My Investment Playbook: The No‑Compromise Principles

Every investor eventually learns this the hard way: returns don’t come from activity, they come from discipline.

This playbook is my attempt to make that discipline visible.

I don’t look at hundreds of variables. I look at a few that matter, again and again, across cycles. Over time, these checks have evolved into 15 principles. Out of these, 8 are absolute deal‑breakers — if a company fails even one of them, I walk away. The remaining rules are important, but flexible: 11–12 out of 15 must pass for a stock to earn a place in my portfolio.

Think of this as a pre‑flight checklist. No matter how exciting the destination looks, if the aircraft fails basic safety checks, I don’t board.

The Eight No‑Compromise Principles

1. Gross Profit Margin (GPM): The Business Must Breathe

What it is: Gross Profit Margin = (Revenue − Cost of Goods Sold) ÷ Revenue

Simple example: A company sells ₹100 worth of products. It costs ₹70 to make them. Gross profit = ₹30 → GPM = 30%

Why it matters: Gross margin tells me whether the business has pricing power and economic oxygen. Low margins leave no room for mistakes, downturns, or competition.

My rule: – Never below 20% – Best businesses operate above 30%

If a company can’t earn at the gross level, nothing downstream can fix it.

2. SG&A as a Percentage of Gross Profit: Efficiency Test

What it is: SG&A (Selling, General & Administrative expenses) ÷ Gross Profit

Simple example: Gross profit = ₹100 SG&A expenses = ₹25 SG&A / Gross Profit = 25%

Why it matters: This tells me how much of the company’s gross profits are being consumed just to keep the lights on.

My rule: – Should be less than 30%

If overhead eats most of gross profits, scale only magnifies inefficiency.

3. Interest Expense to Operating Income: Debt Discipline

What it is: Interest Expense ÷ Operating Income

Simple example: Operating income = ₹100 Interest expense = ₹10 Ratio = 10%

Why it matters: Debt is not evil — fragile debt is. This ratio tells me how exposed earnings are to lenders.

My rule: – < 15% for most businesses – Banks: allowed up to < 40% (due to business model)

A business that works mainly for bankers doesn’t work for shareholders.

4. Total Capex to Net Income: Capital Hunger Check

What it is: Total Capital Expenditure ÷ Total Net Income

Simple example: Net income = ₹100 Capex = ₹40 Ratio = 40%

Why it matters: I prefer businesses that grow without constantly begging for capital.

My rule: – Should be less than 50%

If most profits are reinvested just to survive, owners never truly get paid.

5. Price to Book Value: Paying for Reality, Not Hope

What it is: Market Price ÷ Book Value per share

Simple example: Book value = ₹100 Stock price = ₹180 P/B = 1.8

Why it matters: Book value anchors valuation to tangible reality, especially in asset‑heavy or financial businesses.

My rule: – Preferably below 2

Paying too far above book requires perfection. Markets rarely grant it.

6. Current Ratio: Short‑Term Survival Test

What it is: Current Assets ÷ Current Liabilities

Simple example: Current assets = ₹200 Current liabilities = ₹150 Current ratio = 1.33

Why it matters: This checks whether the company can survive the next 12 months without stress.

My rule: – Should be above 1

Liquidity problems kill companies faster than bad ideas.

7. Total Liabilities to Shareholders’ Equity: Balance Sheet Strength

What it is: Total Liabilities ÷ Shareholders’ Equity

Simple example: Liabilities = ₹100 Equity = ₹120 Ratio = 0.83 (83%)

Why it matters: This shows who really owns the business — shareholders or creditors.

My rule: – Should be less than 1 (or 100%)

Leverage amplifies outcomes, but also amplifies mistakes.

8. Earnings Consistency: No Chronic Loss Makers

What it is: Track earnings history across cycles.

My rule: – No earnings deficit in at least 8 out of the last 10 years

Turnarounds make great stories. They rarely make great investments.

The Remaining Important (But Flexible) Principles

These rules strengthen conviction. I don’t need all of them — but I need most.

9. Some Dividends in the Past 5 Years

Dividends signal confidence, discipline, and respect for minority shareholders.

10. Growth in Retained Earnings

What it is: Profits kept in the business after dividends.

Simple example: Retained earnings grow from ₹500 to ₹900 over 5 years → positive compounding

If retained earnings grow but returns don’t, capital allocation is broken.

11. The $1 Test (or ₹1 Test)

Idea: For every ₹1 retained, has the company created at least ₹1 in market value over time?

If not, management would have been better off returning cash.

12. Valuation Guardrails – P/E Ratios

Canada: – P/E < 20 (up to 25 for IT / Pharma)

India: – P/E < 30 (up to 35 for IT / Pharma)

Valuation doesn’t predict returns, but it defines risk.

13. Management Rationality

I look for evidence, not promises: – Acquisitions that improve earnings quality – Buybacks done at reasonable valuations – Dividend increases during profitable years – Management pay rising in line with PAT growth

Capital allocation tells the real story of leadership.

14. Market Cap vs Net Current Asset Value (NCAV)

What it is: Market Cap < (Current Assets − Total Liabilities)

This is Benjamin Graham’s deep value margin of safety.

Rare today, but powerful when found.

Final Thought: Why This Playbook Exists

In the short run, markets vote. In the long run, they weigh.

This playbook helps me focus on what will eventually be weighed: profits, balance sheets, discipline, and time.

It doesn’t guarantee success. Nothing does.

But it dramatically reduces the odds of permanent capital loss — and that, more than brilliance, is what compounds wealth.

One-Page Visual Summary: My Investment Checklist

Think of this as the dashboard view of the playbook. Before I go deep, I want most boxes ticked — and all red flags avoided.

✅ The 8 No‑Compromise Rules (Must Pass All)

#	Metric	Threshold	Pass?
1	Gross Profit Margin (GPM)	≥ 20% (Best > 30%)	⬜
2	SG&A / Gross Profit	< 30%	⬜
3	Interest Expense / Operating Income	< 15% (Banks < 40%)	⬜
4	Total Capex / Net Income	< 50%	⬜
5	Price to Book (P/B)	< 2	⬜
6	Current Ratio	> 1	⬜
7	Total Liabilities / Shareholder Equity	< 1 (100%)	⬜
8	Earnings History	Profitable in ≥ 8 of last 10 years	⬜

Rule: If even one box stays unchecked here, I stop.

⚖️ The Conviction Builders (11–12 Out of 15 Overall)

#	Check	Preferred Outcome	Pass?
9	Dividend History	Some dividends in last 5 years	⬜
10	Retained Earnings Growth	Positive & compounding	⬜
11	$1 (₹1) Test	≥ $1 value created per $1 retained	⬜
12	P/E Ratio (Canada)	< 20 (IT/Pharma < 25)	⬜
13	P/E Ratio (India)	< 30 (IT/Pharma < 35)	⬜
14	Management Capital Allocation	Rational buybacks, acquisitions, dividends	⬜
15	Market Cap vs NCAV	Market Cap < NCAV	⬜

🧠 How I Actually Use This Page

• I scan this page first, not the annual report
• Green lights send me deeper into qualitative work
• Red flags save me time, money, and emotional capital

This one page doesn’t tell me what will go up next quarter. It tells me what is unlikely to permanently destroy my capital.

And in investing, survival is the first form of intelligence.