Investment Philosophy

At Atyant Capital, we strive to achieve maximum asymmetry in our investment portfolio.

We seek to buy companies at a discount to conservatively-appraised intrinsic values. We look for companies that have a long runway, that have the ability to compound capital over long periods of time, and that give us the potential for asymmetric upside. This gives us a margin of safety and helps protect us against permanent losses of capital.

As contrarian investors, we strive to think and act independently. We actively invest in situations that are overlooked or misunderstood by the markets.

Market participants have an irresistible proclivity to stay with the herd. We have a natural dislike for crowds and crowded situations. We prefer evaluation of investment opportunities on their fundamental merits, and we are often the earliest and the only institutional-quality investor in many of our portfolio companies.

We find limited value in price as a signal.

In the absence of a material change in the fundamentals of a business, we view an increase in volatility or a decline in prices as opportunity instead of risk. We instead focus on the fundamentals of the underlying business.

 This approach, while logical and intuitive, is extremely difficult to practice. It requires a strong temperament and high levels of conviction, patience, and discipline, with the humility to admit mistakes when they happen.

Portfolio Concentration

Mathematically, the more names you have in the portfolio, the closer you get to the average, and the lower your portfolio volatility becomes. Warren Buffett calls this level of diversification the “Noah’s Ark” style of investing. According to him, with two of everything, he will end up with a zoo.

 Overdiversification is a sign of a lack of conviction in one’s portfolio. We believe in concentration through conviction. We typically own about 15 names; we believe this provides us sufficient diversification from a risk management perspective as well as allows our portfolio to outperform the market when our portfolio companies perform.

We follow a rigorous research methodology that can be broadly classified into five filters:

  • While the entire dogma of investing focuses on the evaluation of the underlying business, in our experience, to make a successful investment, it is very important to understand the people behind the business.

    We are passive, minority equity investors and do not have the ability to influence change in the way a company is run. We therefore look to invest in companies where the controlling shareholders and the management treat minority shareholders like equal partners. It does not matter to us how exciting the underlying prospects of a business are; if the people who run the business work against our interests, we will never be able to capture any of the benefits.

  • While good corporate governance is essential, it is not a sufficient criterion for an investment to be successful. It is possible that the people behind a business are honest, but do not run the business very effectively. For a business to do well for shareholders over time, it must allocate capital well.

    We define a company with good capital allocation as one where the primary goal of the controlling shareholders and management is to maximize returns on reinvested (retained earnings) capital. It takes tremendous discipline for management to return capital to shareholders and shrink the sizes of their companies when insufficient opportunities for reinvestment are available. Most management teams are empire builders and are on a quest for growth at any cost. This growth at the cost of poor capital allocation always results in poor outcomes for shareholders.

  • We seek to invest in companies that have very strong and difficult-to-surmount moats and operate in businesses that are forgiving and have a margin for error. In addition, the companies must have a strong external opportunity environment and a long runway for growth and compounding.

  • While a lot of investors focus on valuation (and rightly so), we believe that attractive financial valuation must be accompanied with financial strength. This is demonstrated when companies generate real cash earnings and preferably free cash earnings with minimal amounts of debt. Companies that can generate high cash earnings with capital on their balance sheet do not need to keep raising external debt and equity capital and are truly masters of their own destiny. Such companies tend to strengthen their competitive position during periods of market and economic stress.

  • Good investment opportunities are hard to come by, especially those that meet our rigorous evaluation criteria. We, therefore, run a concentrated investment strategy and look to have 15-20 names in our portfolio at any given time.

    We look at all fundamental and market attributes of names within our portfolio and in our buy list to build a concentrated portfolio of the best relative opportunities available to us.