Recompound's Investment Framework
Recompound's Investment Framework
What is Recompound?
In short, we are a better replacement for your Reksadana Saham.
For more details, read our prospectus: Recompound Client Prospectus
Where can I see your overall investment performance?
If you are curious on how our portfolio perform as a whole (not just certain stocks), you can always track our performance on our website recompound.id with data updated daily.
What is Recompound’s Mission?
Our mission is to maximise our clients' portfolio CAGR (Compounded Annual Growth Rate).
Why do we focus on CAGR? Because we believe it is one of the most objective metrics for measuring long term investment performance.
What is Recompound’s Investment Framework?
Short answer:
Short term arbitrage
Fundamental value investing
Long answer:
Short Term Arbitrage Strategies
From time to time, we may introduce short term strategies that take advantage of arbitrage opportunities.
For instance, when a company does a tender offer, it is likely that there will be an arbitrage opportunity that would offer reasonable returns over a shorter period of time (3-4 months). This is because the new controller of the company (majority shareholder) will be required to purchase the stock at a said price by law.
Why do we adopt such strategies?
Lower volatility. Arbitrage opportunities inherently carry lower volatility because it is almost certain that there will be a standby buyer at a given price.
If the market is uncertain, even stocks with great fundamentals can be punished heavily. It would be wise for our business and customers’ psychology to own stocks with lower volatility.
Fundamental Value Investing
We think like businesspeople and treat stocks as cash-generating businesses, not just random tickers in a casino.
We conduct deep, bottom-up analysis on businesses (stocks) before deciding to invest in them. Specifically, we ensure that we:
Understand the Ultimate Beneficial Owners (UBO) of the business. We seek to determine if those in charge:
Have a good track record
Are competent in running their business
Are fair to minority shareholders (like us!)
Are prudent in managing their business profits
We assess whether profits are directed towards productive means such as business expansion, dividends, or buybacks, rather than towards luxury apartments or management's leisure activities.
Understand the business process and prospects. We specifically evaluate the business’s:
Stability
Capital return
Growth
Dividends
Prudence in using Interest Bearing Debt
After performing deep analysis, we buy the businesses (stocks) only when there is a large margin of safety (significant discount) compared to their intrinsic value to reduce the risk of suffering permanent capital loss.
Research Examples:
To learn more about our investment framework, specifically on how we decide whether or not to invest in a particular business (stock), you may read some of our research here:
PT Adira Dinamika Multifinance Tbk. (ADMF)
PT Total Bangun Persada Tbk. (TOTL)
PT Indah Kiat Pulp & Paper Tbk. (INKP)
Why Don’t You Guys Use Popular Techniques Such as Reading the News / Technical Analysis / Macro Indicators / Bandarmology ?
It would be difficult to generate long-term outperformance if we use the same strategy that 99% of the market participants use:
Buying a stock just because “it got promoted by a social media influencer with 1 million followers without any comprehensive analysis like we did”
Buying a stock just because hearing their friends “katanya bandar A mau terbangin saham ini nih, ayo ikutan!!!”, got dumped, and conviction on the stock immediately vanished
Buying a stock just because “the price always goes up”
Buying a stock just because “I use their products every day, so the price should always go up”
Buying a stock just because “the price has dropped by 50% from the top, therefore it should be cheap enough to buy.
Panic buy / sell a stock just because there is 1 single good / bad news
Buying a stock solely because it “broke bullish penant” without understanding its fundamentals
Screening for sexy financial ratios (low PER & PBV) on RTI app without understanding its owners, business model, and prospects.
Relying on macro indicators (interest rates, non-farm payrolls, CPI, etc.), which are important but very difficult to predict.
Do You Guys Have Access to Insider Info (Info Bandar)?
Nope. Why? Because there is no free lunch! Even if we do have access, we would have to pay a hefty price for that information, and this does not make sense from our business perspective.
Even if we do have access to those information without paying any price (free), we would still apply our investment framework discussed in Question 1. Why? Because if we trust those information blindly, there is a high probability we are becoming Bandar’s exit liquidity. If that happens, it’s hard to grow our clients’ portfolio consistently.
We discussed this matter extensively on our blog post below:
What is your Competitive Advantage Against Incumbent Players Like Reksadana Saham on Bibit / Bareksa?
We have discussed this extensively on 2 of our blog posts. We have 2 natural competitive moats:
Fee structure: we are aligned with our customers’ objective, which is to grow their portfolio, unlike traditional means where a fixed fee is charged regardless of portfolio performance:
Investment regulation: unlike incumbent players which are heavily regulated, we are not restricted by government regulations which increases investment risks & decrease the ability to generate better investment returns:
Do you provide stock allocations for different risk profiles (conservative / moderate / aggresive) ?
No, we do not believe in such thing.
When we rank our stock preferences, risk factor is already baked in alongside the potential rewards.
This is because of our pure performance fee structure. Our fee structure forces us to be prudent when we select our stocks.
We would rather have a consistent 15% gain every year, rather than having a 100% gain in 1 year, but down -30% in another year.
Thank you for tuning in! Along the way, we will add more frequently asked questions.