How to invest like the co-founder of Motilal Oswal Financial Services

Ever wondered how legendary investor Warren Buffett's wisdom can shape the strategies of leading financial firms? Meet Raamdeo Agrawal, the co-founder of Motilal Oswal Financial Services, who attributes his success to Buffett's timeless principles.

In his 2007 annual letter to Berkshire Hathaway shareholders, Warren Buffett discussed 'The Great, the Good, and the Gruesome' businesses. This letter resonated with Agrawal, and he developed his own investment style based on it, which is called QGLP.

QGLP stands for Quality (of business and management), Growth (in earnings), Longevity (of quality and growth), and Price (reasonable valuations). The success he found through this investing style led Agrawal to write a book titled 'The QGLP Checklist 25 Questions Frameworks'.

While we recommend that all interested investors read the book, here's a brief synopsis of what QGLP represents.

Q-Quality

Investing in quality companies sounds straightforward. But there's more to assessing quality than meets the eye. Agrawal views quality as a combination of two elements: Quality of business and quality of management.

The former is easier to evaluate. According to Agrawal, a quality business should be an industry leader, preferably in a consumer-facing industry. In addition, its leadership should be in the form of a monopoly, duopoly or oligopoly. Lastly, a quality business should not have high amounts of debt.

Discerning whether a management is quality far trickier. Agrawal, however, has discovered a few hacks over the years. His book mentions that quality management must be trustworthy, have efficient capital allocation skills, be transparent, and provide adequate communication to shareholders.

G-Growth

Quality is important, but without growth, there can be no wealth creation. Agrawal warns investors about quality traps, i.e., high-quality companies with sluggish growth. Furthermore, he urges investors to look for tell-tale signs of growing companies, such as capacity expansion, new product launches, forays into new geographies, acquisitions, etc.

L-Longevity

As they say, form is temporary, and class is permanent. Agrawal highlights that robust quality and strong growth can only drive wealth creation if they can be maintained for long durations. Hence, it's crucial for investors to make sure that the factors propelling a company's fortunes are sustainable.

P-Price

Valuations often are the Achilles Heel for even the most promising of investments. Agrawal reiterates the age-old adage that price is what you pay, and value is what you get. So, stocks are attractive only when they are priced less than their value. Investors must evaluate if the price is reasonable for the rewards the stock promises.

The above is only our interpretation of Agrawal's framework. For a more in-depth take on QGLP, you can read the book.

But, if the question on your mind is which stocks currently will fit the QGLP framework, we have got you covered. Using our proprietary stock screener, we have uncovered stocks tailored to QGLP.

Here are the filters we used:

• ROCE >15 per cent in each of the last five years.
  
• Debt-to-equity of less than one in each of the past three years.
  
• Five-year cumulative CFO to five-year cumulative EBITDA of greater than 70 per cent (shows business quality)
  
• A dividend payout ratio between 0-30 per cent in each of the past three years. This ensures the management rewards shareholders regularly.
  
• Promoter stake greater than 50 per cent in the past one year (shows skin in the game by the management)
  
• Annual revenue, operating profit, and profit after tax growth of at least 15 per cent in the last five years.

Please note that the above only provides a solid starting point for your stock-picking exercise. They are not stock recommendations. Investors must do the diligence and thoroughly research individual stocks before investing.

Also read: How to pick stocks the Peter Lynch way