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Growth & Value Stocks

The goal is to identify stock investment opportunities that are uncorrelated with each other, taking advantage of how stock market cycles work and timing the investments for maximum reward for the risk taken. As seen in the graphic below, the risk of a portfolio decreases dramatically without reducing returns if one is able to identify 10-15 uncorrelated alpha opportunities.

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At Ekantik Capital Advisors, our research team focuses on identifying uncorrelated investment ideas that have a potential upside greater than >20%.  Coupling that with allocations in the range of 5-50% of the portfolio creates a potential to generate absolute uncorrelated returns. Total portfolio returns will be determined by the expected value of each trade.

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For example, please note the illustration below wherein 30 investment ideas are generated in a year, with each having a risk ratio of 3:1 and success rate of 70%, which can generate total returns ~>20% while most of the portfolio always is in cash ready to be deployed when the next opportunity comes.

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Here are a few ideas on how investing alpha opportunities can be identified:

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a.      

.       Dislocations

Investing when a stock price Is dislocated by a non-material event, but the fundamental business model is still intact. For example, NetFlix stock really went down when Disney launched Disney+. Still, the reaction was overblown because Disney would not offer all streaming material that would have catered to everybody. Netflix was already well established and had the ability to spend a lot of money on content to keep its competitive advantage going.

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b.      Superlative Products or Services

Investing in a company that has superlative products or services that are likely to grow faster than average e.g., the Apple iPhone launch in 2007 and the subsequent launch of the Apple store and other products, studying the iPhone as a product and monitoring the sales would be obvious it was a blockbuster product and would have still a lot of opportunities to grow e.g., Warren Buffet invested in 2016, and investment has grown >450% till date.

 

c.       Launch of New Product Launch or Service

Investing when a company is going to launch a new product or service that can materially impact the earnings potential of the company, e.g., the Model 3 launch by Tesla, was going to be groundbreaking because it was the first move to foray into lower-end electric vehicles.

 

d.      Leveraged bet on the market

 

Putting a leveraged bet when the stock market has had a big correction of>20% e.g., during the pandemic or during 2021

 

e.       Companies With Moat

Investing in a company with a moat that has been corrected due to market or other non-material events, with its core business model still intact. For example, Facebook experienced a slowdown in AD revenues in 2022 that freaked out investors. Still, Facebook had already established a solid moat of >2 billion users on the platform, which would be very hard to replace.

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f.        Investing Based on Understanding of Stock Cycles.

Stock prices do not go up or down vertically. Understanding stock cycles can help with the timing of investment and generation alphas, as indicated in the chart below.

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