Philosophy
Our investment beliefs form the core of what we do. It is an outgrowth of our expertise in combining a balanced blend of analytical rigor and flexibility, a focus on long-term returns, careful attention to risk, complete objectivity when choosing stocks, and unsurpassable standards of ethics. The following are our fundamental principles; we base our investment decisions on them.
Shari’ah Compliance
For years now, ethical investing has achieved popularity among morally minded investors. Since the ethical benchmarks used to evaluate investments could be as broad ranging as individuals’ values and beliefs, there has been a myriad of investment vehicles created to address the need to invest ethically. We believe that Shari’ah-compliant investments incorporate the highest standards of ethics and integrity. In fact, it has been widely acknowledged that Shari'ah-compliant investments embrace certain ethical, humanitarian, and moral principles, which we all share irrespective of our different religions, nationalities, or ethnic backgrounds. Under Shari’ah, businesses engaged in the below-mentioned activities are excluded:
- Conventional financial services (such as banking and insurance) where such activity involves interest
- Pork-related and other prohibited meat products, use or sale for human consumption
- Alcohol production, use or sale for human consumption
- Tobacco and narcotic drugs production, use or sale for human consumption
- Pornography and other types of unethical entertainment
- Gambling and related activities
- Manufacture and sale of weapons.
Zero Debt Doctrine
In light of the facts that the term ‘Shari’ah-compliant’ denotes abstinence from any form of interest-bearing debt and that ‘Shari’ah Compliance’ is a cornerstone of our investing philosophy, it may seem self-contradictory to have a ‘zero debt’ doctrine as one of our core principles. However, the reasoning for this is that the bulk of Islamic financial practices consider themselves to be Shari’ah compliant while investing in companies with debt-to-asset ratios of up to 33%. Their activities are endorsed by Shari’ah experts on their payrolls, all of who continue to proclaim all forms of interest as Riba, which is subject to the severest Qur’anic prohibition. This dual role of Shari’ah experts – condemning conventional interest-based financing while supporting and personally profiting from its “Islamic” twin – is supported through excessively formalistic interpretation of the Shari’ah. Furthermore, they reason their endorsement with the argument that given the ubiquitous nature of interest, it’s impossible to participate in today’s modern economy without running afoul of Shari’ah. However, it is our strong belief that given the right infrastructure and technical expertise, it is possible to find companies who meet stringent Shari’ah standards.
The advantages of adhering to a zero-debt doctrine are many. From an economic efficiency standpoint, a zero-debt company can give stable and consistent returns whilst providing exceptional margin of safety. Such companies not only have the resources to weather economic downturns and other disturbances, but also to emerge from them stronger.
Note: By zero debt, we mean zero interest-bearing debt. It should be noted that our focus is on the interest bearing component and not debt as such.
Value Investing
Value investing is the philosophy of investing in a security when its share price undervalues its intrinsic worth. Proponents of this philosophy include Warren Buffet, Charlie Munger, and the late Benjamin Graham. A value investing strategy requires the investor to go 'against the crowd' for much of the time and to buy when others are in the midst of a panic.
As an ardent supporter of the value investing approach, Jupiqon understands that we are not investing in a stock symbol or a ticker. Rather, we are investing in what each company is truly made up of – ideas, products, and management with a specific set of business goals in mind. To identify outstanding companies, we look at their competitive position and the sustainability of their competitive advantages; we evaluate the experience, integrity, and transparency of the company’s management; and we research their financial statements such as the income statement and balance sheet in order to determine the company’s historical performance and their present financial condition. Given the fact that nothing can replace meeting with the decision makers and seeing a company’s most valuable assets firsthand, a trip to the company is prepared carefully in advance. We go even further since we realize that the world around us has many risks that we cannot control, and so we give ourselves some room for error – a margin of safety in the event something unexpected occurs.
The superiority of value investing over other types of investment approaches cannot be stressed enough. It is a proven and widely accepted fact that not only does value investing offer unsurpassed risk-adjusted returns on a consistent basis, but that coupled with the ‘power of compounding’, it has the potential to generate significant wealth over the long haul.
Risk Management
Jupiqon views risk as clients experience risk – from a multidimensional, real-world perspective. Our adherence to a value investment ideology provides us with considerable margin of safety; nonetheless, we employ a robust risk management system known as the Emperos Risk Matrix (ERM) which helps to quantify the risk associated with each security. ERM, an integral part of our stock selection process, has proven to sharply reduce long-term risk in all our investment decisions.
Furthermore, in line with our belief that risk emanates from a lack of knowledge and experience and not from a lack of diversification, we leverage our investment prowess to concentrate our efforts on a small number of companies. The objective of this approach, known as ‘focused investing,’ is to concentrate on a few well-researched companies that have the greatest opportunities to generate superior returns. In a concentrated portfolio, volatility is higher because the stock movement of individual securities has more impact on the limited number of stocks in the portfolio.
Those who oppose ‘focused investing’ argue that this level of risk offsets possible rewards; however, they fall short in their reasoning because volatility is not a risk. Volatility is merely the price you pay for making concentrated investments. The opponents of ‘focused investing’ believe that diversification limits volatility and helps to give investors security, arguing that if one company performs miserably, other companies in a well-diversified portfolio will help mitigate the impact. This kind of reasoning is why the vast majority of professional fund managers underperform the market index. Such thinking brings mediocrity, and emphasis is placed not on identifying and buying great companies but on spreading bets.
At Jupiqon, we systematically get our clients invested in five to nine world-class companies that can provide maximum appreciation in the long run.
Real Return Focus
While the gross return on assets often steals attention, it is the real return that investors actually consume. Real return is what’s left after all fees, expenses, taxes, and inflation – the money clients have for accomplishing goals.
Conventional fund managers seldom consider how taxes, inflation, and other expenses will impact return on investments; not at Jupiqon. We know that returns must be qualified against these ‘frictional’ expenses. We attempt to offset gains and losses, as well as limit turnover, to better manage expense outflows and your tax situation. Broadly speaking, Jupiqon believes the purpose of our clients’ assets is to support their diverse life goals. Jupiqon’s wealth management process identifies those goals and then seeks to manage for real return through optimization of each client’s entire financial structure. This sophisticated and comprehensive approach to wealth management is designed to enable clients to achieve real performance and important life goals today, while recognizing the opportunity to build legacies for the future. For Jupiqon as with clients, real return is the focus.