Do you know what’s common between Ola Cabs and Flipkart?
All three were market disruptors which brought in innovative new business models, relatively unknown in India before and went on to become immensely successful. In a short span of less than few years, all three companies have become giants in their respective fields with valuations in millions.
According to statistics, 9 out of 10 startups fail within a year. But those which succeed create enormous wealth for their founders and investors. Ola Cabs and Flipkart are not publicly listed companies, but can you imagine how much wealth their shareholders would have made in less than 10 years if they were listed on the stock exchange?
There are about 5,000 listed companies on the BSE, out of which few will cease to exit after few years, while few have the potential to replicate the success story of Ola Cabs and Flipkart by introducing disruptive business models.
Apart from those companies which introduce disruptive technologies, there are certain companies which stand to gain immensely by adopting the innovation.
Mahindra & Mahindra (M&M) is a great example of a company which achieved immense success by adopting an innovation of integrated design and manufacturing while developing its multi-utility vehicle ‘Scorpio’. The Scorpio platform was then successfully used for developing new models such as Xylo and the XUV5OO. As a result of this innovative adoption by M&M, the company’s stock price grew by almost 900% since 2005.
So now that you know that stocks of companies which introduce disruptive business models and adopt the innovation are the ones that have the potential to deliver mind-boggling returns. However, it is equally important to understand whether the product offered by the company is sustainable in the long run or just a fad which will perish with time.
So before investing in a stock, it is equally important to understand whether the business model of the company is sustainable in a long term.
Is Investing An Art Or Science?
Investing in stocks requires an in-depth understanding of the company’s business model, topline, net profits, free cash flows, return ratios and pedigree of the management. Stock markets and stocks are subject to multiple factors. How to invest in stocks requires in-depth understanding of the businesses from a perspective of being co-owners of your capital invested. Hence, investing is a game of both art and science.
R&R’s Unique Approach To Identify Great Businesses
We use a unique methodology which is an impeccable combination of assessing quantitative parameters as well as use human judgment and expertise to evaluate the commonly ignored intangible growth parameters.
Our criteria for picking a winning stock includes the assessment of company's overall financial health, consistency of the cash flows, management commentaries, competitive advantage, supply and demand and other individual indicators of such as track record of the promoters over time. Along with these, we look at the growth plans of a company as well as the management plan to achieve the growth.
However, with the era of disruption and dynamic business landscape, the above-mentioned yardsticks does not suffice. We also look out for:
Purpose: We look for companies with a purpose and vision and the passion of the leadership team to achieve the vision in an ethical and disciplined way.
Symbols of change: Once we identify a solid stock using a bottom-up approach, we study the sector/industry and innovation or change the industry is experiencing. For e.g. With the Prime Ministers vision of replacing ‘Internal Combustion Engines’ with ‘Electric Vehicles’ by 2030, it will drive the growth of automobile ancillaries that produce batteries for electric vehicles.
Forerunners in technology: We assess whether the company has operational capabilities and its commitment towards R&D division to adopt the change in the industry.
Sustainability: Our research experts are dedicated to conducting an in-depth study on the sustainability of the business model, process, product or technology.
Leadership qualities: The leadership qualities of yesteryears will be different from the leadership qualities of tomorrow. Along with the credibility and expertise, we look out for businesses run by management that have the competence to take proactive steps in the changing world.
With this, our portfolio includes businesses that have recurrently displayed robust corporate governance policies and risk management processes.
By embracing this unique approach, we have delivered returns of 123.20% over the past 28 months for more than 5,000 R&R investors. Need we say more?