Investment Journey and Learning

Journey & lessons of almost 19 long years in investment……
Monday, February 9th 2015; Singapore
Hotel Ritz Carlton

Key Learning over the years

Ideas can be generated and lessons can be learned from all environments and situations ‐‐‐ One needs a sense and aptitude for this; not much of education or training

  • Analysis doesn’t mean “boiling the ocean” but pick up 4 – 5 key things.
  • 95% news and events and data are ignorable (risk or uncertainty needs quick evaluation)
  • 5% needs very very critical scrutiny ‐‐‐ To know which 5% is experience
  • Even most minor of the issues, if surfaced, from this 5% needs precise understanding
  • Human can do only one thing at a time. But it can do many things within a span of small time effectively if he knows what he does and why and; Ordinary team can do extraordinary things
  • One needs very little to be free and peaceful … Accumulation is primitive instinct from fear of scarcity. But earning good money honestly can give freedom to do many important things and allow few experiments with life.
  • To preserve the Ego or Self Image (not Self Respect) and for a Desire to seek appreciation & acceptance from others cause most of our instinctively wrong decisions and actions.
  • Seeking of certainty for future is cause of most of our miseries
  • We don’t know what this particular life journey designed for; so best to be open to possibilities ‐‐‐ wonders can happen! Try to always keep the door open for possibilities…..
  • “Think and Practice Thinking” ….. (Ritwik Ghatak : The iconic filmmaker)


Investment Journey

From 1996 to 1999

  • First in 1996 – Rs. 25000/‐
  • Lost 50% in next six months
  • Licking the wound for next 1 year
  • Tried applying different theories reading Ben Graham / Warren Buffet / Peter Lynch ‐‐‐Nothing worked
  • Win some, lose some. Net net gain about 10%
  • Biggest drawback ‐‐‐ Lack of patience, Greed, No understanding of how to value business beyond current PE, ROCE, EBITDA Margin etc., and looking just at big picture for opportunity size without considering execution capacity.


From 1999 to 2000

  • Attended a Valuation & Financial Modelling Course in LBS
  • Learned DCF, IRR, WACC, EVA and other complicated excel manipulations and jargons … In retrospect not of much use.
  • Attended a 5 day in house workshop for 15 people with Marti Subramaniyam, Bala V Balachandran and Sumantra Ghosal in Kolkata
  • It was the most insightful experience, gave a ready to use framework for thinking.


Key Takeaway

  • Can business and earning compound over 3 years? What rate?
  • Would you suggest anyone to buy the company over at present Enterprise Value? Why? Assume No Synergy.
  • Are the macro economic factors aligned for growth? – Economic, Political, Social, Military and Global
  • If you’re an honest owner – Can you make money? How much patience needed before you start earning? Is that earning lumpy or even? Will you reinvest in same business? What would be other satisfaction from it than money or power?
  • If you are CEO, can you run it? What you think you can achieve in 1 ‐3 years from now and how? How will you build the team? What may be key challenges for scaling up?
  • Can you compete or counter the best and the biggest?
  • What are the key strengths which make it survive the worst ‐‐‐ Combination of many or just few …?
  • What are the key strengths to develop / mature over the years?
  • Competitive Advantage or Moat or Network Effect?


From 2001 to till 2013

  • Looked for simple ideas to participate in India growth story
  • Passive as not much time to track investments (till 2013)
  • Based on broad theme, identification of 3 – 5 key value drivers which are measurable and execution abilities of the management.
  • Application of standard financial analysis across time and across peers, if available.
  • Talk to at least one industry expert, person related to the industry or strategic expert
  • At least 3 years time frame
  • Sold when valuation look stretched or better replaceable opportunity is available or simply by my error of judgment.
  • Sold almost entire portfolio by end of 2007 (I thought valuation of market too high and was lucky in hindsight)


Year 2008

  • Most tumultuous year of investment career … Started deploying fund big way by  July – Aug 2008, only to see portfolio getting eroded in just over 3 – 4 months by 40% to 50%. Unable to fathom full impact of events even though I had a believe that macro factors are important from earlier experience of Asian Financial crisis. Unable to fully benefit from my past learning! Felt complete emotional drainage for few months.


Journey from 2009 to Till date

  • Apart from only own portfolio, extended my advisory role beyond family, friends and associates to trusts, family offices and overseas boutique firms and large NRIs
  • Free advisory has limitations of scaling and bringing in savers and fence sitters into the stock market ‐‐‐ they are most affected by the vagaries of market, unscrupulous advisors and lack of understanding
  • Planning to obtain investment advisory license from SEBI with sole objective of providing a honest, transparent and diligent service. I think the market for advisory would grow manifold as people realize its benefits. It’s still in drawing board as I need to convince myself that I can do justice to their trust.
  • Opportunity is big for quality services but very little trust about advisory service as there are zillion varieties of advisory who promise more than they can deliver and thereby lack of trust in entire eco system.
  • Investor maturity may take a while – people still feel hesitant to pay upfront fees for advisory services and expect everything to be free and have absurd expectations of return ‐‐‐ Investment Advisory is not considered similar to a medical, legal or other professional advices.
  • Investor education and building of trust are two most critical success factors.



Few Examples : Investment Based on Broad Theme and Execution Capacity 

2001 to 2007 (Successful)

  • ICICI Bank; Axis Bank; HDFC Bank (Times Bank)
  • Sun Pharmaceuticals (holding); ITC; Bharti Airtel; Dabur;
  • L&T; Sintex Industries; Tata Motors; BOC; Castrol;


2001 to 2007 (Unsuccessful)

  • Hindustan Unilever; Ingersoll Rand; Maruti; Pentamedia Graphics; Sold HDFC Bank early.


2008 to Till Date (Successful)

  • TCS; Bharat Forge; e‐Clerk Services; Dlink
  • Hawkins; Kajaria Ceramics; TTK Prestige;
  • Jubiliant Foodworks; Page Industries; Kewal Kiran;


2008 to Till Date (Unsuccessful)

  • Satyam; Nilkamal; Apar Industries;
  • Powergrid; ; Force Motors; MBL Infra


Investment Based on Analysis or Opportunity or Management Meet or Borrowed Idea

From 2009 to 2015 (illustrative few where we were reasonably successful…) 

  • V – Guard
  • Alembic Pharma
  • IFB Industries
  • ZydusWellness
  • SRF
  • AIA Engineering
  • eClerx Services
  • Atul Auto
  • Suprajit Engineering
  • Kitex Garments



(Since 2013 ‐‐‐ Activity Bias; Wrong learning from significant past success and events of 2008)


INVESTMENT PHILOSOPHY (Still Evolving and will always be WIP….)
Objective ‐‐‐‐ Generate 25% ++ CAGR Net of Tax ‐‐‐ Surely Nothing Else

Key Points Example
Most Excited By … Opportunity Size; Balance Sheet; Incremental Growth; Competitive Edge; Best placed to take advantage of a changing scenario; ICICI; Axis; HDFC Bank;
What are the Must Have … At least 3 of these …. Opportunity Size; Substantial Interest Coverage; Improving WC; Reduction of Debt; More than 20% Top Line Growth over past 1 ‐ 2 years. Kajaria Ceramics; IFB Industries; TTK Prestige; AIA Engineering;
What are ignorable … Context specific but 95% of the things; For Engineering; Banking; Construction ‐‐‐ Macro issues are not ignorable. FMCG / Consumer ‐‐‐ lack of YoY growth not ignorable. I am supposed to generate return on portfolio ‐‐‐ Conviction / Pattern etc have no meaning when market is boiling / melting.
How much to pay? It depends on many things …. Past Growth; Future Prospect; Current position of the overall industry; Future Balance Sheet…… Poly Medicure; Kitex Garments; Page Industries;
When to buy and how much cash ‐‐‐ Biggest dilemma as once very successful with Cash (beginning 2008) Failure due to past success; Lost
opportunity in mid 2013
When to sell / book profit – If it has crossed my return expectation but falling and for a better opportunity ‐‐‐‐ But 3 year + holding is the starting point objective. Always flexible to market reality. Many wrong selling (doesn’t mean lesser return to portfolio) but more pressure to find the next… Page; Force Motor; TTK;



What I Have Experienced

Ovarian lottery may have forced us on certain path or we may have chosen certain path resulting in success or failure No patterns exactly repeats itself and even if it does, it generates divergent outcomes In a complex and asymmetric world clearly understanding the Cause / Effect / Correlation is almost impossible


Success and Failure both may give wrong learning

Continuously evolving flexible process is the best process. Pigeonholing oneself as a particular type of investor like Value / Growth / Opportunistic etc creates a surreptitious mental block which can hinder actual performance objective.

Understanding own / team strengths and weaknesses are most critical to start anything new


As the fund size increases complexity rises & flexibility reduces
Psychology and Behavior gets more defensive while handling others’ fund
Unless we keep ourselves open to learning and relearning, we’d lose out


It is better to see things as it is
Always start with a clean slate in all new situations or opportunities
An Investment Adviser is only as good as his CAGR return over very long period


In a nutshell, I truly believe, if I am a marginally better investor then it’s only because I am managing businesses as a non-majority promoter senior management team from an early age in different types of organizations …. And I am good in managing business because a minority investor in me always work in the background!!!


THANK YOU … Q&A … 30 mins. ….


Confidential. Strictly for the audience. Recirculation prohibited.
Owned by Aveek Mitra

Confidential. Strictly for the audience. Recirculation prohibited.
Owned by Aveek Mitra