Introduction

About the book:

The book is a collection of interviews of some of the most aged yet nimble minds of the Indian stock markets. These experienced investors who have seen many highs and lows of the financial markets, share their journey, mostly from rags to riches and also tell us about their investment strategy and personal and professional life, so that we may gather some inspiration and apply it in our investment careers as well.

About the authors:

The book is written by Vishal Mittal and Saurabh Basrar. Vishal has over 18 years of experience in the Indian stock markets and runs Altais Investment Advisors. Saurabh has about 17 years of experience in Dalal Street and co-founded Altais Investment Advisors with Vishal. 

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This book is all about the success stories of different super investors in the Indian stock market & lessons to learn from their investment journey. We recommend you to read the entire book.  

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Ramesh Damani

Ramesh Damani is a veteran broker at BSE. He is an investor, investing in the Indian and US stock markets, primarily through his proprietary portfolio. He is also the Chairman of Avenue Supermarts Ltd. (DMart). Let’s now see what the author has extracted from his interaction: 

Ramesh Damani’s early life:

Ramesh Damani was born in the city of Hyderabad and was the son of a stock market investor since the 1960s. Since the early days of his childhood, he developed the habit of reading the international press. He went to California for his MBA in the year 1977. 

Ramesh Damani shares an interesting story of how his father’s interest in the stock market in such early days (in the 1960s Indian stock market was barely recognized). In the year 1977, George Fernandes, the  Industry Minister back then, passed a law that MNC companies need to dilute their stake, i.e., become listed entities in order to do business in India. This led to many companies like Nestle, Colgate, Glaxo, etc., diluting  their stake to the Indian investors at very low prices as there was not enough liquidity at that time period. This got Damani’s father rope in a good quantity of these MNCs at relatively lower prices.

So how did Ramesh Damani start investing in the Stock Market?

Damani once got a call from his father, telling him that he would receive USD 10,000 (INR 80,000 as per the conversion rate during that time) on one  condition that he had to invest the entire amount in the US stock markets. Additionally, he was told that if he lost the money there would be no punishment for the same, while in case he earned, he would be allowed to keep the entire amount. This was a win-win for Damani. This push introduced him to the world of stock markets and prepared him for his journey to Dalal Street. 

But the going was not that simple. In about six months into his investment career, Damani is said to have lost the entire USD 10,000. This was despite the fact that the US stock market was in a bull run. This made him realize the first mistake, never let formal education (MBA in his case) lure you into believing that you can win the stock market game. 

In 1988, Damani came back to India with his wife and son and became a member of BSE. In those days, a BSE membership used to cost about 6-7 Lakhs. However, for Damani, who was living the mechanical life of a coder, this was a small cost in order to change his life.

The transition of Ramesh Damani from a broker to an investor:

This was because of the fact that brokers during that time earned a mere 1-1.5% brokerage, while proprietary investors like Rakesh Jhunjhunwala, Radhakrishna Damani, and Nimish Shah (who all were his friends) were making a fortune with a 100-200% returns.

As an investor, Damani had some serious stock gains in Infosys (500x) and CMC Ltd (40x). Both these investments were possible as Damani has a tech background (as he was a coder in the US) and hence understood the value of technology companies, especially the Indian outsourcing market.

Ramesh Damani's first big investment- Infosys

Damani reveals that though he was confident of the Indian IT story and Infosys’ fundamentals, he could not bet a huge amount. However, the success of Infosys, which went up 500x, made him realize the importance of betting big. He rectified the mistake in CMC Ltd. where he bought a huge stake in the company which rose from mere ₹20 to ₹800  in just a year. 

When and why did he sell Infosys?

Damani sold Infosys in the year 2000. He accepts that he is very skilled in picking the top and the bottom of the markets. He was able to recognize that the bull market was over or nearing its peak and hence was able to exit at 8000-10000 levels which were near its high of 13,000 in that year. However, he cautions investors of one thing. In a bull market, valuation (PE ratio, etc.) should seldom be a reason for selling a stock. Infosys at 8000 was trading at a PE of 70-80x, however, still it went to 13,000.

What is his portfolio construction strategy?

Damani is not focused on any theoretical way of portfolio construction. He accepts that when the tech boom ended in the year 2000, 95% of his portfolio was allocated to tech stocks. 

Now he reveals that his portfolio construction strategy changed post -2000. He looked for mega themes. Therefore, post the end of the bear market in the year 2003 he went to load up McDowell and United Breweries and some PSU stocks. He was less concerned about the PE of the stocks he bought, but rather valued it via looking at the current market cap of the stock and the market size opportunity. 

How did he handle the urge to sell a 100x stock?

For this, Damani points out a simple hack, “Look at the market size of the opportunity”. In the year 2003, you could buy 10-20% of the liquor industry in 100 cr or two flats in NCPA in Mumbai. 

Which one was better? 

He says, “A true fundamentalist will figure the equation out, without even knowing the time frame.” This means that a fundamental investor might not know the timing of the Indian liquor industry growing to the size of the US or UK. However, he/she can guess the opportunity size and if it is big enough, it commands heavy investment.

Another thing that has helped Damani a lot is  having a good network of people. This helped him build conviction in many of his own stock picks.

How does he generate stock ideas?

Well, Damani  does not use screeners, etc. However, he reads a lot which helps him understand and find mega trends. He advises us to read Financial Times or the Wall Street Journal. In blogs, he recommends thebrowser.com and longform.org. He typically looks for companies under the 5000-crore market cap.

He not only analyses and tracks the Indian companies, but would also compare them with their foreign parent or competitors. He also reads about 100 annual reports in a year.

He tries to meet at least one manager in a month. These are the management of companies that he is researching about or holds some position. He analyzes the body language of the management and checks the credibility by looking at the history of their promises and actual deliveries. He also judges the management on the basis of how they talk when the stock market is up and how they respond to investor queries when the stock is in a downtrend. He likes that management who have hunger and passion for building businesses.

When does he sell stock? 

There are two times when he sells a stock:  

1. When he thinks that the bull market is getting over.
2. When the valuations are extreme. 

He explains a disciplined approach to selling. He was propagated by legendary investor Chandrakant Sampat. He says, fixing a period from today by which you feel that the market is going to reverse its trend, i.e. it is going to fall. Say, six weeks from now; he will sell 1/6, i.e. ~ 15% of the total position in the stock (which is either overvalued or wants to exit anyways as the market is turning) per week. Also, fix a time to sell. Say, every Wednesday at 10:15 am. This will help to get over the bias of timing the market.

The same is true in case you want to start buying post a bear market.

A good method to recognize the top and bottom in a market is by looking at how the stock price is reacting to the news.

• In a bull market, even negative news will lead to higher stock prices.
• In a bear market, even very positive news will lead to lower stock prices.

The catch here is to look at a group of selected stocks, rather than looking at the index on the whole.

What is his advice to new investors?

1. Don’t take leverage.
2. Save about 20 Lakhs by the age of 30 and start investing by this age. Concentrate on doubling money every 3-4 years (18-24% CAGR). This will make you wealthy.
3. Read a lot. Every successful value investor reads a lot. Damani himself devotes 4-6 hours each day to reading. Try to become a little smarter each day.
4. Interact with a group of like-minded people. Networking plays a huge role in long term wealth creation.

Raamdeo Agrawal

Raamdeo Agrawal is a CA by qualification and is the founder andjoint MD of Motilal Oswal Financial Services Limited. His investment philosophy is dependent on the QGLP framework, which is to own companies that meet the parameters of Quality, Growth, Longevity and Price.

His early life: 

Raamdeo Agrawal was born in a village near Raipur, Chhattisgarh. He went to Raipur at the age of 10 years and completed his schooling there itself. He started his CA exam preparation due to his mother’s persuasion. He finally passed the CA exam at the age of 27 years and shifted to Mumbai thereafter.

How did he start investing in stock markets?

Raamdeo started his investment journey by advising his elder brother to invest ₹4-5 Lakhs in the stock market in the year 1980. This was prior to completing his CA. Post CA qualification, he rushed to apply for equity research jobs but could get an interview in only one firm called Aditi Investments. He was very passionate about investing and hence read about 250 balance sheets and also kept  track of the company's capacity, location, utilization, cost structure, profitability, etc. In 1986, two years into equity research, he wrote a book called Corporate Numbers Game.

Start and evolution of Motilal Oswal Group

Motilal Oswal Financial Services was started jointly by Raamdeo Agrawal and Motilal Oswal. Raamdeo met Motilal Ji by chance. They were staying in the same location in Mumbai and  soon became friends as their common interest was the stock market. Hence they planned to start something together, and hence was the start of the brokerage firm named Motilal Oswal in 1987 (when Raamdeo was 31 years of age). During the Harshad Mehta Scam, they started with 10 Lakhs of investment and made 30 crores in a matter of just two years!How did he grow his capital from 10 Lakhs to 30 Crores?

During the year 1992, the index itself went from 1000 to 4200 in less than two years. Added to this was the fact that  trading during that time had grown to a great extent. The 1.5% brokerage was just a cherry on the cake. 

The extent of market strength at that time can be seen from the fact that Raamdeo could double the money many times in a matter of settlement period (which was 20 days during those times).

Hence they were able to convert ₹10 Lakhs to ₹30 Crores. But Raamdeo also recalls how the burst of the scam took a major portion away. When the scam broke out, a major portion of their portfolio was in the banking sector. Hence the ₹30 Crores became ₹10 Crores. But still ₹10 Lakhs to ₹10 Crores over two years a great deal.

Raamdeo Agrawalshares his experience of the 1992 crash: 

Although the market fell vertically during that period, they were safe, as Raamdeo recalls that they were a zero debt company.

How did the firm grow from there?

Raamdeo was taking care of research and advisory, whereas Motilal ji was taking care of everything else like accounting, operations, banking, stock exchange, delivery, etc. By 1995-97, they had grown their research division substantially and were investing about 25-30% of their revenues in research. Interestingly, Nirmal Jain, who now heads IIFL, was the research chief at Motilal Oswal back then. 

All this contributed to the firm portfolio growing to 100 crores by 2001. As a matter of fact, they started with only ₹10 Lakhs in the year 1987, which has grown to 100 crores in 14 years, generating a CAGR of whooping 85%.

Delegating work  is a very important trait that Raamdeo gives to any budding entrepreneur.

Another piece of advice is to keep hunger alive. In the year 1990 they had ₹10 crores which itself was a big amount, but they kept on investing and growing. He is very much inspired by Buffet on this trait.

In 2007, they went public with a massive ₹6000 crores market cap. By this year, the portfolio value had risen to ₹500 crores. The market crash of 2008 again brought the portfolio value to ₹225-250 crores. However, this was regained back by the year 2010, which went on to become ₹700 crores in 2013. They had kept a very concentrated portfolio of 20-25 stocks. 

2013 was also a marquee year. This year they framed the QGLP (Quality, Growth, Longevity, Reasonable price) investment philosophy and thereby sold all the personal investments of ₹700 crores and invested them in the Motilal Oswal mutual fund. This was done as a part of a good governance exercise in order to keep the investors aligned with the MF investors.

Lessons from his journey:

1. Never take debt in the stock market.
2. Do not get blown away by drawdowns. Raamdeo himself has seen losses as high as 50-70% many times in his career.
3. Have conviction in your portfolio and hence hold a concentrated portfolio of quality stocks.
4. Investing is about envisioning first.
5. Buy and hold forever. Also, buy stocks in a way that you don’t lose money.
6. Never let tax rules interfere with your investment decisions. Raamdeo recalls a stock named Mastek. He bought the company in June 1999 at a per share price of ₹ 200. By March 2000, it had become ₹ 4000 and the stock was 40% of his portfolio (about 40 crores). However, due to the short-term capital gain being taxable, he decided to hold the investment for another 3 months. In just 3 months the stock crashed and almost became zero.
7. He is interested in investing in stocks that can double in 3 years.
8. A Company’s management should have three important characteristics: great competency, passion for growth and unquestionable integrity.
9. Dividends play a very important role in investment returns. When a company increases its dividend payout, it generally signals good stock price growth as well.
10. Read a lot. Raamdeo reads about 15-20 books every year.

Rajashekar Iyer

Rajashekar is a Chartered Accountant (CA) by qualification and has over three decades of experience in the stock market. Over his professional career, he has worked with a few audit firms, been an editor of a leading stock market magazine, ran a value investing newsletter, a research desk and was heading the institutional broking business at Kotak Securities. He now runs a PMS by the name of SiMPL (Securities Investment Management Private Limited). He has developed his investment strategies over the years through reading and practicing. He believes in buying high earning growth companies that are available at cheap valuations. He also uses technical analysis to support his investment decisions.

His early life:

Rajashekar was born in a village in Tamil Nadu. He, along with his family, had shifted to Ahmedabad, where he completed his graduation along with CA in 1980. He started working right after that. He got a job in Bahrain, and he is said to have saved 50-60% of his income there. By the time he came back to India (after five years), he had ample money to start his own venture.

His market experience: 

Rajashekar started to invest in the markets via the IPO route. Even when he was an NRI, he used to put money in Indian IPOs, although without any research. After suffering a few losses in the market due to market manipulation, he decided to read about the company’s financials and only then invest.

He went to the Registrar of Companies’ Office, the BSE Library, the CMIE (Centre for Monitoring Indian Economy) office, etc. and read the annual reports, offers documents and other resources in order to understand the company’s fundamentals. This made him invest in some of the classic companies like MRF (he invested when it was trading at INR 75). However, he wasn’t aware of  when to sell it. This made him sell his MRF stock with a meager gain of 100%. Look at where the stock is today!

However, this instance along, with other incidents, made him realize that there is more to a company than financial statements. He then read financial magazines. While doing this, he recognized that the analysis of companies done in these magazines was very immature, and this could be made better. This made him write a letter to the editor of the magazine with a re-analysis of the same company. The publishers found his article interesting and asked him to write regularly for their readers. He soon took over as the editor of the magazine. 

What was the basis of buying and selling at that time?

The early investment phase of Rajashekar was to buy good quality companies that typically had good return ratios and healthy balance sheets. However, he had no knowledge of stock valuation. He just knew one matrix, PE ratio, and that worked for him during that phase because this was the period of 1980-90 when most of the companies were available at cheaper PE valuations and were candidates of re-rating to higher PE valuation.

Then he got introduced to technical analysis via some seminars, and he read a few books.  But he soon realized that due to his long term vision and a fundamental tilt, this was not a very efficient way to invest. He was then guided by a friend to read Security Analysis and The Intelligent Investor. This, he recalls, made a lot of difference to his investment philosophy. Soon after this, his two ventures, SiMPLE (The PMS) and Value Investor (the Newsletter), were initiated.

Thereafter somewhere post 1995, he understood that it was not only the micro level factors like financial performance or management guidance that influenced stock prices, it was also the macro factors like stock market cycles that needed to be analyzed. In short, he was now up for risk management rather than mere stock picking. This made him formulate a policy to sell the stocks that were trading above the fair value. He, however, did not exit it as soon as it went above the fair value, rather he always waited for the market to reverse which he found via technical analysis and then sold the stock. Basically, he was a long term investor but not a “buy and forget” or “hold forever” type of investor.

What is his investment process?

Part 1: Evaluate whether the company can grow its business value meaningfully from here on.
Part 2: Value the company based on the current state, via variables such as its assets, cash flow multiples, earnings multiples, etc.
Part 3: Decide on position sizing or how much capital to allocate in one stock.

Lessons from his stock market journey:

1. Read a lot of books without discrimination. Some of his favourites were “Trader Vic'' by Victor Sperandeo, “Winning on Wall Street” by Marin Zweig and "Trading in the Zone" by Michael Douglas.
2. Position sizing is a very important aspect of risk management.
3. Keep a stop loss, even for investment picks. This would help you save your profits. He learnt it through a book called “How I made $2 Million in the Stock Market” by Nicholas Darvas. He would typically not sell a company just because it has fallen; however, when the fall is already accompanied by a deterioration of fundamentals like slower earnings growth or corporate governance issues, he would sell the stop on hitting a stop loss, which is typically 20-30% below the CMP. 
4. Good investors are good at introspecting.
5. One should leverage only when you expect the stock price to give a meaningful return in the short term. Never borrow to invest for the long term.

Anil Goel

Anil Goel’s story of the stock market is a different one. He was rather a successful entrepreneur in the steel business, and in order to follow his passion, he quit the well run steel biz and came into equities full-time. His journey had a lot of speed breakers as he recalls selling his ancestral property once to come out of a large stock market loss. But as they say, where there is a will, there is a way, he came out pretty well over the long run.

How did he start investing in the stock markets?

Anil invested in the stock markets on the advice of his auditor, who in order to get tax exemptions, suggested investing money in a few IPOs in the year 1990. During this time, he had no clue about how the stock markets worked.

About his early stock market experience:

In 1992, Anil got into stock markets in a big way. He invested ₹50 Lakhs into the market. This however, did not work quite well and he suffered a loss of ₹17 Lakhs within a few months. Contrary to the will of his family members, he invested a massive ₹5 crores into the market in the year 1993. He invested mostly into NBFCs, which had a bull run and by January of 1994, his portfolio was worth 20 crores. This was his  first major success in the stock market.

By the year 1998, he was very mature in the markets. He found a discrepancy in the valuation of Global Depository Receipts or GDRs (These are instruments issued by companies to foreign investors). These were available at lower prices than the issue price, sometimes as low as 10% of the issue price or a 90% discount! This made him focus on buying these GDRs of well run companies and minted money out of them.

How did he  survive the 2000 stock market crash?

Anil did not quite understand how the IT companies worked and hence being a fundamentalist did not touch this sector. Hence he got saved during the 2000 dot com burst.

His Investment Philosophy:

Anil has developed his investment philosophy called KCPLTD which means:

• Knowledge: Have proper knowledge of the business you are investing in.
• Conviction: Once you have proper knowledge, it’s easy to develop a conviction on that idea
• Patience: Have patience in the stock market as it takes time for the value to converge to the market price.
• Luck: you need luck in order to find the stock at the proper price in order to buy it at the desired valuation.
• Timely Deploy: You need to timely deploy your money as the prices come down.

Learnings from Anil Goel’s stock market journey:

1. Buy at a cheap valuation. Anil used to buy companies at an extremely cheap valuation. He bought Relaxo Footwear at a PE value of 2.5-3x. When you buy companies this cheap, you can earn a multi-bagger just by the PE re-rating itself.
2. Buy only those companies that are run by capable management. He acknowledges that it takes time to judge a management. Therefore, he allocated capital to a company slowly as he gained more conviction in the management.
3. Don’t invest for normal returns of 15-20%. Anil invests  5-10 times over the next few years.
4. Look for companies with high dividend yields as this provides regular income.
5. When you sell a stock, don’t be disheartened that it has gone up. Instead sell when you find an opportunity a lot better than the previous one.
6. He takes a small amount of leverage (up to 10% of the portfolio) in order to take advantage of sudden market falls.
7. Anil has recognized that the majority of the market cycles have lasted for eight years. When the market crashes it goes down for 2-3 years, remains subdued for the next one-two years and then finally the bull rally happens in a short time period of 6 months.
8. He hasn’t read any investing books. Rather he advises investors to learn through observations.
9. One needs to be quick in changing their mind. This means that you need to recognize a disruption ahead of the market and take a contrary position or at least move out of the stocks getting hammered due to disruptions.

Govind Parikh

Govind Parikh is a chemical engineer by qualification and a stock broker by profession. His journey is an interesting one as it tells us how even buying widely known shares can create massive wealth if bought at the right valuation. He believes in investing for the long term in credible companies. He also believes in booking profits when shares are quoting at extreme valuations. Let us read about his story.

How did he start investing?

Govind started investing at the behest of his sister’s father-in-law (Mr. Khandala). Govind’s family business was lending (at higher interest rates of 18-24%) and therefore had no stock market background, instead of the mentality of focusing on making 18-24% and anything above that was labelled as  risk.

After his graduation in 1981, he met famous institutional broker and investor Mr. K.R. Choksey, who advised Govind on what to look at in the financial statements of a company. Thereafter, Choksey became his mentor.

What was his first major success in the stock market? 

It was Ramco Cements. Parekh bought Ramco when it was trading at just 3x its Profit Before Tax (PBT), and the market cap was less than 9 cr. He visited Ramco’s AGM along with Mr. Khandala and K.R. Choksey. They all were convinced that the company under the management had huge scope for growth. Since Govind was a broker, he was also influential to many widely known names in the market, like Asit Kotecha (ASK Group), Nemish Shah (ENAM), etc. That way he was able to convince a lot of influential investors of that time (1980s) and thereby make Ramco Cement a multi-bagger for himself and his clients.

By the year 1992, Govind had given up on broking and was working as an individual investor. 

Lessons from the journey of Govind Parekh:

1. You make the most money by buying at the time of crisis.
2. Tax planning plays a huge role in return generation in stock markets.
3. Never take leverage to invest.
4. Do not go by somebody else’s buying/selling rationale. Always develop your own. Govind recalls how he was fooled once. He sold his shares of Ramco Cement to BNP Peregrine at a price of ₹13,500. However, it struck him why such a reputed bank would buy his shares at such premium valuations, there must be some insider news or something. This made him buy the quantity he sold in the market at a price of ₹11,000. This was at the peak of Harshad Mehta boom and the prices crashed to ₹900-1000. 
5. Look for opportunities to double money every two-three years.
6. Have a concentrated portfolio. Although Govind owns 70-80 stocks, 90% of the portfolio is concentrated in the top 10-15 ideas.
7. Investing is a business of cumulative knowledge. Govind tracks only a few companies and keeps updating himself on those stocks every year. He attends the AGMs, investor calls, visits factories, meets competitors, etc., in order to know more about the company.
8. His investing success is based on the principle of buying in crisis and selling during boom times. He doesn’t time the market at all.
9. Always estimate that 25% of your portfolio value is yours; the rest is of the market. Basically, learn to live/ increase the standard of living only by 25%. The stock market is volatile and hence there is a high chance that you may end up losing a lot during a downturn. It’s therefore prudent to keep the expenses under control.
10. He recommends investors to read books such as Common Stock Uncommon Profits (by Philip Fisher), One Up on Wall Street (by Peter Lynch) and The Intelligent Investor (by Benjamin Graham).
11. Always maintain 10% of your portfolio value in cash. This gives you a cushion to invest at times of market crash.
12. He also has a philosophy of Sell? Regret ? Grow Rich. This means that when you sell, most of the time, you’ll regret the decision as the value of your stocks will keep rising post your sale. However, if you invest in a better idea or are able to catch the same stock at a lower valuation in times of crisis, you are destined to grow richer.

Bharat Jayantilal Patel

Bharat Patel is a CA by qualification and was an equity broker. He is known as an activist investor taking large stakes in mid and small cap companies and influencing the management in order to act in the best interest of minority shareholders.

His early life:

Patel was born in Gujarat and was the son of a school teacher. His family started a business in Rajasthan, however due to lack of knowledge and interest he shifted to Mumbai. He procured a broking license in BSE despite having no experience in equity broking (earlier BSE norms required a broker to have at least two years of experience in equities in order to obtain a license). The market was booming in 1985 and brokerage during that time was 2% and hence got Patel’s career on track.

When asked about the future of the stock broking industry, he advised that at present, the margins in the broking industry have shrunk to a great extent and hence the industry players need to play on size.

What is his investment philosophy?

Patel’s principle to investing is very simple, buy low and sell high. He does not believe in averaging up. He does not go by the research reports and other analysts’ calls and does his own research even for his own firm, where he has a few research analysts working for him.

He tries to remain liquid in the bear market scenario and believes that opportunities come to those who are liquid. 

Lessons from Bharath Patel:

1. Never regret the opportunities that have passed by. If you are liquid, opportunities will come.
2. Stick yourself to a few stocks rather than trying to find new stocks all the time. He himself tracks just 10-15 companies.
3. He looks for companies with pricing power.
4. Taking leverage when the return expectations are low (14-15%) does not make sense. Hence use leverage only when the return expectations are very high.
5. One should not just accept the fact that their investment is not working because of promoter quality. Since there are a lot of laws in place, you should always fight for your rights. He advises on being an activist investor. “When you put money in, you have to protect it. You cannot accept defeat just like that.”
6. Never show haste while making a deal. One of his major activist investing successes was Rubfila. In this company, even though the investment banker was his friend, he insisted on getting the deal right, even if it meant a long gestation period, or losing the deal.
7. Invest in companies with good corporate governance policies.

Hiren Ved

Hiren is a postgraduate in Management Accountancy from ICWAI. He is the CIO of Alchemy Capital Management. The firm is run by him and his partner, Lashit Sanghvi and has even Rakesh Jhunjhunwala as an investor.

His early life:

Hiren’s family had a history of investing in the capital markets. He used to assist his father in the stock markets and also in various AGMs. He cherishes the talks of great businessmen like Mr. H T Parekh, Mr. Dhirubhai Ambani and Mr. Rahul Bajaj. Then as he gained interest in the markets, he moved on to reading annual reports, especially of MNC companies, which he recalls attracted him due to the fancy covers and colorful pages.

After his studies, he went on to intern under Mr. KR Choksey. He attributes his stock picking and research skills to Choksey, as he was able to build a strong ground in research right from the beginning of his career. Thereafter he joined Prime Securities for four and a half years.

How did he start Alchemy Capital?

Alchemy was initially started by Lashit and Ashwin as Alchemy Research. They were providing research reports on companies to brokers and investors. Rakesh Jhunjhunwala was also one of their clients. After six months of taking their services, RJ induced them that they were good, honest and ethical men and should set up their own company. He offered to be one of the investors and this is how Alchemy started in 1996. Hiren joined them in 1999. They also applied to SEBI for a PMS license. It took two long years for them to get the license but they finally took off with a capital of 5 crores in the year 2002.

In 2017, Alchemy was managing 6000 crores in assets which included investments from RJ and Qatar Investment Authority, among other notable investors.

In research, Hiren gives credit to his experience at KR Choksey. He learnt how to build relationships with company management. One gesture of Choksey that Hiren has followed till now is to send a handwritten note to the management post the meeting in order to thank them. It, according to him, was a good way to ensure management recall.

When he looks for a stock, he concentrates on three things to ensure whether the stock is a good buy or not.

1. Is there any headroom for growth?
2. ROCE
3. Valuation

One of Hiren’s great successes was picking Bajaj Finance at less than 1x book value. In this interview, he repeatedly recalls how fantastic the management of Bajaj Finance is and why he has still not sold the company even though it is trading at expensive valuations.

He also likes to own companies that are doing a lot of R & D. He liked tech companies and was overweight on tech stocks in the Y2K boom.

With the right buy, it's also equally important to target the right exit. He coined a term called “CAGR killer” which occurs when you own companies (even great companies) that do not move for years due to expensive valuations. These create a massive reduction in the CAGR of the fund.

Lessons from Hiren’s investment journey: 

1. Always take independent decisions. Never rely on others' research.
2. There is no original idea. Even conventional stocks known to all can make a lot of money if bought at the correct price and inflection points.
3. Demographics play a huge role in the PE expansion of stocks. Younger population in a country also means that the earnings would grow, hence more spending and profit growth for companies. Hence even a higher PE would be justified.
4. Have a concentrated portfolio of high quality stocks.
5. Do not rush to pick up turnaround stocks. There is usually a high risk as a lot of things need to work in your favour in order to make you money.
6. He reads the following newspapers, namely: HT Mint, The Economic Times, The Times of India, The Indian Express, Business Standard and Hindu Business Line.
7. He recommends reading thematic reports from Kotak and Ambit. He also recommends reading MIT Technology Review to keep updated about new technologies.
8. Some of the books he recommends are: Superforecasting by Philip Tatlock and Dan Gardner, Thinking Fast and Slow by Daniel Kahneman.
9. It's important to have extreme adaptability, learnability and flexibility in order to succeed in the markets.
10. If one has a good understanding of risk-reward, a good temperament and a long term view with a high conviction, one can think about taking leverage for investing.

Kenneth Andrade

Kenneth has over 25 years of experience in the stock markets and has been the fund manager of Kotak and IDFC mutual funds. He currently runs a PMS by the name of Old Bridge Capital Management and manages upwards of 3500 crores. He likes to own companies that are capital efficient. Let’s learn from him how to pick stocks and play market cycles.

How did he  start investing in the stock market?

Kenneth’s interest in the stock markets was due to his father. His father used to invest in IPO. His father was an NRI, and during the 1990s, there was a special quota for NRIs investing in IPO. He got fascinated by the volatility of stock prices and wanted to capitalize on that.

When he came to Mumbai, he worked at financial magazine, Capital Markets, for one and a half years and was involved in sector research. Thereafter,  he joined a few small asset management companies before finally making a breakthrough in the year 2002-03 when he joined Kotak Mutual Fund as a  fund manager managing 680 crores. Then he moved on to Standard Chartered Mutual Fund, which was acquired by IDFC Mutual Fund. He was given a choice to pick up the old Classic Fund (Higher AUM) and a newly launched Premier Fund (180 Crores of AUM). He picked up Premier Fund as the fund was allowed to hold a concentrated portfolio and could invest in new-age companies as per the fund mandate. 

His investment philosophy:

Kenneth’s investment philosophy was valuation driven and not momentum driven. He had purchased stocks like GlaxoSmithKline Consumer, Page Industries, Bata India and Asian Paints at a PE ratio of 12-18x. These, as we all know, have been multi baggers.

He buys companies that show capital efficiency and according to him, it is the sole determinant of valuation and stock returns. Management skills can also be evaluated on the basis of capital efficiency.

How? Well, in a cyclical downturn, even the best of management cannot do much to save the company from experiencing a slowdown.

However, this class of management does a lower capex and keeps the balance sheet asset light. This in turn translates into higher ROCE even in a downturn. This is how he quantifies management quality.

EV/Sales is also a metric that Kenneth uses in order to pick up the right stock. 

Kenneth is a data driven investor. He recalls a time when he started investing in NBFCs. He allocated the money in such a way in different NBFCs that he was able to create a synthetic bank in the portfolio. For instance, he bought Shriram Transport in vehicle financing, Sundaram Finance in MSME financing and many other monoline NBFCs that were able to diversify the portfolio. Added to this, he was able to buy all these at a valuation multiple of less than one times the book value.

He visits a lot of companies, typically two per day in order to gain conviction in the stock ideas.

Lessons from Kenneth’s Investment Journey:

1. Look for companies trading at an EV/Sales less than 1. 
2. Identify a sector in which all the companies are making losses. This ideally is unsustainable and indicates a bottom of the cycle.
3. Pick companies with good capital allocation policies. He analyses the incremental return on capital to see companies generating good return ratios.
4. The usual allocation is 6-7% to a single stock in order to keep a balance between too much diversification and too much concentration in the portfolio.
5. The job of an investor is to buy capital efficiency. It does not matter which stock or sector you buy.
6. A high cash balance is not a drag on the portfolio. It’s better to be safe than to be sorry.
7. The stock market is like a real estate cycle. You start with the center of the city (like buying large cap stocks) and then as prices become expensive, you move to the outskirts (like mid and small cap), until finally the liquidity vanishes and the cycle completes.

Vijay Kedia

Vijay Kedia is a perfect example of how stock markets can change the fortune of people who are not ready to give up and have a long-term vision. From the days when he was required to sell his mother’s jewels to save himself from bankruptcy to having a net worth upwards of 600 crores, Vijay has come a long way. He has a unique style of picking up stocks and investing in them with conviction. Three of his stocks have appreciated 100 times in the past 10 years (as of 2017). Although he had no major education background, he has been a prominent motivational speaker at all the top IIMs, even the London School of Business.

His early life:

Vijay was born in Kolkata in a family of stock brokers. Therefore, he was not new to stock markets and it ran in his genes. His father was a trader, but passed away when Vijay was just 14. Vijay was close to his grandfather, who used to take him to the Calcutta Stock Exchange even when he was just in school. His interest in stocks led him to be a member of the stock exchange at the age of 18 (official requirement was 21) and he was the youngest in the group. 

Since the start of his career, he has liked to take big positions and a lot of risks in the market. He recalls buying 5 Lakh shares of Hindustan Motors when he was just 22-23 years old. However, his risk taking backfired when he lost a lot during a market downturn. The extent was such that his mother even had to stake her jewelry. However,

Vijay recalls that he prayed to God that he would “leave the stock markets” if he could be saved just this time and save his mother’s jewellery . Fortunately, the markets turned and he was able to square off the position at a minimal loss. He left the stock markets for a few days  as promised but could not resist and came back to the markets. However, this time he had a proper plan and risk management tactics. He states that the first rule for him in the stock markets is to survive, and the second is to make money.

His investment journey:

By the year 1989, Vijay had shifted to Mumbai. It was a risky decision as he was yet to make a breakthrough in the stock markets. However, he believed that “it was better to die in an ocean than swim in a river”. 

In 1988, Vijay, after reading a few industry reports, picked up that the tractor industry was going to do well. This made him invest in Punjab Tractor. He had just 35000 that time, but he invested the entire amount in that one stock. The stock went to 5-7x and he calls this his first investment success.

The next breakthrough was ACC. He bought the stock at a price of 300 and sold it at 3,000. This got him his first house in Mumbai. 

His other multi baggers were Aegis Logistics, Cera Sanitaryware, Atul Auto.

Lessons from Vijay Kedia’s Investment Journey:

1. In the stock market, you should know what to learn, unlearn and relearn.
2. If management thinks he has made a lot of money, their hunger goes away. This is a time to exit the stock.
3. In India, management is more important than business. 
4. One should identify a fish in the ocean, rather than a crocodile in a pond. This means that they look for trending sectors which have huge growth potential and invest in the leader. This will make the most money.
5. Try to repeat success patterns rather than keep doing new things.
6. While selecting management, look for honesty, hunger and smartness.
7. The regret of not buying is higher than buying at a higher price.
8. His investment mantra is - SMILE: Small in Size, Medium in experience, Large in aspirations and Extra Large in market potential.
9. In the stock market, it is always better to have a second income source. Vijay earns through real estate rental income as well.
10. Focus on companies that can make a substantial investment and don’t waste energy over small allocations.

Shyam Shekar

Shyam is a Chemical Engineer by qualification. He had started his investment journey in the early 1990s. His investment style is a combination of deep value (Graham) and qualitative (Fisher). He follows thematic investment, i.e., tracking a macro theme and then looks for stocks that will be able to outperform. He manages risk in his portfolio by position sizing and holds on to stocks throughout business cycles.

His early life:

Shyam was born in Chennai and after his studies joined the family business. He ran the same for about 22 years. He attributes his understanding of Indian regulations, taxes, and industries to his experience running his family business.. He was able to apply the same learnings in stock picking as well.

He initiated his investment journey due to his neighbour, Mr. M.K. Sudharsan. He taught him to read annual reports and to concentrate on looking at the balance sheet of a company. They never discussed companies, instead talked about promoters, balance sheets and accounting. He, along with Shyam’s other friends, taught him the art of trusting the right people. This also meant staying with trustworthy companies and promoters for years.

His capital in the year 1993 was ~10 Lakhs. Astonishingly, he spent 4 Lakhs on the Capital Line database, which helped him in the analysis of financial statements. 

His investing journey:

Shyam’s first major investment success was Ponds India Limited (Hindustan Unilever). He bought 60% of his portfolio. It became 3x in three years.

The other successes were Hatsun Agro (bought at 60 cr market cap and today it is trading at a market cap of 20,000 cr), Cera Sanitaryware, Amara Raja Batteries and TTK Prestige.

Lessons from Shyam’s investment journey:

1. The balance sheet is the mother, not the P&L. The growth that you see in the P&L comes from the balance sheet. Hence it is important to invest in a company with a strong and stable balance sheet.
2. Look for companies that can grow without raising much external capital.
3. Portfolio stability comes from buying businesses that are better franchises and that can take value from the market.
4. High P/E stocks can be a hold in certain situations when the growth in the business is exceptional.
5. He tracks 100 companies at a time but his core portfolio comprises 20-30 stocks only.
6. Don’t take leverage beyond 5-10% of the portfolio.
7. Books recommended: Zurich Axioms, Poor Charlie’s Almanac, Illusions by Richard Bach, James Montier’s Value Investing – Tools and techniques for Investment and Ralph Wagner’s Zebra in the Lion Country.
8. One should enjoy every minute of the investing journey, only then it is worth pursuing.

Conclusion

By the end of this book summary, what we have learned is that every super investor has unique abilities to tackle the markets. Most investors made their fortune with a few handfuls of stocks in the long term. So, the cumulative lesson we learned from different investors is to find companies that are financially stable & has ample room for growth in the long term. These are the stocks we should look for for an investment that is capable of generating wealth in the long run.  

We hope you enjoyed this short book summary. There are more such book summaries on ELM School. Do check them out.