Astral Value Fund is a long-biased, absolute return fund that aims to grow our partners’ wealth by compounding Asian markets’ equity returns with lesser risks through a disciplined approach to investing in mispriced situations.
While paying attention to the macro environment, we build up our portfolio using a fundamental, bottom-up approach. Our portfolio building incorporates compounding as we believe that it is the essential ingredient to long term wealth creation. For compounding to work, consistent positive returns and minimizing losses are paramount. It is our belief that only the time-tested value investing strategy can allow us to achieve the steady returns that we are after.
Value investing is the buying of a business at a significantly discounted price to what it is worth. There is a misconception that value investing revolves around buying low Price to Earnings or Price to Book businesses. However, this does not consider the underlying business’s competitive dynamics, growth, management competency, and attractiveness of the industry. For instance, a single mom and pop retail store should not trade at a same PE as a nationwide retail chain. Hence, we spend significant time to understand businesses, their moat and interviewing management and other stakeholders to arrive at an estimated intrinsic value of each business that we invest in.
Once we have determined the approximate intrinsic value of businesses we like, the next step is to look for situations where there is significant discount between the stock price and intrinsic value. Some examples of mispricing could be due to lack of understanding of the business, special situations such as spin-offs or excessive pessimism over the future. The key is to be patient. To build our portfolio, we constantly monitor and keep track of many companies with watchlists.
When we identify significantly mispriced equities, we will build up a position based on the size of the discount and quality of business. Attention will also be paid to the liquidity of the traded equity and the potential for narrowing of the gap between the stock price and the intrinsic value of the business.
We will monitor diligently the stocks that we hold by continuing to keep track of key performance indicators and engaging the management. We seek to maintain a portfolio of equities diversified over various fundamental equity strategies and throughout the capitalisation spectrum.
We believe that equity investments should comprise most of our portfolio as the volatility of the equity asset class presents opportunities for enterprising value investors. However, we have the flexibility to go to bonds or cash if we believe excessive optimism is being priced into equity markets or we cannot find compelling investments.