Welcome, reader. This blog is intended to broadcast the ideas of KIP Fund Inc., a boutique investment fund.
Kothari Investment Partnership (KIP) Fund Inc. invests in a concentrated global equity portfolio.
KIP offers investors a unique approach to wealth management. We believe that preservation of capital coupled with its consistent and steady compounding is the key to long-term wealth generation.
Our investment philosophy is value investing. Our investing universe is limited to businesses with sustainable competitive advantages, also called economic wide-moats. We conduct a rigorous qualitative analysis coupled with a forensic quantitative investigation of a business. If it passes our checklists and filters, we seek to purchase its common stock at prices below our assessment of its intrinsic economic value.
We seek businesses that demonstrate a history of high returns on their invested capital. We also recognize that businesses that can re-invest capital at a high incremental return for extended periods are rare and substantially more valuable. We focus solely on such wealth-compounders. Equally important, we stay alert against and shun wealth-destroyers. For purchasing a short-listed business, our valuation and buying discipline focuses on maximizing a margin of safety, while minimizing the opportunity cost.
Our process is a singular focus in identifying economic wide-moats and exercising a rational valuation and price discipline. In doing so, we ensure that we partner with talented and ethical corporate managers who leverage the competitive advantages of their businesses by allocating capital to only the highest-return opportunities.
What We Do
We are in the business of part-ownership of businesses. We manage a single, long-only global equity strategy. We concentrate our investors’ capital in 18-20 competitively advantaged businesses with the potential to compound shareholder value at above-average rates. We purchase these businesses at what we believe to be reasonable discounts to a rational assessment of their intrinsic value, and we seek to partner with corporate managers who we believe can allocate capital in ways that benefit long-term minority shareholders.
We do not manage businesses or trade securities. We are in the business of allocating investors’ capital intelligently. We are geographically agnostic, and do not target a pre-defined regional exposure.
Our search process for new investments is largely qualitative, since the structural competitive advantages or economic wide-moats that we prize cannot generally be found via quantitative screens.
We invest in socially-responsible and ethical businesses.
How We Search, Value And Buy
We follow a 3-step process to search for potential investments. First, we look for businesses with structural advantages that insulate them from competition. They should demonstrate a history of high returns on their invested capital which out-earns the cost of the capital they employ. Next, we want to ensure that the businesses can re-invest capital at a high incremental return over extended periods of time in the future. And lastly, we ensure that the businesses are managed by talented and ethical capital-allocators. Our search process is largely qualitative. We concentrate on sectors and industries which we deeply understand and which have proven themselves in the past and will continue as wealth-compounders. Equally important, we stay alert against and shun industries which are wealth-destroyers. This approach helps us narrow a universe of thousands of companies worldwide down to a manageable watch-list of a few hundred. Truly great businesses are few and far between. Selection is followed by valuation. We use a variety of tools from discounted cashflow to market-relative traditional multiples in order to generate a range of valuations. In doing so, we remain alert to the dangers of false precision. We would rather be approximately right than precisely wrong. And we never lose sight of the meaning behind our measurements.
The final and important step is to determine the purchase price. While we always seek a margin of safety in our purchases, we remain careful in maximizing this margin. We weigh it against the opportunity-cost of not owning a business which could potentially be a wealth-compounder with a long runway ahead of it.
Our singular focus to invest in businesses that compound shareholder value over time leads us to aim for a two-sided margin of safety; assessing the superior quality of the business and exercising a rational valuation and buy-price discipline.
What We Do Not Do
- We shall invest, never speculate. We will always focus at what the business or the asset is going to do, not what its price is going to do. Predicting and guessing future prices is not our game.
- No debt, no leverage, no margin borrowing. To use a wise quote: “If we’re smart we don’t need it, and if we’re dumb we shouldn’t be using it.” Our investors too are discouraged from using debt while investing with us.
- No shorts (defined as buying an over-valued business and profiting if its price falls).
- We like investments in which time is our friend and is on our side. So, no futures, no derivatives (put/call options etc.), no complexity. Keeping things simple helps reduce the risk of error.
- We do not invest in businesses related in any way to tobacco, alcohol, gambling, or pornography. Also, we do not invest in conventional financial sector businesses or the production and marketing of meats.