We are close to completing our first year of investing at 2Point2 and this is a good time to take stock of our performance so far. Since inception, we have generated 34.74% in returns compared to 11.64% of the Nifty 50 and 24.74% of Nifty Midcap 100 index. The overall performance has been quite good on both absolute and relative basis. This calls for a celebration. But, maybe not.

Consider the game of cricket. If you aren’t a good player, it is certain that you would struggle to even make it to the gully cricket team let alone dream of being part of the Ranji or national team. Thus, cricket is largely a game of skill. On the other hand, investing (over the short term) is an activity which has a high component of luck. Over the long term, the role of luck diminishes substantially in investing.  However, sometimes luck can play a role even in a reasonably long investing period.

Continue reading Luck vs Skill →

As stock markets reach dizzying heights in the absence of any fundamental change in business outlook, we increasingly see promoters employ various creative means to support or help prop up their company’s share price. While there is no harm in wanting to see the company stock reach new highs and create shareholder wealth, what is worrying is that promoters seem to be more focused on the stock’s performance rather than the business performance. Probably they miss the fundamental point that stock performance is an outcome of business performance and not vice versa. As long-term investors, we look at promoters’ undue focus on stock price as a warning signal that something is amiss. We discuss some such signals below.

Continue reading Stock drives business Or Business drives stock? →

One of the most frequent questions that potential and existing investors ask us is about our high cash position in the portfolio. Currently, the cash allocation is ~19% of the portfolio value. This is clearly a high level. Most other funds do not have even 5% of their assets in cash.

Our high cash holding is not intentional due to our desire or belief in ability to time the markets. The cash holding is entirely an outcome of our investment process and capital allocation process – (1) finding an investment idea that meets our return objectives and (2) deciding the stock idea’s allocation in the portfolio. (1) and (2) are not disconnected. Very attractive ideas will invariably have a higher portfolio allocation.

Continue reading The Value of Cash →