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WEALTH THROUGH WISDOM
Helios Mutual Fund – Embracing Elimination Investing (EI)™ as Our Investment Philosophy
At Helios, our investment philosophy has been meticulously cultivated over the past 25+ years of hands-on investing experience. With one of the seasoned teams in the Indian Fund Management Industry, boasting over 100 years of cumulative direct India investing experience, we have established a substantial advantage by navigating the market’s intricacies over an extended period.
Elimination Investing is a pioneering concept and is the bedrock of our investment philosophy. By starting our analysis with “why not to buy” a particular stock, we ensure that our potential “buy” pool is a carefully chosen list of attractive companies – we simply insist on contemplating amongst robust and sustainable businesses. We have a proprietary eight factor model on which we reject stocks.
It is easier to “reject stocks with conviction” than to “own stocks with conviction” for it is easier to know what is bad than to know what is good. A single negative factor may be enough to know that an investment may be bad whereas even multiple positive factors may not be enough to get conviction that the investment may be good. We believe that there is enormous value in differentiating between good and bad stocks but less so in differentiating between two good stocks.
As the renowned author Nassim Nicholas Taleb articulated in his book “Skin in the Game,” “Via Negativa (acting by removing) is more powerful and less error-prone than via positive (acting by addition)..
Elimination Investing: A Guiding Principle
Elimination Investing™, or EI™, doesn’t revolve around crystal ball predictions of future top-performing companies. Instead, it’s a strategic methodology meticulously designed to enhance the likelihood of sidestepping potential underperformers. This principle comes to life by astutely eliminating companies that do not robustly meet predefined criteria.
This process of meticulous culling helps construct a focused universe of “Not Bad” companies, deliberately pruning those with a higher likelihood of subpar performance. Our aim is to increase the chances of selecting companies with better prospects, aligning seamlessly with our overarching objective of outperforming the market over time.
Navigating the EI™ Framework: Eight Pivotal Factors
The Elimination Investing process is anchored in a comprehensive framework comprising eight pivotal factors. This framework is rigorously applied to exclude investments that exhibit red flags, ensuring our portfolio remains resilient and poised for growth.
Core Tenets of Our Investment Philosophy
- Elimination Investing: Our cornerstone approach involves eliminating stocks with conviction based on eight fundamental screening factors. This strategy has consistently demonstrated its effectiveness in weeding out underperformers and gravitating toward winners, forging a sustainable outperformance profile. Rejecting bad companies increases the chances of arriving at the good companies, reduces errors, and reduces cost of errors.
- Avoid Permanent Loss: Avoiding permanent loss of capital is an overarching objective ingrained in every facet of our investment process. We endeavour to achieve this by limiting leverage and meticulously screening out stocks with the potential to permanently derate, stagnate or go to zero.
- Investing with Tailwinds: Our investment philosophy is underpinned by profound research, executed within the evolving macroeconomic, market, industry, and thematic landscape. We always endeavour to invest with a tailwind at our backs, as it is more advantageous than battling headwinds.
By meticulously adhering to these principles, our approach substantially enhances the prospects of curating a selection of companies with robust growth potential. This alignment harmoniously fulfils our overarching objective – to surpass market benchmarks, build cumulative short to medium-term successes into a thriving long-term investment journey.
In the wise words of Charlie Munger at a Berkshire conference,
“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”
This sentiment underscores our commitment to pragmatic, disciplined, and sustainable investing through Elimination Investing at Helios Mutual Fund.