Nescafe, Everyday took just a year to regain the lost market share. But it provided astute investors a window to invest in this 100 year old blue-chip at a very attractive price. The stock fell below 6000 levels and today it is more than 3X.
3. InterGlobe Aviation (Indigo)
Anybody who has flown domestically will vouch that Indigo airlines are a cut above the rest. Personally, for my business meetings I will first check if tickets are available in Indigo especially for their timeliness.
They virtually are the kings of the Indian sky with a fleet of 280 aircraft and more than 50’% market share.
In 2019, differences between the co-promoters Rahul Bhatia and Rakesh Gangwal about corporate governance matters came out in public and Rakesh even went to SEBI for intervening. While the promoter feud played out the stock tanked.
Indigo Stock Price - 2 years
But the company kept on insisting that it was Business as usual and had zero impact on its strategy or regular workings and those who were smart got a bite into one of the best run airlines anywhere in the world at a great price. The stock which fell to sub 800 level quickly doubled in less than a year.
Final thoughts
accumul8 is about buying stocks of wonderful businesses run by excellent management at a rational price (Bluechips At Rational Price) with a view to hold them for 5 to 10 years.
Investing is simple but not easy and as Buffett beautifully put it -
“Sound investing can make you very wealthy, if you are not in too big a hurry”