Dear Valueoperations Readers,

While our principal Analyst Mr. Aziz and his team is hard at work on upcoming quarterly results season, I would like to take this moment to talk to all of you about our investment philosophy and how we do our valuations.

Since our inception our investment philosophy is to find value investments, we looked long and hard in Indian Market to find a source which can provide us right valuation for any investment .  We come across tons for source that can provide the valuations and various info, charts, ratios etc but none come close to fulfilling what we believe the valuation should include. So we decided to build our own system to help us value the investments. Following is an explanation of how we look at stock and value them.

When we look at the company or a stock we don’t just look at it as we are buying stock.  We look at a company as if we are buying that whole business for ourselves, so when we put buyer of a business hat on our head it give us totally new prospective and gives us an angle to look past just a PE Ratios.

Let me ask a question, what are some of the things you would look at when buying new business.

What do the business do

Who are the client

What is the competition

Who is running the business

What is the inventory turnaround time

What are the margin’s like

Cost of production…………… and list goes.

  • We have compiled and look at over a hundred different factors for any business that we are valuing. Once we get all of the factors together we give it to our team of analyst. Our analysts go through all the information and grade them according to business valuing models we have developed. The final out come from this process is Intrinsic value of that business.

What is intrinsic value according to us? Intrinsic value is the number which represents price for business or a company we are valuing. Let me be specific the intrinsic value is not a book value of a business but rather actual price one should expect to pay if they are buying this business.

In real world as investor you will be looking at buying stocks in the company and not the entire company, so our analysts formulate intrinsic value of each individual stock.  Along with intrinsic value calculation our analysts also grades each factors we consider during valuation and inputs them in to our business valuing model. The end result of all the grading work is over all grad for a company.


Currently we grade all the companies in following five categories

A1

Very healthy and sound company

A2

Healthy and sound company

B1

OK company. Few variables to be taken care of.

B2

Not so OK company. Many variables to be taken care of

C

Very weak company.

To become true value investor one should be looking stock price in the market and compare it against intrinsic value before making their decision. This process help avoid all the unnecessary noise one hears in the market and helps remove any speculators behind stock price.

P.S. We have numer of portfolios built useing the above philosophy and are tracking against the NSE index nicely, We will talk about them these portfolios in near future.

Regards

Chirag

Valueoperations.com