Value Investing Philosophy

Samedh Investment Advisory firmly believes in Value Investing principles and attempts to advice financial portfolio based on these principles. Value Investing as a concept was introduced by Benjamin Graham and David Dodd in 1928. It is a cautious approach to investing that prescribes investments that appear under-priced based on fundamental analysis. Benjamin Graham defined investment as follows – “An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return.” Warren Buffet is the most renowned investor who subscribes to and propagates Value Investing philosophy. Samedh Investment Advisory believes in helping investors conduct their financial investment operation within purview of the definition prescribed by Benjamin Graham. The advisory guides Indian investors on how to ensure safety of principal while generating an adequate return.

At Samedh the belief is that an investor has best chances of making a profitable investment by turning the odds in his/her favour based on historical performance. To achieve this objective the odds of success should be evaluated at the time of making the investment, as there is precious little that a passive investor can do to improve prospects once investment has been made. Beyond this point the investor is a mere spectator watching events unfold hoping that their outcome is favourable to the investment made.

It is with this belief that Samedh prefers to invest only in Financial Investment Products with credible historical pricing data. This includes Financial Investment Products based on Indian or Global Market Indices like Equity Indices, Sectoral Equity Indices, Benchmark Bond Yields, Gold ETF etc. Generally the market tends to price investment products based on prevailing market sentiments. Market sentiments demonstrate a cyclical patter fluctuating around “Fair Value” of the investment product as shown in figure below.

Samedh Value Investing Marketing Pricing Trend

The investment philosophy at Samedh is that the odds of investment success are depended on entry point in the Investment Product Market Pricing Cycle. Thus highest chances of success are when the investment is made near long-term bottoms of the cycle. Subsequently liquidating the investment below long-term peak level allows investor to book profit in time, staying clear of speculation at the height of markets madness. Towards achieving the above, the first step is to identify the market pricing cycle of various asset classes of investment products. Since timing the exact peak or bottom is not possible, so the line-of-action would have to be to buy when markets are at statistically low historical levels and sell when markets are at statistically high historical levels. Accordingly the Investment Product Market Pricing Cycle at Samedh is divided into four distinct phases for investors:

Buy   : Statistically bottom 20% historical levels of market pricing based on price value gap for equities and annualized return for other asset classes

Hold : Between Buy and Sell levels of market pricing cycle

Sell : Statistically top 20% historical levels of market pricing based on price value gap for equities and annualized return for other asset classes

Wait : Between Sell and Buy levels of market pricing cycle

The phases of Investment Product Market Pricing Cycle are shown in the figure below:

Samedh Value Investing Market Cycle

The cumulative effect of a fluctuating market price around fair value and advised investor action in the four phases is shown in the illustration below:

Samedh Value Investing India

Period from start of Buy phase to start of Sell phase is the investment duration for investor, which is theoretically close to half of the particular investment product’s long-term market cycle duration. Since post-tax return on investments in India work out better when investment is held for a period longer than 1 year, this investment approach is tax efficient. It avoids unnecessary churning of portfolio, saving on brokerage and other transaction expenses as well.

The investment duration based on Samedh’s investment philosophy works out to be longer than 3 years. Hence the advisory is suitable for investors who have investment horizon longer than this period. The advisory should be followed for the part of the overall financial investment portfolio where investment horizon is longer than 3 years. For the balance part of financial investment portfolio, investment products that are not expected to show capital contraction are advised.

Samedh Investment Advisory issues advice to Indian Investors by suggesting a Model Financial Investment Portfolio for a particular quarter at the beginning of each quarter. This Model Portfolio is called Samedh Dynamic Mutual Fund Portfolio (SDMFP). SDMFP specifies the Asset Allocation for the particular quarter as well as the position in market pricing cycle for the individual Financial Investment Products that are part of Asset Classes. The target annualized return for Samedh Model Financial Investment Portfolio over 3 year period is 16.0%. The main focus is on reducing downside risk while taking investment exposure to the various financial asset classes.