I have written this letter to provide you with decent overview of our investment philosophy and fee choices. For technical details of what we offer, you are welcome to look at firm’s brochure from our company webpage: www.ujjval.com or search our firm -- “Ujjval Investments, LLC” -- on SEC page. The following letter has two parts:
Part-1: An overview of my investment philosophy and approach to construct our portfolio,
Part-2: Explanation of two different fee options available to you (jump to this section).

Investment philosophy and portfolio construction approach

In this introductory letter, I would like to highlight the five core pillars that shape the way I build and manage investment portfolios.

Harness the Power of Compounding
Most of us have learned the basic concept of Compounding in our middle-school years but not sure if everyone appreciates the tremendous power of compounding to investment portfolio. The principle of compounding has worked wonderfully for legendary investor Warren Buffett over 60+ years and it has worked equally well for my personal portfolio for the past 20 years.

Allow me to illustrate the true power of compounding with a hypothetical scenario involving two investors – Ms. Euphoria and Mr. Rational. Each starts with $200K for investing, and planning to contribute $20K annually to the portfolio. For the sake of simplicity, let’s assume that their effective tax rate on capital gain is 20% and even lower on dividends (with special low tax rates stipulated by IRS). Each investor plans to stay invested for the next 30 years before liquidating the portfolio.

Portfolio-1: Ms. Euphoria is in a hurry to get rich, so she decides to invest in companies that are growing fast and in vogue. She prefers to dance in and out of the market every year with the hope of outsmarting the market. She makes an impressive +30% return during 1^st year as well as 2^nd year but incurs -15%, a loss during 3^rd year. Since such investors tend to buy-and-sell their holdings frequently, let’s assume that a 20% tax applies in the first two years, with no tax on the loss in the third year. This three-year cycle repeats for the entire 30-year investment horizon.

Portfolio-2: Mr. Rational is adopting a conservative and defensive strategy. He understands the tradeoff of investing with high-growth but expensively valued companies. He is happy with a 12% annual return while trying to avoid large negative years. His portfolio also earns an annual 2% yield from dividends. He doesn’t see any intelligence in market timing and dancing in and out of the market. He pays annual tax only on the dividends and one-time 20% tax on capital gain at the end of the 30-years period.

One would like to think that a portfolio giving a hyper 30% growth rate for two years would do better despite having one smaller loss in between. I have computed the year-end numbers for each of these two portfolios in the following Excel sheet. If you look carefully, as years progress, the compounded value in the portfolio will start diverging, and the spread widens more as the investment horizon gets longer. After the 10^th year-end, Ms. Euphoria has $863K, while Mr. Rational is at $1.12 M. However, true magic unfolds in the subsequent years. By the 30^th year-end, after capital tax payment, Ms. Euphoria is sitting at a $5.47 million portfolio, whereas Mr. Rational stands at a $13.59 million portfolio, almost 2.5x larger.

The much higher returns for Mr. Rationale are attributed to him meeting the essential requirement of the Compounding Magic --avoiding large negative return years.

We frequently come across high flier stocks with high growth rate. Many of them are wonderful businesses but valuation reaches at such extreme that during market reversal or correction they lose significantly. I really like to avoid investing in business where few years of appreciation quickly wiped out during such downturns. If really like to have high thrill roller coaster ride, I would rather visit Six Flags! When comes our portfolio, my preference remains to invest in steady-eddy business that gives us decent but sustainable avg annual return as what we have with Mr. Rationale.

Temperament Overweight Talent
Successful investing activity doesn’t require an exceptionally high IQ. Any individual with basic common sense can achieve respectable results, provided they understand how businesses (and their industries) generate earnings, have a solid grasp of the competitive landscape, and reasonably understand the language of financial accounting language. In fact, one can earn quite respectable returns by simply investing passively in the S&P 500 index on a regular basis. Although market may go through ups and down, over a longer period, passive investor can reasonably expect average annual return of 6 to 7.5% without significant effort.

True challenge arises during periods of market turbulence and corrections. Stock valuations often behave like a variable-speed pendulum: prices can often swing to unsustainable heights and remain elevated for extended periods. But when market corrects, it often overcorrects sharply and violently. The correction could be swift and merciless. Even a well-constructed portfolio can experience paper losses of 50% or more during such extreme correction. In such moments, measured temperament and conviction becomes a priceless virtue. Maintaining composure -- and ideally seizing opportunity to buy high-quality investments at discount prices -- can dramatically improve the long-term trajectory of a portfolio. Quite often such opportunity comes only for an individual business even when rest of the market remain stable. A well-prepared investor could be rewarded.

Experience shows that many otherwise prudent investors panic, selling at the worst possible time, or become frozen by fear. It sounds so appealing to say, “Be greedy when others are fearful”, but it becomes really nerve breaking to walk the talk during such times. I believe, my philosophy and approach allow me to remain calm and opportunistic during such turbulent time for couple of reasons:

I construct portfolio that avoid excessively high valuations so correction should be limited
I avoid chasing investments at any price – reducing exposure to large corrections
I maintain a list of high-quality business to acquire at the opportune times.

With investment grounded in through research and solid fundamentals, I can be aggressive buyer during such bargain-hunting opportunity. I have demonstrated this during the Financial Crisis of 2008-09. Some of my best performing and largest investments were made during these periods of panic and continue to deliver handsome compounding returns over the years.

Focus on Economic Profit
In my opinion, Economic Profit is a more comprehensive and insightful measure of a business’s performance than traditional account profit. A business operates to sell some products or services. It generates revenue while incurring “explicit costs” such as raw material, marketing, salaries, interest and taxes. Under traditional accounting, if total revenue exceeds total explicit costs, the business is profitable from the Accounting point of view. However, this approach is misleading as it fails to account for “implicit costs” –the opportunity costs associated with resources used in the business.

Let me illustrate with a very simple example. Consider a small business started by Mr. John Smith that earned $300K in annual revenue with explicit costs of $270K. From an accounting perspective, John earns a net profit of $30K or 10% net profit-margin at year-end. Doesn’t it sound encouraging? However, if you find that John gave up a $100K post-tax salary to run the business, this opportunity cost must be considered. After factoring in this implicit cost, John actually incurs a net loss of $70K revealing that he is not Economically profitable.

For a public business, implicit costs often include the total cost of capital to run the business, such as interest cost on bank loans and corporate bond and cost of stocks. For a healthy business with capital structure of 40% debt and 60% equity, the cost of capital typically ranges from 9% to 12. Riskier the business or tougher the economy, the higher the cost of capital. To achieve Economic Profit, a business must generate a positive Accounting Profit that exceeds its cost of capital. For example, consider a hypothetical company, Illusion Enterprise Inc. with the weighted avg cost of capital of 10%. The company earns an Accounting Profit with 8% profit margin, which may appear positive from the market perspective. However, since its profit margin is still below 10% its cost-of-capital, the business isn’t making Economic Profit yet and is actually destroying value for its investors at least that year.

Of course, businesses go through phases where they do not generate Economic Profit or even Accounting Profit, particular in their early stages. However, over the long term, sustainable Economic Profit is essential to create value for investors. Many large and matured businesses never achieve Economic Profit and even lack a clear path to do so. While market dynamics may drive their stocks prices up or down for various reasons, such businesses are, in my view, unattractive investments. They continue to destroy investor’s capital every year and the market will eventually catch up to that reality. While selecting investment for our portfolios, I strongly prefer to invest in companies that demonstrate a strong potential to sustain and grow Economic Profit in near future.

Respect for Valuation and Price
One of the most important lessons in investing is that valuation drives long-term returns. A great business alone is not enough — the price you pay is equally important. When investors buy at conservative prices that reflect a company’s true ability to grow earnings, the results tend to be steady and sustainable. But when enthusiasm runs too high and investors pay excessive valuations, future returns often fall short of expectations.

Take an example of Procter & Gamble (P&G), a stable and mature company founded more than 188 years ago. It currently generates about $84 billion in revenue and earns roughly 19% in net margin—around $16 billion annually in profit. With average revenue growth of 4% per year, profits are likely to grow at a similar pace. If an investor pays 18× earnings, the implied earnings yield is 5.6%. However, at today’s market price of nearly 25× earnings, the earnings yield drops to about 4%—barely above long-term Treasury bonds. Paying this high price leaves little margin of safety and caps future upside, even for a company as resilient as P&G. Now, P&G is not without advantages. Its strong brand portfolio gives it pricing power, which may help offset higher inflation. Ongoing R&D investment could also lead to stronger-than-expected earnings growth. These factors justify paying a reasonable premium. But when investors go overboard, even the best business can deliver mediocre—or even negative—returns if bought at too high a price.

With mature companies, growth usually follows a steady and predictable path. High-growth firms, on the other hand, present a very different challenge: their future performance is far less certain, and prices often reflect excessive optimism. When a business shows signs of accelerating revenue or earnings—say, over the next 1–3 years—the market quickly becomes optimistic. Optimism can turn into enthusiasm, and enthusiasm into speculation. Investors begin projecting today’s growth far into the future, assigning ever-higher valuations and paying steep premiums. In these cases, the current earnings yield is almost negligible, and the investment thesis rests almost entirely on expectations of future growth. Eventually, prices reflect not just how the business may perform, but also how much the next investor might be willing to pay. At that stage, speculation has replaced pragmatic analysis, and the risk of disappointment is high.

When you are sitting on a portfolio for which you have overpaid, it can look quite appealing as long as prices stay high—or even keep rising further. But if valuations aren’t sustainable, eventually there will be a sizable correction. The danger with such corrections is that, even if the overall market recovers, overvalued stocks may not rebound fully—after all, the market doesn’t care what you paid for your holdings. Such a correction can wipe out previous gains and may even torpedo the portfolio into losses. These losses directly undermine the compounding magic we aim to achieve from our investments.

That is why valuation discipline sits at the core of our investment philosophy. Our role is not only to allocate your portfolio wisely but also to ensure each investment decision is grounded in a price that offers both protection and potential. We fully agree that exceptional businesses with durable competitive advantages and strong growth prospects deserve a premium valuation—but such businesses are rare. Paying the reasonable price lays the foundation for compounding; Paying too much today can turn even the best businesses into sources of disappointment tomorrow.

Enduring Competitive Advantage
When investing for the long term, one of the most important things to look for is whether a business has a lasting edge over its competitors. If it can protect that edge, it has a much better chance of delivering strong returns year after year. Without it, even a promising company may struggle once rivals copy its products or undercut its prices.

Coca-Cola is a classic example. For over a century, it has faced countless competitors—yet its powerful brand, global reach, and loyal customer base have kept it on top. Even when new drinks came and went, Coca-Cola’s advantage allowed it to generate Economic Profit and grow steadily.

Tesla shows another path. By pioneering the modern electric vehicle market, it created an entirely new space where traditional automakers were slow to adapt. Its first-mover advantage, combined with its charging network and strong brand, gave it a very powerful head start. More importantly, Tesla continues to widen this edge by Elon Musk focusing on self-driving technology and advanced software—features that most competitors are still struggling to match. These innovations make Tesla not just a car company, but a technology leader with a moat that it kept expanding over time.

Apple, meanwhile, built its strength by expanding what many call a “walled garden.” Its products and services connect seamlessly—once a customer buys an iPhone, they often stay with Apple for apps, music, watches, and computers. This loyalty not only protects Apple’s market position but also allows it to steadily expand its profit margins.

For us, the message is clear: businesses with durable advantages—whether through timeless brands, pioneering new markets, or deepening customer loyalty—offer the best chance for steady growth and the kind of compounding that works in our favor over decades. Of course, such wonderful businesses are rare and often come with high valuations. Our real advantage lies in recognizing these businesses early, or waiting for those rare moments when valuations drop, giving us the opportunity to participate in their growth and enjoy the compounded rewards over the long term.

Fees and Compensation

We offer two different fee choices for providing portfolio management and allocation service to you. Irrespective of which fee option you opt for, the investment allocation will be in a similar manner.
1) 0-6-20 performance-based fee and
2) 1.39% flat fee on the year-end Asset Under Mgmt (AUM)

Let me walk through these two choices,

Choice 1: 0-6-20 Performance-based fee Model
We have spent considerable time analyzing annual returns in the equity market over the past 95 years. In the following table, we present the mean annualized returns over 10-year, 50-year windows and even the entire 95-years periods. A consistent pattern emerges. As you may observe in the following table, an annualized return of 6% along with approximately 1.2% avg dividend yield, appears to be sustainable long-term avg for the equity market. If you look at portfolios historical pattern, you’ll likely find that the ‘annualized’ returns fall within this range over a whole credit cycle. Historically, when returns exceed this average in a decade, the subsequent decade often underperforms – suggesting a mean-reversion trend. I am expecting next few years’ returns to be more challenging.

Using return pattern discussed above, we have designed an incentive system that only rewards true outperformance. This is a 0-6-20 performance-based fee model, here is how it works:
a) There will be 0% fixed fee -- no hidden costs, or ongoing maintenance charges.
b) A 6% annual hurdle-rate apply. If the portfolio’s 12-month return doesn’t exceed this 6% hurdle, no performance fee will be charged. You keep 100% of the gains.
c) Once the portfolio’s 12-month returns exceed the 6% hurdle rate, a 20% performance fee will apply only to the returns above 6%. The first 6% remains entirely yours.
d) In a year where the portfolio incurs a loss, no performance fee will be charged. Furthermore, the performance fee eligibility will be suspended in subsequent years until portfolio has full recovered any prior loss – this is called “high-water mark” in investment field.

To help clarify the 0-6-20 performance-based fee structure, here are couple of hypothetical scenarios. Assume a starting portfolio size of $200K. With a 6% hurdle rate, portfolio must generate at least $12,000 gain before performance fee is considered.

Since you may be curious to see how 0-6-20 performance-based fee compares against 1.39% fixed fee option, I have included flat fee results in the last column in the above table. As you may observe, during the low return or loss-making year, performance-based fee comes out very appealing. In general, performance-based fee better aligns incentives to have win-win arrangement in all circumstances. I will only do well when you do exceptionally well. With the performance-based fee option, my compensation only exceeds the flat 1.39% fee if your portfolio earns more than a 14% return, as you may observe in the 7^th case in table above.

For the performance-based fee model, we expect minimum portfolio size of $200,000 at the beginning of our contract. This portfolio could be made out of one or more accounts. If additional deposits are made during the year, fees will be prorated using the 30/360 day-count convention (30 days per month, 360 days per year). Also, in case contribution is made to the portfolio during the year, we will use the “time-weighted total return” method to calculate the portfolio returns. There is no locking period. However, if the portfolio is terminated before completing full 12-months period, any gains above hurdle rate will be subject to a 3% performance fee on prorated basis.

Partial-year Hurdle Rate: Under performance-based fee model, applying hurdle rate can be slightly more complex when a portfolio begins in the middle of the year. To ensure fairness, we use the standard 6% annual hurdle rate but adjust it proportionally for partial year. For example, if a portfolio starts on Jul 1, 2025, only six months remaining in the calendar year. In this case, the applicable hurdle rate for this partial year would be 3% (half of annual 6% rate). Beginning in Y2026, and for each full calendar year thereafter, the hurdle reset to full 6% annual rate.

Please note that FINRA regulation limits the use of performance fees to “Qualified Clients”. To be eligible, you must need one of the following criteria that I could reasonably verify:

Choice 2: Flat 1.39% fees on Assets Under Mgmt (AUM)
Under this fee option, we charge an annual fee of 1.39% based on the total portfolio value as of December 31^st each year. If the funds are added during the year, the fee will be prorated using the 30/360 day-count convention (30 days per month, 360 days per year). For any new deposit of $50,000 or more, the fee on this new deposit is waived for the first 90 days. After which the 1.39% annual fee applies on a prorated basis. The idea is to not charge fee on cash for some time that is usually needed to allocate those funds.