A very good thread!
I have been struggling with capital allocation over last 2 years. This thread helped a great deal to put some structure to capital allocation. And then an idea appeared to me after discussion with friends. The idea is to look at Annual Sales of companies and use that in capital allocation.
e.g. something like this:
The simple idea is once you become big – you are going to run into hurdles for next phase of growth and upside may be limited. There will always be exceptions to this. Opportunity size is one factor in above discussion that covers above topic well but still when you grow above a certain size (2000 Cr is my threshold, it may be different for you or even based on industry), you have to work extra hard to get to maintain same % of growth.
Current rule I follow is, once company crosses 2000 cr, mark, I stop adding the new positions (but continue to hold previous position).
Within these categories, I follow excellent VP model which ranks stocks based on CR and VR. i.e. these categories are after we are convinced about Business Quality, Management Quality, Valuation etc.
Views invited.
Thanks,
Rupesh
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