Citadelle Relative Value Strategy fora 100 Wealth Multiplication Either you spend a lifetime experimenting OR, Give ws 30 minutes. a : ezaresceaeoay TP rowered by citadetteGeneral theory of returns: Why do we invest our money? Tac ak Butdoes he acto investing alone rw? How do we invest money ? \We ether ens in the hope of ering coe or boy meting the hope ot Secnet arpecate Or pees ath When we tuysomethag sing or an aprecitor, image the atl proces of Grom or apprecaten of your ast, rypealy hagans nly when othe are uiling to pay Higher fr ula yu Fave Be Tare grainy gers, banc ator Eauty Others willingness to pay more for what you have is, linked to... PhyscalNeeds ——_sctus|pasonalenoyrert er conmecblbusness we Franc Needs Toe nations betta crete wealth s Question : What are the sources of returns forkey'usset classes that you invest apPoweres by citadetteAsset classes - Returns generators eons woe Oe noe cans Pee aint nena Serer (rowered by cadEquity - Output asset class Input Process inancal Captal~ Sead ivestmerts, Piste commode, Output Inputs Efficient management Profits ¥ Purpose of a business : To ensure Cost of inputs S Revenues that lead to Profits Natura fallout Return on input assetclassesi.e. S Rletum onetiicientbusinesses [Debt Real Estate, Commodities etc.) Equities | (rowered by cadEquity - Output asset class You can choose to invest in an input asset lasses Ike Debt, Real estate, Commodities etc, and personally strive to ‘beat inflation (Or you can invest in an asset das like Equity that ln tum uses Debt, Realestate, Commodities etc, to generate ‘even higher returns than what one can get by investing in the input asset clas itself ‘The proof of what is mentioned in the above statement is mentioned in the long term asset class returns table con | azxe | 726% | sax | 735% Go| sae | zm | iam | 92am ques save | som | aasm | neK "HOR Eulty 9. 200% % eaRY % ma ‘Now that we have understood the benefits of investing in Equity asset clss, lets understand what drives equity returns in the long term. 5 capes, TP rowered by citadetteDrivers of equity returns “Stock prices are slaves of earnings in the lang run ~ Warren Buffet” | ‘The primary driver forthe stock market prices in the long run |s Eammings Priceretum ve Earnings cet erty retum conbutors = = uhh Ido anes A | am go ALS ey: [ty oat PPP PL PL LIL P EEO PEE 2m siny vatran eytrstun aces Itis dear from the above chart thatthe long term driver for stock prices are the undertying’s earning. To improve performance “urther, one can do so either by investing inefficient compantes that Grow faster and / or are at Cheaper valuations ‘ camageseeaaeay (rowered by citadetteSigns of great businesses (stocks) A wise man once said...."Good businesses earn high returns on capital, great businesses can reinvest large ‘amounts of capital at similarly high rates.” Great business Profitability Efficiency Growth Quaity ‘business wih susaineahgh Retum on Capt can invests own money atigh ates of etum This not nly ensuites probly sffdencybut abo earings growth and qual. Return on capital is a superior indicator to identify great businesses eaapuineaeet ay TP rowered by cadeHow to partner with good companies? Everyone wats good & ecient companies Hence they Become expensive fut your returns Mey tobe higher ony when you cnscouty py lower, ‘ora Share of suchfflert and prfkabiebusinesses Price asa rato of pots (9/8) sa good dace to stareto ensure that youpay low. Lower the P/E the beta Sfor you The chalenge's that iferent compan ube diferent straepes to generate praftsby asuming higher eet andmanace tae. 1 mod may to male all profits camara, to see how much each company teaming before fpayenteres and toes [WT), Anthem set [proportion to your commitment a an nesta share Price you pad = Net Debeyou sesame 2 Sharenalger which sown 3: Enterpie Vale By this measure he higher he company’ EBT compared to, ower will bethetrue real market price you ately py High on Price, Low onvalue @ or igh ot value sees (rowered by citadeteLets now figure out how to identify good companies at cheaper prices... ri cieaiocatann (rowered by ciadetteHow to partner with good companies at cheaper price? Companies with igh Return on pital (ROC) high earings veld ‘Companies with high Return on capital and high eamings yield rr fark commis (Fe your urivese for eg. ase200) ter Po baseden feu on cpt {SI Net Waking pt sei ‘he fed Aste fark the same compan bated on earines yids (enir/ev) pararneter combined. Well you have en your “Gand companies a cheap | Now look for those ccmparies that have a higher rank on both the ree ROC = EBIT /{ Net Fixed assets + Net working capital } Earnings yield = EBIT / EV ‘These modified ratios are atributed to Joel Greenblatt, a successful hedge fund manager who ls known to have out-performed Warrant Buiet often ezaresceaeoay TP rowered by citadetteThe Piotroski F-Score filter | tn oder to further ttre tod ection rom ancl strength pepective, we prefer toe te:multfcar mode propagated by sephBtrosh Joseph Plotos s 3 sofssar in accureng at the Stanford Unersty Graduate Senco of ausines, He devsedasconnasjtam calod the Pres! Fore. oir scorngsystom based on profitably funding an operational effeney, that simelifis the Mdentieaton ofthe nan stem of 2comsany Se) See ror mnnrcrgein tanto Score pattie tev et camel. ‘wi oa eat ce by tases Sree spears aera) nitsaiineenscinsneaiananse eee en eas, improving conpeitve positon, Award one point iF Sosa ceaiamiaa Pree eeetteoaplenileteld Fonsi) conptag recone toons a umber (Compete eon bone sierra ines ioa ee eee stn asi on year-ago figure, { Growing profitability ) cash available o run the business, lotrosk prefers Rene eee eae “stocks with her easing working capital. Award one brig ascgr peeskad rehearse rer gohan CFO. Cash flow is arguably a better profitability point Fthe most recent ancual (gure exceeds the on one? ceo incor sconces Perna uy Scipentremeeescnen) | | tayo, Rell emenin kaa eee a ea pee eens nreace SSeweee| (eecetenmerae Gourtng a Now exceute he eaten years nt igome (earings nity)Process to select good companies at cheaper price? ‘ply quantitative ites to Top 500 companies by marke cap rorbiocare of susiess rks, ewaty rks et. °e ‘Rank the stocks on ROC and Enming Weld 9 Secondine corde Le. A ohare wil be | wientages assigned tothese | parameters ar based onmariet | conaiton,atrent weightage s ‘Toke Babee sheet and P&L oumbers | Top 30 companies tcontolidtedteve where apleable ese standslonenimbers fie gy Relative Value Portfolio a 2 capes, (rowered by ciadettePerformance 2 eosepeeceary (romero by CadetStrategy Backtested results amon, Strategy CAGR performance — 38% >esoae ity CAGR performance ~ 12% Brenner ‘performance pid is 31* August 2000-30" Sap 2015. Results wl varydependingon oc price performance post Investing | ‘The robust stock selection process outlined hasindeed rested in significant cutpertarmance aver Nifty aver lenger pends Lets analyze what has resulted in such outperformance (J rowered by ciadetteStrategy Backtested results Earnings Growth Ge Earnings Growth es = = a siebebiaiada PTPUPPRST Tag PabbegGGd We qiiihaiiiidi FESR ORETEESSECE) { sonsessensashsraya ens pg od iy ce ely on Yara beta ‘he gree perermance is sigieay higher thn the cumulstive EPS performance uni in the NIRV case. This era return isthe contribution Fram s capaseseeanay TP rowered by citadetteWhat is required from you { vnderstaning ofthe proces & ble in the lon tht nar’ wil most read goed companies in essonabletine | Patience with the strategy. Despite its long term performance potenti, there have been periads of underperformance in the short run Performance tableOur thirty minutes are up a cieaiocatann (rowered by ciadetteSafe harbour ‘ee smoran rap bye ha Avs a ian} AM gn A et ne Mn nt eo ‘eager trary nh anne tee useser aia onda yrar orev tn re ower sys sar we etc ote te ee ee a te Seaman nance pad strand cere winced mtsoointacs toto ane sa (oid ty ay ponent escent oma soa 20 eet con meter oarbo pan, aay oS ‘sim nanan wih nee O40 OS asap yan tara seni ‘Memateneesmtne sree he nt ce rosten tet enbcrssusnrtathare rarer ccou econ wns toma, setae aed wens mY St ‘tee reune eps mia nastow ms tonto oP sary ohare fox enc tn nae Ct ua ss cocrsnossane ars oman coe tema Gah sors openang npn snaupet str ote et sn wous eg pes oan acon ure ar OUP to ‘ity pepenoynan een ye artropeetin sas mayne ee amy Pe pate ape Vag te a aay Hasna ‘eect ecnscoti nem Ppt at may ohn ta ‘fae ctrart anes poo ns ee prs ath een hae bed ea ee cng erage OUSLe Bonn cpr oo gta ser tay enor on ie entrar scp a ase ‘aftr ours aoe ee macs oa es hare sat vn hate nc cou conser rer et apa e SEESSIE SECIS SN STS INS ta espe tne ay sane aan scammers open ean ce = eS, TP rowered by citadette