We are thrilled to introduce you to our unique investment strategy that combines rigorous quantitative analysis with fundamental research to achieve compounded long-term growth. Our approach is grounded in the principles of value investing, a proven strategy employed by investment legends such as Benjamin Graham and Warren Buffett.
At Chakkal Capital Management, we don’t see ourselves as traders but rather as business owners. We utilize a long-biased approach with short exposure for hedging and alpha generation in case of frothy market valuations. We are always price-conscious, seeking to buy shares below conservative valuations. In addition, we possess a strong belief in our methodology and back it up by investing our personal net worth alongside our clients. Although this should be a standard practice within our industry, it is not common, highlighting our dedication to our investment philosophy.
Our Quantamental research team is a blend of mathematical, programming, data science, and financial expertise. We utilize advanced data science techniques to power everything we do, and statistical thinking guides our decision-making. Our team’s technical capabilities, combined with our wealth of data and advanced technology, give us a unique edge in extracting insights from complex data and generating new investment ideas. Our systematic, repeatable and objective model removes human biases, both operationally and psychologically, ensuring that our decisions are data-driven and consistent.
In order to effectively evaluate and comprehend a company’s performance, two crucial variables to consider are Direction and Magnitude. The Direction variable can be assessed through the application of the “Number of Problems” (NOP) model, which provides insight into the fundamental direction of a company. Meanwhile, the Magnitude variable can be evaluated through the “Fact vs Sentiment” model, which indicates the degree of discrepancy between a company’s stock price and its intrinsic value.
These models can be used to precisely quantify each variable, facilitating a systematic and informed approach to buying and selling decisions. However, it is important to exercise discretion and not solely rely on models, as a complete dependence on models may not always be prudent. Therefore, a last-touch approach that incorporates both models and human judgment is employed to ensure comprehensive and accurate assessments of a company’s performance.
Our proprietary NOP Model and “Fact vs Sentiment” Model are central to our investment philosophy. The NOP Model measures the number of problems a company has on a scale of 0 to -18 at each reporting period, with -18 indicating the maximum number of issues. We leverage this model to identify companies with strong potential for long-term stability & undervaluation while avoiding those that are un-investable due to price or prospects. Our “Fact vs Sentiment” Model allows us to assess a company’s actual performance versus market sentiment, providing a more accurate picture of its true value. Please see our attached analysis of a specific company using this model.
In addition to our proprietary models, our investment approach is based on five specific strategies, each focused on different types of companies or situations. These strategies are tried and true, developed based on our team’s private equity experience and in-depth knowledge of public markets. We have a deep understanding of fundamental value investing principles, and our commitment to utilizing advanced data science techniques sets us apart from other investment firms.
Our 5 specific strategies are:
- Turnaround Companies (S1): Identify companies with potential for a turnaround based on evidence and negative market sentiment.
- Cyclical/PPE (S2): Look for companies with high quality long-term tangible assets and reasonable return on equity, with negative market sentiment due to adverse cycle.
- NWC (S3): Target companies with a strong balance sheet and positive prospects, yet priced too negatively by the market.
- CFO (S4): Focus on companies with significantly high return on equity and fair future prospects, but with a negative market perception.
- Growth (S5): Seek out growth opportunities in untapped markets, with corroborated potential and wait for special event opportunities to buy at an attractive price.
Our track record speaks for itself, with our error rate decreasing significantly since we started in public equities in 2015. We started with a 67% error rate and have lowered it to a significant low and acceptable rate of 33%, which we are still working to improve. We continuously refine our approach to achieve better results, and our results speak for themselves.
Our investment approach offers a significant advantage in that we solely charge performance fees, rather than fixed fees. This means our profitability is directly tied to our clients’ success, creating an alignment of interests. Furthermore, our extensive experience in private equity complements our public market approach, having worked with various business types from 2008 to 2015. We prioritize risk management and have a proven track record of navigating downturns and recessions in 2008, 2016, 2018, 2020, and 2022. While we typically purchase shares in public companies, we remain open to acquiring businesses outright and taking them private if the deal terms are favorable.
Overall, our approach combines traditional and modern investment techniques, giving us a unique edge in the market. We are confident in our ability to deliver results and have put our own skin in the game by investing 100% of our net worth alongside our clients. We believe our focus on fundamentals, along with our commitment to aligning our incentives with those of our investors, sets us apart from other investment firms.
We look forward to discussing how our investment strategy can help you achieve your investment goals. Thank you for considering Chakkal Capital Management, LLC as your investment partner.
Sincerely,
Manny Singh,
Co-Founder & Portfolio Manager
Chakkal Capital Management, LLC | Website: ChakkalGroup.com
Series 65 Licensed | LinkedIn: https://www.linkedin.com/in/singhmanny/
Tel: 206.261.5956 | Email: manny@chakkalgroup.com
Address: 9426 s. 233rd Pl, Kent, WA 98031
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