Three Decades of Concentrated Investing

For most of three decades, Deccan Value Investors has made between one and two investment decisions a year. By the standards of professional money management, this is almost laughably low. The industry is structured around motion — quarterly performance, daily liquidity, monthly client letters, weekly meetings. There is enormous social and structural pressure to do something. One or two decisions in twelve months is a confession of inactivity.

At Deccan, inactivity is the work.

The firm was founded in 2004 by Vinit Bodas, after roughly fourteen years of training that had shaped him in three distinct directions. He started as a credit analyst at Duff & Phelps in 1990, the year he finished his MBA at the University of Texas at Austin. Credit analysis teaches its practitioners to think about downside before upside — what can go wrong, how the company breaks, where the asymmetry actually sits. From there he moved to Montgomery Asset Management in San Francisco as a partner in their emerging-markets group, and then to Brandes Investment Management in San Diego as a partner in global investing. Emerging markets taught a particular lesson: that the best businesses can sit in unfamiliar jurisdictions where the institutional infrastructure does not bother to look. Global investing taught how to compare moats across very different regulatory and competitive environments.

By 2004, the pattern from a great many investment decisions was consistent. The decisions that compounded were almost always the ones that had been waited for. The bad decisions were almost always the ones made in a hurry. The firms most of the industry had built were structured to make decisions — to deploy capital, to grow AUM, to look busy. Deccan was built to not make most decisions — to wait, to refuse, to compound.

That observation became, in slow motion, the operating principle of the firm.

The synthesis

By 2004, a particular synthesis of influences had settled in. From Buffett, Munger, Peter Lynch, and Seth Klarman: the centrality of moats, durable growth, compounding, and patience. From Charles Brandes and the Templeton tradition Deccan came up through: a global perspective — what was once called GloCal, looking globally and acting locally. From Kahneman and Thaler: a deep respect for the cognitive biases that make every fund manager less rational than they want to believe.

What Deccan added, over time, was a particular emphasis on deterministic growth at a reasonable price — compounders, in the modern shorthand. Most of the value tradition is calibrated against low P/E and low P/B. That works, but it tends to filter out the kind of business whose moat is widening — the businesses an investor would most want to own for ten years. Deccan was built to buy those businesses when the market mispriced them, and then hold them.

High-conviction ideas at the firm tend to fall into two themes. The first is the classic compounder: solid moats, predictable earnings, large total addressable markets, and meaningful runway for further penetration. The second is special situations — spins, demutualizations, and the like, where structural mechanics rather than business fundamentals create the opportunity.

On concentration

A typical Deccan portfolio holds five to ten positions. People sometimes assume this is a posture — that the firm runs concentrated to look bold. The reverse is true. A portfolio of five to ten positions is, in the firm’s framing, a confession of what it actually knows.

There are roughly fifteen thousand publicly traded securities in the world. It is impossible to track them. So the work begins with a deeply curated list of about a hundred and fifty franchise companies — businesses with sustainable moats, large addressable markets, and what the firm thinks of as the Right to Win: structural advantages that compound rather than erode. The list gets refined and updated as new businesses come public or as old ones lose what made them durable.

From that universe of one-fifty, Deccan holds five to ten at any given time. The economics are simple. No team is capable of holding well-formed views on twenty or thirty companies at once. The world is large; attention is finite. The math of concentration is the math of attention divided by available time. When the firm is working on a name, it is living with it — reading what management says, what their suppliers say, what the people in their industry actually think when no one is taking notes. This kind of work compounds on itself, and there is no shortcut. Concentration mitigates risk because conviction is high. Diversification, beyond a point, becomes dilution.

On the one-or-two rule

The one-to-two decisions a year is not a target. It is an observation about how often, in a year, the work actually produces a decision worth acting on. Most of what Deccan does is reading, thinking, discarding, and waiting. The firm says no a great deal, including to investments it believes will go up. The hurdle is not will it work. The hurdle is whether the firm understands the business well enough to know why it should work, and what would falsify the thesis if it does not. Counterintuitively, in a world geared toward constant activity, the key to successful investing is often not investing at all.

A working heuristic: if it does not make sense in the first ten minutes of reading, it does not get a deeper look. Most of the world’s investment opportunities can be discarded in those first ten minutes. The discipline is to actually do the discarding, rather than spending forty hours on a name out of sunk-cost or curiosity. The firm calls this avoiding dry-holes — and improving dry-hole avoidance is, in some ways, the single most leveraged thing a research process can do.

The three things the firm looks for are simple and old: business quality, price, and people — with price above everything. A great business at the wrong price is not a great investment. A reasonable business at the right price often is.

On geography

Deccan has held positions in companies in more than thirty countries. This is not a strategy of geographic diversification. The firm is not allocating to Emerging Markets or Europe ex-UK the way the consultants’ charts depict it. It is following business quality and price wherever they happen to be — and they have happened to be in unexpected places.

The lesson from that experience is humbling. The best businesses Deccan has held have rarely been in the obvious markets. They have been in jurisdictions that were under-followed, mispriced because of being unfamiliar, or simply too small for the institutional infrastructure to bother with. Unfamiliarity is a friend to careful investors. It is not where one makes the most reputational gains, but it is often where one makes the most economic ones.

The other lesson is about the nature of moats. One learns what makes a business durable by watching companies in many different competitive ecosystems try to defend themselves: what works in mature US markets, what works in fast-changing emerging ones, what holds up under regulatory disruption, and what does not. After thirty countries, a sense of what a real moat looks like becomes both broader and stricter.

Special situations and flexible capital

A meaningful share of what Deccan has invested in falls into a category that gets less attention than it deserves: special situations — spins, listings out of insolvency, privatizations, demutualizations. These are situations where the structural mechanics of the listing itself create a mis-valuation, often quite visible, that broader investors are too slow or too constrained to pick up. They reward patience and they reward people willing to read the prospectus.

MasterCard

The first major thesis Deccan put real money behind was MasterCard — purchased at its demutualization. The thesis was straightforward: the business was a duopoly with global reach, an inflation-protected revenue stream tied to transaction value rather than volume, and an extraordinary moat. It had operated on low margins, never trying to maximize profits, because as a member-owned association it never needed to. Demutualization meant there was no owner with an incentive to list at the maximum possible price — exactly the kind of structural mispricing the special-situations frame is built to catch.

Marriott Vacations Worldwide

A particularly instructive spinoff was Marriott Vacations Worldwide (“VAC”), spun off from Marriott International on November 21, 2011 at roughly $18 per share. Several structural features made it compelling. Marriott International carried a market capitalization of around $10 billion and was an S&P 500 constituent; VAC was neither — its market cap was only $400 million at separation. Index holders in Marriott had no mandate to hold a small, non-index timeshare company, and sold reflexively. The forced selling had nothing to do with the quality of the business being separated.

And the business was genuinely good. VAC collected fees on timeshares Marriott had already sold, and all resale transactions between existing owners had to flow through VAC for a fee. It inherited management agreements covering over 60 premium resorts serving roughly 400,000 owners — locking in predictable, high-margin fee streams from property management and daily operations. It also operated an internal financing arm, providing loans to timeshare buyers and capturing the spread between consumer interest rates and its own institutional borrowing costs.

The capital structure at the moment of separation was particularly attractive. Prior to the spinoff, the timeshare business had been a drag on Marriott International’s ROIC — capital-intensive, requiring large real estate development outlays. At the moment of separation, VAC inherited $1.5 billion in pre-built, unsold inventory. This meant the newly independent company could generate free cash flow for years without heavy upfront construction spend. Through its separation agreement, VAC also secured exclusive long-term rights to the Marriott Vacation Club, Grand Residences by Marriott, and Ritz-Carlton Destination Club brands. All of this, at the time of the spin, for a market capitalization of $400 million.

Engility Holdings

The same forced-selling logic appeared in a very different industry with Engility Holdings, spun off from L-3 Communications in 2012. L-3 was an S&P 500 constituent and a large-cap defense company; Engility was a small-cap government services contractor with a market capitalization of roughly $400 million. Index holders in L-3 had no interest in owning a small, non-index government services orphan, and sold accordingly.

The sector made the selling worse: defense and government services stocks were deeply out of favor in 2012 and 2013 due to sequestration fears following the Budget Control Act, which mandated automatic defense spending cuts. The market’s view was that government services contractors faced permanent revenue declines.

Deccan’s view was different. Engility had roughly $1.3 billion in annual revenue, nearly all of it from government contracts, with a substantial backlog providing visibility. The moat was real if unglamorous — long-standing agency relationships, security clearances that take years to accumulate, and the practical switching costs that make re-competing an incumbent contractor genuinely expensive for the government. The firm bought at single-digit multiples of earnings power. The sequestration fears were not wrong, but they were priced too pessimistically against a business that did not need growth to justify the entry price — it only needed to survive. Engility was eventually acquired by SAIC in 2019 for approximately $2.5 billion.

Recall Holdings and DuluxGroup

Special-situation dynamics are not restricted to the United States. The same pattern has repeated itself in markets far from Wall Street — for example, in Australia, with Recall Holdings and DuluxGroup (commonly known as Dulux Paints). Recall Holdings was spun out of Brambles — a global logistics business with a market capitalization of around A$15 billion — in 2013. Recall was a document storage company with a market cap of roughly A$1.7 billion, representing about 11% of its parent. Brambles’ investor base was global logistics and industrial; they had no natural interest in a document storage orphan.

DuluxGroup was spun from Orica, an Australian mining explosives and services company with a market cap of A$7–8 billion, in 2010. DuluxGroup was a consumer paint and brands business — roughly A$1.3–1.5 billion at separation, around 15–17% of the parent. Orica’s mining-focused shareholders had no more interest in owning a paint company than Brambles’ shareholders had in document storage.

In both cases, the forced selling was total: zero sector overlap, zero natural buyers at inception. The market simply did not know what to do with either business. Recall was acquired by Iron Mountain in 2016 at a significant premium; DuluxGroup was acquired by Nippon Paint in 2019. The thesis was identical in both — and the geography was the point. Mispriced orphans are not an American phenomenon. They appear wherever large companies spin off businesses their shareholders were never meant to own.

The through-line

The through-line across all of these is the same: the mispricing is structural, not informational. Deccan is not smarter than the market about what the business is worth in some abstract sense. The firm is simply willing to do the work that the structural situation discourages most investors from doing — and to wait for the price to reflect what the work shows.

The other thing the firm has come to believe about capital, related, is that it should be flexible. There are moments in markets when fear is generalized and prices are dislocated — the Global Financial Crisis, COVID — and there are moments when euphoria is generalized and almost nothing is cheap. Capital should draw during the fear and return during the euphoria, rather than maintain a constant deployment regardless of conditions. Most funds, structured to keep marketing-friendly metrics intact, cannot actually do this. Deccan was designed so it could.

The shape of the work

A typical week at the firm looks unglamorous. There is a great deal of reading. There are conversations with operators — and essentially none with sell-side analysts. The firm does the equivalent of a 360-degree review on the businesses it studies: suppliers, competitors, customers, former employees, and management teams compared against their past record of promises versus delivery. Domain experts are identified independently, rather than through the standard expert networks. There is a fair amount of just sitting with an idea, sometimes for months, before it becomes clear whether to act.

The discipline that is hardest to maintain is not finding good ideas. It is not acting on good-but-not-great ones. The cost of acting on a B+ idea is rarely the loss it produces in isolation. It is the loss it produces by absorbing one of the ten slots — the slot that should have been waiting for the A idea that comes along eight months later.

This is why patience is not a soft skill in this work. It is a structural feature of the strategy. Without it, the math does not work, no matter how good the analysis is.

Results

Investment results, in this strategy, can only be sensibly measured on a five-to-ten year rolling basis. Anything shorter is noise. The numbers below are the Deccan Value composite, gross of fees, against the MSCI ACWI in USD as of the most recent reporting period.

The strategy makes no sense without these numbers, but the firm has always been more interested in process than in results. Good process produces those numbers over long enough horizons. Bad process can produce them for short ones.

On partnership

The other thing Deccan has come to believe, over three decades, is that this kind of investing requires a particular kind of client relationship.

Concentrated, long-horizon investing produces results that are lumpy in the short run. There are quarters, and sometimes years, in which a portfolio of five to ten positions will be uncorrelated with whatever the broad market is doing. If the people the firm is investing for cannot tolerate that — and many cannot, for very good reasons — then the work does not function. The strategy cannot be defended on a quarterly call to an investor whose horizon is the next quarterly call.

So Deccan has always tried to build partnerships, not just an investor base, with people whose own time horizons match the strategy. That has meant being slow about taking on capital, careful about with whom, and explicit up front about what kind of patience is being asked for. Long lock-ups, by design. A concentrated investor base, also by design — partly to remove the agency problem that comes from managing a fund of strangers. The clients who have been with Deccan a long time are partners in the work in a meaningful sense, almost an in-house research team in their level of engagement.

The firm’s principal also invests his own capital alongside the firm’s clients. Even the best LPs are agents — they manage someone else’s money. The CIO at a large institution is, by definition, an agent and not a principal. Deccan was built so its principal could be one. It changes how research is read; it changes what gets a yes.

There is no better return on a career, in the firm’s view, than to be able to do the work one believes in, alongside people who actually want it done that way.

More on the philanthropic side of the work appears in the philanthropy section of this site.