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F E AT UR E D A RT ICL E

Discovering a Wealth
Creator Portfolio

D
ue to the ongoing COVID-19 cri- not let the markets decide my buy or sell
sis, investors have nearly $5 tril- decisions.
lion in money markets, surpassing So both of the above points tie-in together
the peak of the financial crisis, as they are because if the investment process is robust
wary of stocks. While building my invest- enough to spot great companies then the
ment framework two decades ago, I used subsequent portfolio out-performance will
to make sure that even if a major event like help to dampen the turbulence when the
the dotcom bubble, the credit crisis, or the
current health crisis takes place in the future
it shouldn’t change my core investing princi- Ticker Holding
ples and investment strategy. To see what has REGI Renewable Energy Group Inc
worked in the past, I went ahead and studied
OESX Orion Energy Systems Inc
the past one hundred years of US business
history. I also studied the investment process MHH Mastech Digital Inc
of legendary investors of the 20th Century. MED Medifast Inc.
Then, I analyzed the characteristics of great FFXDF Fairfax India Holdings Corp
companies that created shareholder’s value
RCM R1 RCM INC
and the qualities of successful investors who
did well for their investors over a consider- VCTR Victory Capital Holdings Inc
able amount of time. ELA Envela Corp
After a lot of brainstorming, it was evident
VNDA Vanda Pharmaceuticals Inc
that a company which has shown remarkable
growth in the past decade, which is run by GRVY GRAVITY Co Ltd
a capable leader and is bought at a reason- STC Sangoma Technologies Corp
able valuation has a good enough chance to EGO Eldorado Gold Corp
become a wealth creator for the portfolio.
SHYF The Shyft Group Inc
So, if I can create a framework through
which I can consistently come up with sev- VRTU Virtusa Corp
eral wealth creators, the portfolio is going to MITK Mitek Systems Inc
compound at an above-average rate and will
MBUU Malibu Boats Inc
out-perform the market both on absolute
and relative terms. VBTX Veritex Holdings Inc
The second part of the investing equation CASH Meta Financial Grp Inc
was to master the behavioral finance aspect. INTL INTL FCStone Inc
So, if using my framework, I spot a company
CSIQ Canadian Solar Inc
which is going to be a wealth creator in the
n BY MANEESH NATH next decade, I then need to stick with it and CNXN PC Connection Inc

70 MicroCap Review Magazine www.SNN.Network


Systematic Stock Selection Criteria Sheet:

markets start to tumble in a crisis. So the to provide Portfolio Management and value India.
more confident I am about my investment investing research for the US, EU, and In 2002, I attended M.S. at the University
process much better the chance that the Indian equity markets. I harnessed my wide of Cincinnati, Ohio where I was the recipient
portfolio successfully navigates through the range of experiences in different compa- of a Full University Graduate Scholarship and
inevitable market crisis period. nies/industries/countries and developed an Research Assistantship and received a GRE
So back in the year 2000, like a good advance Systematic Stock Selection Process Quantitative Score of 800/800. In 2000, I
strategist, I started out to first master the art (SSSP, applicable in the global stock mar- received, B. Tech. in Mechanical Engineering
of finding the wealth creators and then over kets) through which I consistently find high (minor in Engineering Economics) at the
a decade tested that portfolio track record growth companies while mitigating down- National Institute of Technology (NIT) in
which eventually provided insights on how side risk in the portfolio, and always keep Karnataka, India. In 1999, I had conducted
well the portfolio companies did and then investor’s interest first. During this period, I a Summer Research Project at the Indian
simultaneously incorporate that new learn- had openly shared my investment knowledge Institute of Technology (IIT) Kanpur and in
ing’s in the framework in 2009 so when a cri- via my equity research reports and tried to 1998, had undergone a Summer Internship at
sis like COVID-19 shows up a decade later in create equity-related financial literacy aware- Hindustan Aeronautics Ltd. (HAL). Starting
2020, my framework has two decades of my ness in my hometown, Lucknow, U.P. and in 2006, I took course work (online) in secu-
own practical learning’s lessons from the 21st Mumbai and at India/Global level via my rities valuation from NYU Stern School of
Century on top of the one hundred years of Century Partners blog posts and investment Business & Value Investing from Columbia
the 20th Century theoretical learning which letters. I have work experience with Fortune Business School. Starting in 2020, I am
is sufficient enough to weather any storm in 500 & major USA, EU & Asian Corporations attending an Executive Business education
the future. at senior management & Analyst level cover- program (Accounting) at the Indian Institute
Jun 2020 US Small Cap Portfolio: Using ing the entire spectrum starting from Start- of Management (IIM), Lucknow. I have been
my robust investment process, I have created ups, Small Cap, Mid Cap, to Large Cap com- a learning machine and had displayed the
a model portfolio with 21 US Small Cap panies & Conglomerate. During 2008-2010, ability to distill a large amount of infor-
Stocks, inception date as 1st June 2020. The I worked on Wall Street and focused on mation into actionable investment ideas.
portfolio companies have an Average Market quantitative equity/credit market research In my past work experiences in the US,
Cap of $815 Million, P/E of 18, EV/EBITDA as a Senior Investment Analyst at Markit I had received Out Standing Performance
of 10, Sales (3 Yr Growth) of 33%, Profit (3 Group (now IHS Markit) in New York, NY. Appraisals. I had represented NITK and
Yr Growth) of 75%, ROE of 32, ROI of 18%, During 2006-2008, I worked as a Senior the University of Cincinnati in Table Tennis
NPM of 14%, Current Ratio of 2.3, more Financial Analyst at Capital One Financial Tournaments. I also enjoy playing Tennis
information on other parameters in the sheet Corporation in Boston, MA/Richmond, VA, and an avid reader.
attached. where I provided advanced data analysis. I possess a solid “Quantamental” approach
Since inception on 1st June 2020, in one During 2003-2006, I also worked at the to stock selection and global quant equi-
month the Portfolio is up 7% vs. 2% of the Innovation Center of Eaton Corporation ty investing. I joined Arcstone Capital in
Russell 2000 Benchmark Index. in Southfield, MI, at the R&D department July 2013 as a Senior Hedge Fund Analyst.
Background: After gaining Wall Street at the Ford Motors Company in Dearborn, Arcstone Capital is Investment Manager
experience and with a deep curiosity to MI as a Senior Analyst, and in between to Passage to India Opportunity Fund
find the holy grail of investing in the stock 2000-2002, as an Analyst at Tata Motors in (PTIOF), Mauritius/Cayman Island (earlier
market, in 2010, I founded Century Partners (Jamshedpur, Pune, Kolkata, New Delhi) a Delaware, USA) based Hedge Fund. I was

www.SNN.Network MicroCap Review Magazine 71


S.NO. BASIC SCREENING CRITERIA Filter
the only person in the portfolio management
1 Return On Equity (ROE) (5Y CAGR) >10%
team where I conducted thorough research
2 Return On Capital Employed (ROCE) (5Y CAGR) >10%
& analysis to find Top 25+ undervalued
companies out of 4500 companies available 3 Return On Assets (ROA) (5Y CAGR) >10%
in the Indian stock market which helped 4 Earnings Growth (5Y CAGR) >5%
in raising the fund’s NAV up over 5 times 5 Sales Growth (5Y CAGR) >5%
(400%+ Cumulative returns) and produced 6 Net Profit Margin (NPM) TTM >3%
45%/Annum Returns over the 4 years (2013- 7 Price/Earnings (P/E) TTM <35
2017) vs. 10%/Annum Returns of the Indian 8 Earnings Yield (EY) TTM >3%
benchmark BSE Sensex. Based on 2014 per- 9 Price to Book Value (P/BV) <8
formance, PTIOF was the best performing 10 Price/Sales (P/S) TTM <8
fund (Rank #1) in the world, out-performing 11 EV/EBITDA <10
over 17,000 hedge funds tracked by Preqin/ 12 Daily Volume in Rs. (Averaged Over a Month) > INR 1 Million
Eurekahedge, leading databases. It was Top-
13 Debt/Equity (D/E) <1
performing fund for 2013-2015 & 2014-2016
14 Percentage of Promoters Shares Pledged <15%
(3-year category). (Global Fund Ranking
15 Current Ratio >1
provided by leading industry databases like
16 Promoter Group Share Holding >20%
Preqin/Eurekahedge). In 2014, I was award-
ed as one of the 17 recipients of SumZero’s 17 Dividend Payout Ratio >10%
Buy-Side Analyst/Portfolio Manager Honors 18 Dividend Yield (DY) >1%
out of 15,000+ fund management profes-
sionals worldwide. In Feb 2017, I ranked its UP-UK Chapter in April 2017. Stock Selection Process Framework: If
in the Top 0.2% ile of 15,000+ SumZero Systematic Stock Selection Process a company gets selected in the Top 25,
members globally. (SumZero is the world’s (SSSP): In the first stage, I apply 18 General then it is the best as per my criteria and my
largest community of investment profes- filters with an initial screen on all the 5000 knowledge. Companies that reached the Top
sionals working at hedge funds, mutual Stocks in the market. This basic screen leaves 100 list but couldn’t make it in the Top 25
funds, and private equity funds; SumZero me with close to 500 companies. I then apply list, were mostly good but I may have left
is based out of Soho, NYC, Wall Street, a Business, Management; Price filters which it out for some genuine concern or my lack
Network founded by Harvard and other Ivy leave me with 100 companies. I then deep of knowledge to see their future growth
League Alumni). I was awarded the “2019 dive & review these 100 companies in micro- outlook. Some from that Top 100 list which
MSME Achiever’s Award” in Hyderabad, scopic detail, seek deep insights & rank them didn’t make it in my Top 25 go ahead and do
India for International Achievement in the 1 through 100. For the portfolio, I finally very well, which is fine with me as I didn’t
field of Wealth Management by the hon- chose the highest grade Top 12-25 compa- know enough about it at that time to make
orable Union Minister of State for Micro nies who exhibit low risk, undervalued, high a decision. I need to fully understand, if a
Small and Medium Enterprises (MSME). growth characteristics and create an equally company in the portfolio went up, sideways,
I am also a recipient of the “Distinguished weighted portfolio and monitor all the port- or down, why it behaved in that manner, so I
Alumni” Title of NIT Surathkal awarded by folio level metrics every quarter. can incorporate it in my framework to have
more of it or less of it the next time. So, in the
case of RS Software Ltd., where there was a
client concentration issue, Visa being their
My goal in the past decade was to create a only major customer, I had covered that risk
in my thesis, that this can be an issue in the
systematic stock selection process that is repeatable, future, and when Visa went away then I also
could be scaled up and universally applicable so exited (at a decent profit). So for future runs,
I am even more cautious about that factor.
it can easily be implemented in the global stock Similarly, learned from experience about
promoters shares pledged %age should ide-
market. ally be zero if not, then, it should be very low.
If a company like Astral Poly Technik went

72 MicroCap Review Magazine www.SNN.Network


Cap Index by 400%+ during the period May 2012
up, why it went up and incorporated those Astral Poly Technik Ltd. to Feb 2019 (Ann. Returns of 31% vs. 12% of Index
characteristics in the framework and so on. over the 6.8 years). Major Performers in the portfolio
My goal in the past decade was to create BSE: 532830 | NSE: ASTRAL | ISIN: were: Astral Poly Technik Ltd. (APTL: BO) is up
4000%, Avanti Feeds Ltd. (AVNT.BO) is up 3500%
a systematic stock selection process that is INE006I01046 | SECTOR: PLASTICS | & SQS India BFSI Ltd. (SQSI.BO) is up 1000%. In
repeatable, could be scaled up and universal- ASTRAL 3rd Jan 2011 Quote was Rs. 30 and Oct 2012, Maneesh created a model portfolio of
10 large & mid-cap stocks from MSCI India Index
ly applicable so it can easily be implemented Market Cap was Rs. 300 Crore (~USD70M);
which outperformed the index for the next 7 years.
in the global stock market. With my 10 years Jan 2020 Market Price is Rs. 1109 and Top picks included Tata Consultancy Services Ltd.,
of full-time work experience with different Market Cap is Rs. 18,117 Crore (USD 2.5 HCL Technologies Ltd., Tech Mahindra, Axis Bank
Ltd. In Jan 2009, Maneesh created a USA Model
industries/departments around the world, Billion); Portfolio of 17 Mid and Large Cap USA Companies
multiple skill-set helps me in conducting this USD Adjusted Returns (Jan 2011- Jan (equally weighted) which outperformed the DJIA for
11 years (Jan 2009 to Jan 2020). During this period,
detailed process efficiently. 2020): 48% Ann. Stock returns vs. 2% Ann.
his USA Model Portfolio went up ~7 folds in 11 years
Benchmark returns; (with no turnover) vs 3.5 folds of DJIA, Cumulative
Scope of the Framework Returns of 570% vs 246% DJIA and Annualized
Returns of 19% vs 12% DJIA; Major Performers in
Avanti Feeds Ltd. the portfolio were: TJX Companies Inc., Ingersoll-
• I can cover 50,000 Stocks traded in the Rand PLC, Harris Corporation, Stryker Corporation,
FMC Corporation, Varian Medical Systems, Inc. In
world via my Systematic Stock Selection BSE: 532830 | NSE: AVANTIFEED|
Jun 2015, Maneesh created a Model Portfolio of 24
Process. ISIN: INE871C01038 | SECTOR: USA Small Cap companies (created in Jun 2015)
• As per investor’s interest and appetite, I AQUACULTURE| delivered Cumulative gains of 62%, (Ann. Returns
of 13.1%+) over the 4 years Jun 2015 to May 2019,
can create a large AUM portfolio with 25 AVANTIFEED Feb 2012 Quote was out-performing the Russell 2000 benchmark by 8%
to 50 stocks using my framework. Rs. 10 and Market Cap was Rs. 136 Crore (Ann). Top stock picks included EnviroStar Inc (EVI)
+700%, Richmont Mines Inc (RIC) +220%, Omega
• This framework works on Stocks (~USD30M);
Flex Inc (OFLX) +200%.
of Developed (US, EU, Japan) and Jan 2020 Market Price is Rs. 1109 and LinkedIn: https://www.linkedin.com/in/maneesh-
Developing Countries (India, China, Market Cap is Rs. 9045 Crore (USD 1.3 nath
Email: maneeshnath.devraj@gmail.com
Latin America, etc.). Billion); Phone: +91 727 510 8108
• My Framework applies to Small, Mid, USD Adjusted Returns (Feb 2012- Jan
Note: This article is not an attempt to provide invest-
and Large Cap stocks; all three types can 2020): 62% Ann. Stock returns vs. 3% Ann.
ment advice. The content is purely the author’s per-
be covered. Benchmark returns n sonal opinions and should not be considered advice
• This framework is also scalable to of any kind. Investors are advised to conduct their
Profile Information: Maneesh Nath solely assisted own research or seek the advice of a registered invest-
accommodate small to large sums of ment professional.
the Hedge Fund Manager of Arcstone Capital start-
capital. ing 2013 which in 2014 became the World # 1 Rank
Hedge Fund among all the 17,000 hedge funds Maneeth Nath do not own any shares of companies
across all asset classes globally. Maneesh Nath is a discussed.
Multi Baggers Which I Found in 2010 world-class portfolio manager with over 11+ years
and 2011 Using the Framework: of international investing experience in the US, EU,
and Indian Equities. Maneesh has a proven track
record of generating 520%+ absolute returns and
out-performing the USD Adjusted BSE India Small-

www.SNN.Network MicroCap Review Magazine 73