Stability Of The Earnings Stream

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“Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you’re not going to make much different than a 6% return—even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you’ll end up with a fine result.” – Charlie Munger,  “A Lesson on Elementary, Worldly Wisdom As It Relates To Investment Management & Business

Ashva Capital’s sole focus is the long-term compounding of your capital through investments in high-quality publicly traded securities in the Indian equity market. We seek to find businesses that produce high returns on equity and that are capable of compounding capital at high rates of return over long periods of time. I’m looking for businesses that are compounding machines and am guided by the following investment beliefs:

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  • High returns on capital are important. Over the long-term it's hard for a stock to earn a much better return than the business which underlies it.
  • We attempt to purchase companies trading at a discount to our estimate of future cash flows. However, companies with a sustainable competitive advantage are rare. Thus, it's better to pay a fair price for a great business than a great price for a fair business.
  • High turnover in the portfolio acts as a "tax" on returns.
  • Companies that are capable of compounding your capital over the long-term must have the ability to earn high returns on reinvested capital.

I use a variety of valuation techniques but primarily rely on discounted cash flow valuation. The portfolio is comprised of investments that have the most upside potential and that meet my initial return hurdle rate. Once an investment is made I will sell only in the instance that the underlying investment thesis is no longer valid or valuation levels reach an extreme level based on historical data.

Stability Of The Earnings Stream

Obviously, we live in an age of disruption and even the most established and defensible competitive positions can be undermined. Thus, I’m not a buy-and-forget investor and am constantly monitoring our portfolio to ensure that the companies we own are either maintaining or improving their competitive position over time.

Additionally, the use of DCF analysis assumes an earnings stream that goes on in perpetuity. Thus, stability of the earnings stream is a critical factor in arriving at a reasonable valuation target. I utilize a proprietary quantitative screen for earnings stability to ensure that only high quality businesses with sustainable earnings make it into the portfolio.

My main goal when assessing management is to determine whether or not they’re building on the competitive strengths of the underlying business. In the event that I find compelling evidence that the competitive position is compromised, which is directly reflected in declining returns on capital, I look to exit.

Over time, it’s my expectation that the portfolio will be comprised of the leading companies within their industry. The ultimate goal is to own a stable of companies, on your behalf, that will not only benefit from but also capitalize on India’s tremendous economic growth potential.


Ankur Shah

Ashva Capital Management LLC


One of the keys to investment success is having the right mindset. World-renowned Stanford University pscyhologist Carol Dweck has done decades of research on achievement and success in sports, academics and business. Her research has found that success is directly related to one of two mindsets, either growth or fixed.

The interesting thing is that you most likely developed this mindset as a child based on a variety of factors including your parents, peers and teachers. If you’re interested in learning more about Carol Dweck’s work, I highly recommend her book Mindset: The New Psychology of Success.

It’s not your typical self-help book. It will definitely open your eyes to how successful people view challenges and overcome them.

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