At the Morningstar Investment Conference 2014, Kenneth Andrade, Head - Investments, IDFC AMC Ltd, took part in a panel discussion on value investing, though he is a self-confessed growth investor. Below are his views.
Kenneth, you claim not to be a value investor but have done extraordinarily well. If you've done so well in the market, in some sense you've got to be picking something that's undervalued. So can you describe your own investment philosophy and where you differ from sort of a value approach?
I think all investments come in at a right price. Once you've been able to identify the right company, effectively you sit on it for an extremely long period of time, so then you watch execution because a good execution usually shows up in valuations and over a period of time it remains expanded for an extremely long period of time.
So effectively, the investment thesis always begins when you have the lesser amount of money to lose, so you get your pricing right and then once you've been able to identify the company, the space has to be scalable, it's got to be significant – it has to be a significant industry for a company to grow into and if the company has been executing right.
I think that's probably the best strategy that's worked for me.
That is a good description of your strategy but you sort of dodge the question of is it value investing or do you term this sort of more growth investing?
I don't want to put a context around it. It always starts from the fact that you get it right as far as your purchase price is concerned. Over a period of time, if you can predict the long-term growth of a business, the stock might still be valuable in the near-term.
The other extreme is, if you have to buy a good franchise at an expensive price, you probably have to give away a year or two of return, just to make sure in an institutional framework you can accommodate the size and the scale.
So, yes, we're not really typically the value investor, but price is important –the value that you pay when you get into the company or when you purchase the company is very relevant.
One of the advantages of your style of essentially looking for high-quality companies is that you're able to avoid what we'd call sort of value of traps. Is that a fair characterisation - the way you approach you will never get caught in a value trap?
Predominantly, it's a search for a good business.
Great business?
A good business will get better. And in that entire process, we're not really into the discovery game of the business or buying – incubating a business that will be good. So, yes, in a certain way, businesses are mature. We don't buy it very cheap, or we don't pay a disproportionate amount of value for it. But the predictability of understanding the environment that it operates in and the ability of the company or the management to actually execute in that environment is extremely critical.
What is the parameter of a good business as per your philosophy?
It all boils down to the fact that the company is being efficient using capital. Okay. One of the parameters that we use to put portfolios together is we are quite away from an industry constraint. Our primary focus is to buy capital efficiency irrespective of where the – irrespective of which industry it comes out of. I think that's essentially what drives us to put together a portfolio of high quality businesses.
Also read Bharat Shah's views and Parag Parikh's views.
