Beyond the Headlines: The Low-Profile Strategy of Ashish Kacholia

In today’s newsletter, we will delve into the investment strategy of Ashish Kacholia, a prominent yet relatively lesser-known investor. Mr. Kacholia is renowned for his investments in small and microcap stocks, many of which remain under the radar. His investment philosophy revolves around a thorough analysis of business models and products. We will begin by examining his approach and later discuss a case study to illustrate its application.

A background on Ashish Kacholia

Ashish Kacholia has an engineering background, having earned a bachelor's degree in production engineering before pursuing an MBA from the Jamnalal Bajaj Institute of Management Studies. His journey in the stock market began in 1993 when he joined Prime Securities as Head of Research. He later transitioned to Edelweiss, where he worked on the Equity Research desk.

In 1995, Mr. Kacholia founded his own company, Lucky Investment Managers, where he managed private investments and provided services to High-Net-Worth Individuals. He is famously known as “The Big Whale” in the stock market. Ashish Kacholia maintains a low profile and tends to avoid interviews and media attention. He has carved out a niche in small-cap and micro-cap stocks, particularly those listed on the SME exchange. Many of the companies he invests in are relatively unknown to the public.

Investment Philosophy

Ashish Kacholia has an investment philosophy rooted in business moats. Moats are deep ditches dug around a castle or fort and is filled with water, therefore acting as a first line of defense. In business sense, these are the factors or strengths of a company that give them a competitive advantage.

After looking at the various companies held by Mr. Kacholia over the years, we can say he has 6 principles when it comes to investment:

1. Business Moat

2. Demonstration effect

3. Growth and valuation

4. Simple business and market leaders

5. Management’s integrity, potential, and capabilities

6. Knowing when to exit the investment

Let us understand each of these principles and see how it fits into Mr. Kacholia’s investment philosophy.

Business Moat

As we discussed earlier, a moat refers to any factor or strength that gives a company a competitive edge over others in its industry. This advantage can take various forms, such as geographical dominance, product superiority, being part of a sunrise sector, strong branding, customer loyalty, pricing power, or high switching costs, among others.

A business with a moat is better positioned to consistently attract and retain customers, ensuring ongoing sales and long-term sustainability. This is an important principle in Mr. Kacholia’s investing philosophy.

Demonstration effect

In the context of a business's product, the demonstration effect refers to how a product’s visibility, success, or usage can influence other potential customers or competitors. If a product gains traction in the market, particularly due to its innovation or success, it can inspire other consumers to adopt it. Mr. Kacholia favors products with the potential to create such an effect, where the product's success in one segment can drive broader market adoption or spark innovation. Examples of this can be seen in the software industry.

Growth and Valuations

Regardless of how appealing a company's business model may be, it is essential for the company to trade at a fair price to make it a worthwhile investment. This principle aligns closely with Warren Buffett's approach, which involves identifying great companies at a reasonable price. The evaluation of the business incorporates elements of 'growth investing,' while the valuation of the business draws on principles of 'value investing.'

Simple business and market leaders

Mr. Kacholia favors companies that are both simple and market leaders. Simple businesses are those that focus on a single core operation, excelling at it to such an extent that they become leaders in their field, outperforming competitors.

Management’s integrity, potential, and capabilities

Like many investors, Ashish Kacholia adopts a 'buying a business' approach when investing. This perspective emphasizes that the company's management, as the custodians of the business, must possess integrity, the potential for growth, expertise in the industry, and the ability to navigate the challenges within the sector.

Knowing when to exit the companies

Ashish Kacholia follows an investment philosophy centered around a buy-and-hold approach, or at the very least, holding investments for an extended period. However, if a business undergoes fundamental changes or loses its competitive advantage (moat), he does not hesitate to exit the stock. He consistently monitors the company's performance and remains flexible in divesting when an investment no longer aligns with his criteria.

The Fable Fintech case study

According to various sources, Ashish Kacholia invested in Fable Fintech in 2021. Fable Fintech provides cross-border payment solutions to several banks in India, with 9 out of 10 major banks utilizing its products for international transactions.

The company's software was well-established, scalable, and operated in a niche market. With its strong presence in India, Fable Fintech also expanded into international markets. Given that banking is a highly regulated industry where even minor errors can result in significant financial losses, banks exercise extreme caution when selecting software solutions. The fact that 9 out of 10 major banks adopted Fable Fintech's products served as clear evidence of the demonstration effect, reinforcing the company's credibility and market leadership.

The company also continuously innovates and improves its products to adapt to changes in the industry. This proves that the company is providing solutions to the banks’ problems.

Final thoughts

Ashish Kacholia maintains a low profile and rarely engages with the media or gives interviews, making it difficult to discern his investment views or rationale. However, based on various sources and his portfolio over the years, he tends to invest in companies across sectors such as chemicals, materials, information technology, manufacturing, education, and infrastructure.

He regularly re-evaluates his portfolio each quarter to assess whether his investments continue to meet his criteria. If a company no longer aligns with his investment principles, he remains flexible and has no hesitation in exiting the position.

Mr. Kacholia’s ability to identify high-potential companies early comes from decades of market experience.

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