How I research a business.

What I look for

1. A business I can explain in two minutes. If the business cannot be described simply — what it sells, who pays, why they come back — it is not researched further.
2. Durable demand. Products and services customers keep needing, ideally bought again and again rather than once.
3. A real edge. A brand, cost advantage, network, distribution reach or switching cost that competitors cannot easily copy.
4. High return on capital without heavy borrowing. Good businesses earn well on the money invested in them, and do not need debt to do it.
5. Profit that turns into cash. Operating cash flow should broadly follow reported profit over a run of years. When it does not, I want to know why.
6. Honest, capable management. Fair treatment of minority shareholders, sensible capital allocation, clean related-party dealings and no heavy pledging of promoter shares.
7. Room to grow. A long runway to reinvest profits at good rates of return.
8. A sensible price. A margin of safety between the price paid and a conservative estimate of value.

What I avoid

• High or rising debt, and businesses that cannot survive a bad year without new borrowing.
• Profits that rarely reach the bank account, and aggressive or frequently changing accounting.
• Repeated equity dilution, complex group structures and large related-party transactions.
• Promoters with heavily pledged shares or a poor record of treating minority shareholders.
• Turnarounds that depend on hope, and businesses I do not understand.
• Popular stories priced as if nothing can go wrong.

Why five years

Over a few months, share prices mostly reflect mood. Over several years, they tend to reflect what a business actually earns. A five-year horizon gives the research time to be tested by results rather than by headlines, and gives an investment time to recover from the falls that every listed company goes through.

It is a horizon, not a guarantee. Some businesses will disappoint, some theses will be wrong, and prices can stay below value for long periods. That is why every report states the risks as clearly as the case, and why each company continues to be reviewed after its report is written.

Why only four a year

Good ideas are rare, and research takes time. Limiting the plan to four recommendations a year keeps the bar high, allows each company to be studied properly, and leaves time to follow every recommendation after it is made. It also suits how most long-term investors can realistically build a portfolio: a few businesses they understand, added gradually.

When I change my mind

A recommendation is reviewed after every quarterly result and whenever something material happens. My view may change if:

• the competitive position weakens, or the reason for owning the business no longer holds;
• governance or accounting raises a red flag;
• management allocates capital poorly — for example, an expensive acquisition or unrelated diversification;
• the price runs so far ahead of value that the margin of safety disappears.

When it changes materially, clients who received that report within the previous twelve months get a note saying what changed and what I now think — including an exit view where appropriate.

Independence and conflicts

Each report discloses any holding or financial interest that I or my associates have in the company, and any other material conflict of interest, as the SEBI (Research Analysts) Regulations, 2014 require. I do not accept compensation from companies I research, and I follow the trading restrictions that apply to research analysts. See the regulatory disclosures.

Your part

Research is an input to your decision, not a substitute for it. Consider your own goals, time frame and capacity to bear losses. Keep money you may need soon out of equities, keep an emergency fund, and never borrow to invest. If you need advice on your overall finances, consult a SEBI-registered investment adviser.