Investing in the style of Benjamin Graham, Warren Buffett helps this PMS deliver 97% return

A portfolio management strategy, which follows the principles of legendary investors such as Benjamin Graham and Warren Buffett, emerged as the top gainer of 2023. This is INVasset LLP’s Growth Pro Max Fund, which delivered 96.57 per cent return to high net worth investors in the past 12 months and 59.91 per cent return in the six months till December 31. 

Explaining the investing strategy, Anirudh Garg, Partner and Fund Manager at INVasset, PMS, told Business Today that their primary aim is to foster long-term investing, free from any biases, whether it is market cap, sector, or investment style biases. 

To understand the INVasset strategy, Garg said that one must understand the four primary investment styles. “The first is value investing, where we calculate a company’s value using models like discounted cash flows. This strategy, used by the father of modern investing, Benjamin Graham, involves buying stocks below their intrinsic value and selling above it,” he said. 

The second style is growth investing, he said adding they believe each bull market brings new leaders in stocks, sectors, or groups due to underlying changes in the market. “Our approach here involves analysing these changes and their impact on the companies’ revenues and profits,” Garg said.   

He further added that the third style is quality investing, akin to Warren Buffett’s approach. “We focus on self-sufficient companies with strong management and financials, high return on investment and excellent free cash flow. These companies typically have competitive advantages like innovative products or cost leadership and are often market leaders or have significant market share gains,” he said. 

The fourth and final style is a safety or pension fund approach. Here, the priority is capital preservation. This helps INVasset to generate modest alpha without risking the principal capital. 

“After years of research, we have amalgamated these styles to develop the INVasset AAID (Advanced Algorithm for Investment Decisions). Coupled with our proprietary INVdex, a greed and fear index, we discern the market’s stages and make informed decisions. Our decision-making process is multi-modal. We analyze hundreds of factors in unison, moving away from a uni-modal approach,” Garg said. 

The money manager also said that they engage in value investing when they perceive overall value in the market, especially during corrections. Their principle is that what appears valuable in a bull market may be a value trap. 

“As the markets transition into a new bull run, we focus on growth investing. About 50 per cent to 60 per cent of the time, our strategy revolves around identifying stocks that exhibit relative growth. This means focusing on future potential rather than past performance. We have developed a ‘relative change rewarding criteria,’ where over 170 factors continuously assess more than 1,800 companies to identify the top 100 with the maximum relative change,” Garg said. 

When the markets become expensive, they pivot to quality investing. “Our premise here is that markets can remain overvalued for extended periods. By investing in quality stocks, we aim to safeguard against downturns, not exceeding a 15-20 per cent loss,” he said. 

In situations where their index indicates that markets have become overly exuberant and the risk-reward ratio is unfavourable, they shift investments to alternative assets like gold, USD or liquidated arbitrage funds. “This approach was evident when we exited equities entirely in September 2021, before re-entering the market in March 2022, post the Russia-Ukraine conflict,” Garg said. 

In India, INVasset zeroed in on the capex sector, particularly post the implementation of GST. The coordination between the central bank and the government, along with digitalisation initiatives, has opened up significant investment avenues. 

“We have capitalised on these developments by investing in sectors like defence, power, railways, and public sector banks. Notable stocks in our portfolio include names from the defence sector like Mazagon Dock Shipbuilders, Cochin Shipyards and Bharat Dynamics; from the railways sector like IRCON, RVNL and Titagarh Wagons; and from the power sector like SJVN, NHPC, REC, PFC, as well as public sector banks like PNB and Bank of Maharashtra,” he said. 

Their investment in these sectors is based on the belief that the re-rating catch-up required in these sectors is now complete, but there remains significant scope for growth as India continues to develop. 

“We are moving from a $2 trillion economy towards a $10 trillion economy in the next decade, and we believe the pace of capex investments in India will be critical in this journey. The transformation that took place in the first 60 years of India's independence, we anticipate, will be replicated in the next five years, signifying a rapid phase of development and investment opportunities,” he said.