There can be different PMS philosophy in PMS. It is usually long-term advantage, bottom up approach. There is always consideration for under-valued businesses with high return prospects available at low P/E. Stock picking is made after proper reference to fundamentals. All investment decisions are vetted by expert Investment Committee which has rich and diverse experience in various domains of investment. There is no sector or size specific bias. Prospects of a company are the single most important driving force behind investing decisions.
There would be a cap on maximum number of stocks which can be held in a fund. Single scrip allocation would not exceed certain percentage. Also, sector allocation shall also have some cap.
Investment decision comprises of identifying 4 things:
It means demand/potential demand for the products/services of the company in the industry.
It should be a scalable business having an Economic Moat (Competitive Advantage) with good profitability and return ratios.
It means a competent as well as ethical management
Competent: It means a Management who is focused, has distinct and innovative business strategies, proper Capital allocation policy and is gradually gaining market share followed by Profit share.
Ethical: Who even takes care of minority shareholders and gives bad news as soon as they come to know.
Management should also have skin in the game (Majority of Promoter’s networth should be in his business).
A good business should be available at reasonable price and should be bought accordingly. If the above three criteria fit in but the valuations are high then we wouldn’t buy the stock.