Roots aim to preserve wealth by selecting companies with low debt, consistent ROE/ROCE & promoter integrity.
• We prefer to invest in businesses that carry very low debt. This means that their growth is fueled by their customers and through internal accruals.
• We like companies that consistently reward their shareholders through high levels of Return on Equity, Return on Capital Employed and Return on Assets. This signals not only an efficient business but also one that is shareholder friendly.
• We like promoters who demonstrate both skin-in-the-game and soul-in-the-game. Such promoters retain significant ownership in their business, which prevents the ‘agency problem’.
• We like companies that have already run the marathon and have demonstrated stamina. As a corollary, we avoid nano caps, micro caps and baby caps because the intent is to preserve capital first and not be exposed to risks stemming out of promoter integrity (or lack of it).