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All images, artwork and
design are copyright of
Monetrix
Finance and
Economics club of
MDl, Gurgaon
90$ 9$':
Aditya Mittal
Amit Garg
Anupriya Asthana
Keyur Vinchhi
Nihal Mahesh Jham
Sandeep Patil
day Das Gupta
Varun Sanghi
lor any inormation or eed-
back, please eel ree to write
in to us at
"#$%&'()*+,-.%/(,-0&1+
From the Editors Desk
Dear reader,
\ith the monsoons hitting northern India and gi-
ing eeryone a pleasant relie rom the scorching
heat, I am proud to present the irst eer issue o
Blue Chip and hope that it adds to the merriment
around!
We generally associate the word Blue Chip with
the companies that make up the broad market indi-
ces such as Sensex & Nity. 1o some with a lair or
playing card games such as poker, it has tradition-
ally been a token o prestige. Both the stock market
and the game o poker are based on a combination
o skill and luck luck dominates in the short run
and skill i you are in it or the long run!
In both these situations, possession o a Blue Chip
has always been equated to haing a token o saety
or conidence. Our namesake magazine hopes to
sere its readers with the same goal, o being a
companion o MBA undergrads, like yoursel, that
can be banked upon or being there when in-depth
understanding o recent happenings is needed or
simply or the un o reading it.
Keeping in line with the spirit o a Blue Chip, we
present the coer story on a company that is a phe-
nomenon in itsel Reliance Industries Limited,
traditionally, one of Indias most trusted blue chip
companies.
1o make the irst quarterly issue o Blue Chip spe-
cial, we present a candid interiew o our beloed
and respected proessor & reered inestor Mr.
Sanjay Bakshi especially or budding inestors like
you.
By now, in the game o lie you hae already been
dealt the cards and now you also hae the Blue
Chip in your hands, then what are you waiting or
Play on and hae un!
~Anupriya
Lditor or Blue Chip

web was yet to dominate the world. I receied
the Buett letters within a week or so and when
I opened them, I could not put them down. I
was hooked to the idea o alue inesting.
Buffett was heavily influenced by Ben Grahams
teachings at Columbia who taught him how to
ealuate stocks in 1930s. In his letters, Mr. Bu-
ett talked about Graham and his book, "1he
Intelligent Inestor," and so I went and bought
the book.
At the end o this book is a transcript o a talk
that Mr. Buett gae at the Uniersity o
Columbia in 1984. The talk was titled The
Super i nest or s o Gr aham- and-
Doddsville, in which he lists the track
record o a bunch o ex-students o Gra-
ham who bought dierent stocks at dier-
ent times and ended up with astonishing
perormance.
One o the best ideas Mr. Buett gies in that
talk was to do with the relationship between risk
and return. Contrary to what I learnt at LSL,
Buett said that that to get lIGl returns, you
should take LLSS risk. \hen I read this, I imme-
diately experienced cognitie dissonance. On one
hand my pros at LSL were telling that risk and
return are positiely co-related and markets are
eicient and humans are rational, while here was
a man, who had a abulous track record, and who
said just the opposite. I promptly resoled this
dissonance by dumping the idea o eicient mar-
kets and picking up the teachings o Buett and
Graham.
I also decided that I wanted to come back to
India and start up an inestment partnership just
like the way Buett did in his early years. So
Z+7 $(- O1+T1 $. $1 $73&+(03[ +1 Q$67-
01Q-.3012 01 D1)0$B #+T )0) [+7 2-3 013+
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I got interested in stock markets in school. Like
many others, I was attracted by hot IPOs. My
riend and I used to pool our money together to
increase the odds o IPO allocation. I we made
any money, we did not keep it, because it went
in the next hot IPO and in the end we had huge
losses. Good early lesson!
I lost interest in the markets when I got into
college because I met this enchanting girl, who
many years later became my wie. So
she kept me more interested in her
than in the markets.
My interests in markets got re-
ignited, when I went to the LSL. I
attended a class called "Security In-
estment Analysis," where I was
taught that markets are eicient and
that there is no point doing any analysis because
eerything that is knowable is already in the
price.
So while I being taught that markets are ei-
cient, I came across an newspaper article which
talked about a ellow called \arren Buett.
\ou see this was in 1990 when Mr. Buett was
not the household name that he now is. Any-
way, the article said \arren Buett has a antas-
tic track record in inesting and he has a knack
o explaining complex inancial and business
topics to people in a wonderul way by writing
amazingly good letters to his shareholders.
I became interested in reading these letters and
I wrote to Mr. Buett. Berkshire lathaway did
not hae a site then. Indeed, the world wide
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of the most popular courses in Finance. Apart from being elected as the Best Teacher by
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Contrary to what I
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26
2

pany had a billion dollar aluation at one point
o time but it neer made any money. I you
look at the cash low statement and understand
the economics o the business with its need or
constant inestment in new plant and machinery
because the old one becomes obsolete rapidly,
you will ind that oer its lie, the company neer
made any money or its stockholders. All o the
diidends paid out were unded not rom what
Buett calls "owner earnings," because there
weren't any, but out o new cash injections rom
owners and lenders. 1hat's the unctional equia-
lent o pyramid scheme where old speculators
are paid rom money brought in by new ones.
1his can't last. 1oday, the stock is worth almost
nothing. As Graham said, market is like a weigh-
ing machine in the long run but in the short run
its like a voting machine. So all sensible invest-
ing inoles seeking alue in excess o price paid.
Deep alue is dierent only by the degree o
cheapness in a situation. Deep alue means
"cheap now", not cheap based on "uture pros-
pects." One orm o "cheap now" would be a
proitable company which is expected to remain
proitable, haing zero or ery little debt, haing
substantial cash on the balance sheet which is
surplus to the needs o the business and haing
an aggregate market alue less than net cash
alone. 1hat's a cash bargain as an example o
"deep alue".
Sounds ridiculous i you think about rom the
iewpoint o a businessman. Let's say you walk
into a nice restaurant and approach the owner
and oered to buy his restaurant or less than
the cash in the till. 1he owner would think you
are insane and yet you get the unctional equia-
lent o such situations in the stock market.
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My irst stocks were IPOs as I men-
tioned. loweer they were not the beginning o
my inestment career but the beginning o my
speculation career which ended ery badly and
ery quickly. But when I came back to India
ater inishing my studies in the UK in 1994,
there were a lot of listed NBFCs. Some of these
companies had ery high diidend yields and
many o them sold well below book alue. Some
that's how I got into
alue inesting.
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In his talk The Superinvestors of Graham-and-
Doddsville Buffet said that if somebody ex-
plains alue inesting to you, two things happen
- either it grabs you immediately or you dont get
it. In my case it was the ormer. 1he idea o get-
ting something or nothing completely grabbed
me. 1here is a joke about two proessors who
are walking down the corridors o their inance
department and one o them spots a hundred
dollar bill lying on the loor. le tries to pick it
up but the other proessor stops him and says
well you cant pick it up because its not there. If
it was there, it would hae already been picked
up. 1here is a janitor who sees these two learned
proessors walk away leaing hundred dollar bill
on the loor. le picks up the note and enjoys
the money. Thats fascinating because the idea
that you can get something or nothing is a ery
seductie idea and to most people i you put it in
that way people will get it. Thats what value
inesting really is.
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lor me, all inesting is alue inesting. Con-
sciously paying more or anything than what it's
worth is speculation. Now, this might work in a
momentum-drien market where somebody else
will buy oerpriced merchandise rom at an een
higher price, which is what the Greater lool
1heory says ,"I know I am a ool to buy this
stock at this price, but I also know that a bigger
ool will come along and buy it rom
me at an een higher price.",
IPOs are a orm o the greater ool
theory i you think about it. Buett
once said that alue is destroyed not
created by any business that loses money oer its
lietime no matter how high its interim aluation
might get. In my class I like to cite examples o
companies which neer generated any cash oer
their lie but neertheless commanded gigantic
aluations or a while.
One example is that o Samtel Color. 1his com-
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Deep value means
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future prospects.
5;P9MJUNE 12 | BLUE CHIP ISSUE 1

buying high quality
companies and
holding on to
them or a long
time, and then
there are people
who hae done
well by buying
mispriced securities in bankrupt companies un-
dergoing a debt restructuring operation,
and then there are those who hae
bought statistical bargains like 1weedy
Brown does now based on the principles
taught by Graham.
I like to gie exposure to all these inest-
ment styles to students and its for stu-
dent to decide what suits him or her the
most. Its about trying to fit your personality to a
style, and it isn't necessary that you hae only
ollow Graham or only ollow lisher. \ou can
take bits and pieces o things that you like the
best rom dierent role models and try to de-
elop your own inestment personality. 1his will
happen automatically oer a period o time pro-
ided you get a ariety o exposure to dierent
styles.
1he other thing which I want to tell your readers
is to look out or great businesses by haing an
investment frame of mind. One favorite exam-
ple to explain this to think about what happens
when you go out or a dinner to a popular restau-
rant.
Let's say you walk into joint like Haldirams and
start thinking about Return on Capital in your
current location VS a situation in which you are
dining, let's say, at a much more ancy place like
1he Oberoi. Return on Capital is the key ratio to
ocus on but that's just a start. So let's break it up
into its two components: margin and turnoer.
\hich one o the two situations would hae a
much more rapid turnoer. Obiously that's
Haldirams where in a single lunch shift, a table
will turn oer maybe ie paying customers.
1hat's just not going to happen in 1he Oberoi.
So, a Haldirams restaurant may have a lower
margin on sales but the ery ast turnoer should
delier it a much higher return on capital. 1his is
a ery useul way o thinking about a ariety o
businesses, so it makes sense to make a habit o
it.
o them were ery conseratie in terms o lend-
ing. One o them was Cholamandalam which
was selling at less than 50 o book alue. It
was giing you a diidend yield o more than
10. So it was a classic Ben Graham kind o a
stock.
I enjoyed inesting in high yielding stocks. I also
loed the idea o stripping diidends rom high
diidend yielding stocks which is an
operation where you buy them on cum
-diidend and then you sell them on ex
-diidend basis at the same or een
higher price, eectiely stripping out
the diidend. 1he annualized return on
such operations can be ery good. 1his
happened at a time when the diidends
were taxable and when diidends became
tax ree, such operations became een more
interesting. I think in one o his talks, Charlie
Munger said that when you hae ery little
amount o money, then you can look at these
obscure bargains in tiny companies. You dont
ind such ineiciencies in large companies be-
cause those are tracked closely by hundreds o
analysts, so there is a lot o competition in that
space.
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013+ Q$67- 01Q-.3012\
My adice is to approach alue inesting with an
open mind and that is an adice that I gie to my
students by exposing them to a ariety o alue
inesting styles.
My own inestment philosophy has eoled
oer the years based on the dierent styles that I
hae adopted, rom dierent role models like
Ben Graham, the partners o 1weedy Brown,
Philip lisher, \arren Buett, Seth Klarman,
Martin \hitman, Richard Zeckhauser, Nassim
1aleb and others.
My adice to students is to go into this ,or or
that matter anything, with an open mind and i
the idea o alue inesting grabs at you then
don't decide that you want to only do cash bar-
gains early on in your career. Get exposure to
dierent styles and see what suits you the best.
1here are people who hae done extremely well
by adopting the lisher,Munger,Buett style o
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28


works.
I you combine these two skills - accounting
and business economics, then you learn to
isualize what the accounting numbers o a
gien company might look like under dierent
scenarios 10-15 years rom now. 1here is a
amous ice hockey quote: "Go where the puck
is going, not where it is." Its quite applicable to
the ield o security analysis and the combined
skill o accounting and business analysis would
enable you to go where the puck is going
1he last point I want to make is about under-
standing human nature. Its important to know
the power o incenties, the power o pererse
incenties. luman nature has not changed
much in the last 1,000 years.
1he idea that bad accounting promotes bad
behaior is a ery powerul idea. I you hae
aggressie accounting - let's say the rules allow
you to recognize reenues aster than you
should - and i you adopt such practices o pre
-poning your reenues and postponing your
expenses, you are not changing anything eco-
nomically but you showing higher current
earnings at the expense o lower uture earn-
ings. People would do that because o pererse
incenties e.g. i their own bonus is tied to
reported earnings. 1hat's how it starts. 1hen it
spreads and when almost eeryone is doing it,
eeryone else starts to do it too
,social proo, and it get's rational-
ized. Man is not a rational animal,
rather man is a rationalizing animal.
Lil in corporations almost always
starts with bad accounting, and then
human nature takes oer and it
spreads. So, understanding human
nature that explains why people are
going to do wrong things and how
the good people end up making bad
judgements, and how that ineitably results in
blowups oer time, is something you will learn
by reading a lot o books on inancial history.
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$.%0(012 Q$67- 01Q-.3+(\
I mentioned some books beore. Read up all
the books written by Graham. le wrote two
books or inestors, but there are 6 editions o
Security Analysis and each is a bit dierent
1he ideas o return on
capital and how it breaks
into margin and turnoer
are not just abstract con-
cepts. 1hese are practical concepts. So
my adice to students who are starting out is to
think in a much more common sense way about
what makes a business a great business and what
makes a business a lousy business and why.
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_7$6030-. 3&$3 $ Q$67- 01Q-.3+( .&+76) %+.>
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1he single most important thing in my iew is to
have the independence of mind. You cant get
swayed by what eerybody else is doing. In act,
independence o mind is just one o the attrib-
utes o being "psychologically astute." People
who are not psychologically astute consistently
make errors o judgment, something I talk about
in the early part o my BlBV course.
1here are about 15 biases and they are in us or a
reason. So one has to recognize that they were
gien to us by eolution or a reason. lor exam-
ple, "social proo" which is just a ancy phrase
meaning "herd mentality" was gien to us by
eolution because it had surial adantage.
1here is "saety in numbers" when you are liing
in the caes and in the jungle. But when you are
trying to make a liing by buying securities that
ery tendency, which gae our ancestors surial
adantage, causes us to make oolish
mistakes in markets. \ou really hae
to ight these automatic tendencies
which are hardwired into us, and there
are speciic methods o ighting them.
Another important skill to acquire is
accounting and I realized this late,
despite being a Chartered Accountant
rom a great irm, Price \aterhouse.
At P\, I learnt how accounting really
works but I neer learnt what the
numbers mean rom the iewpoint o business
economics. 1hat's the part I got by reading Gra-
ham's "Security Analysis," \arren Buett letters
and the books by other authors like Philip lisher.
1hose books really tell you how to determine i a
gien business is good, bad, or mediocre, and
why. And its an enormously useul skill to hae
answers to those questions and you get better
answers when you know how accounting really
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But when you are
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markets.
5;P9MJUNE 12 | BLUE CHIP ISSUE 1
29

Luphoria," and
"1he Great Crash,
1929." A great
book has come
recently which is
called "1his 1ime
i ts Di erent"
which by the way
are the our most dangerous words in inesting
according to John 1empleton, who is
another role model.
So you hae to read these books on his-
tory, and those written by amous ines-
tors but you also must read books on
multiple disciplines. \ou hae to hae a
multidisciplinary mindset, and that is a
thing which I like to teach in the early
part o my course. \e are trying to buy good
businesses and you wont understand what a
good business is unless you understand multiple
disciplines. One o them is eolution and you can
pick up any number o great books on the subject
including Dawkins' "1he Selish Gene" and learn
about the remarkable parallels between eolution
and business.
Pick up some o the greatest texts in social psy-
chology like "Inluence: Science and Practice" by
Robert Cialdini, and "Social Animal" by Aronson.
I loe books on and by leynman who is one o
my role models. I loe his way o thinking - the
scientiic way. 1here are some ideo lectures that
hae been put up on the net by Bill Gates who
bought the rights and gae them to the world.
I also highly recommend a course called "Justice"
by Michael Sandel rom larard Law School. It's
on the net. See a ew lectures and I guarantee you
will be hooked.
\ou hae to know what to read and you hae to
read a lot. So one o the things about this proes-
sion is that reading is required and its not going
to end just because you inished your business
school. It only begins ater that. But you also
must know what not to read, because the world is
ull o noise and that is only going to keep on
increasing because o distractions. My adice is to
keep away rom teleision, except or entertain-
ment and not or news. Ignore the ront page o
newspapers and do not read the stock market
pages.
with dierent examples, so read them all. Also
read all editions o 1he Intelligent Inestor.
\ou should also read letters written by some o
the greatest alue inestors like the partners o
1weedy Brown and \arren Buett, and Seth
Klarman.
Warren Buffetts letters I think are the best edu-
cation in inance that anybody can get,
and I cant overemphasize this enough.
1he thing is that these letters are ree
and that i he had charged a thousand
dollars or them, people would alue
them more. But he gies them away
or ree and people think that these are
ree and can't hae much alue, which
is completely wrong. My ery strong
suggestion to your readers is to drop
eerything and just download these letters and
print them out. Dont read them on the screen.
Read them slowly, read a letter in our days and
try to absorb what he is saying. I think there is no
better place to learn about inance, about busi-
ness economics, about ethics and about a whole
lot o subjects related to the business world than
rom the letter o \arren Buett.
Read Seth Klarman's "Margin o Saety." Martin
\hitman has written a couple o books ,"1he
Conseratie Aggressie Inestor" and
"Distressed Inesting",, and they are worth read-
ing although his writing style is a lot harder to
understand than that o Buett.
Read up all the three books by Philip lisher:
"Common Stocks and Uncommon Proits,"
"Conseratie Inestors Sleep \ell," and
"Deeloping an Inestment Philosophy." 1hen I
want your readers to read books on history. As I
said earlier that human nature hasnt changed
much and people hae made enormous mistakes
in the past and one can learn rom the mistakes
made by our ancestors. 1here is a book called
"Lxtraordinary Popular Delusions and the Mad-
ness o Crowds" by Charles Mackay. It is one o
the greatest books on crowd psychology where
you read up on 1ulipomania and South Sea Bub-
ble and once you read them you will automati-
cally relate them to recent bubbles and manias
and ind that nothing has changed.
1hen there are two books written by John Ken-
neth Galbraith: "A Short listory o linancial
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Warren Buffetts
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30
31

with one explanation that answers the question.
1hat's one hell o a way to think - like the ic-
tional Sherlock lolmes did. I think one should
read Judith larris and Richard leynman and
other great thinkers. Len i you don't under-
stand their subjects, you'd understand their
thinking styles.
I think its terribly important to hae these role
models rom multiple disciplines.
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None, I hae no macro iews. I think it is ery
diicult to predict these things. I hae read a lot
o studies by the experts who try to predict them
but they dont do better than a toss of a coin. So
I dont think it is worth it to try to predict where
the interest rates, GDP growth rates or stock
market leels are going to be in the next year or
two.
1he idea that you can buy-well run companies
which are selling at low aluations occasionally in
the stock market is a ery powerul idea. I the
business is good, the management is good, the
price you are paying is reasonable and you hae
the patience to hold on to that stock or a long
time, then you will do well, particularly i you
hae many o them in your portolio.
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lirst, ind role models. One inter-
esting thing about role models is
that these are not necessarily the
guys who did the best. 1he guys
who did the worst, the guys who
messed up, the Nick Leesons, the
ounders o L1CM, the Bernie
Mados and other people who
are, or until recently, were, in prison or rauds,
can also be good role models. 1hey are great role
models because they are teaching you in a ery
iid way" hey guys look how I screwed up my
lie, and I hope you don't end up like me."
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\ou hae to see how
unny this is. Pick up
newspapers o 5 years
ago and pick up the top
stories o that time and see how ir-
releant they were in the whole scheme o
things. People think they were terribly important
but in the end they were not too important.
1hat's recency bias where people oerweigh re-
cent but unimportant or irreleant eents.
So you hae to know what to read and what not
to read. I like to think a lot about how to elimi-
nate distractions. I use tools to eliminate distrac-
tions like lacebook or 1witter or e-mail or SMS.
Being connected is good but so is being discon-
nected. Depth is also as important, perhaps more
important than breadth.
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I get new role models eery year, they typically
come rom books I read, or columns written by a
journalist. So i I really like a column written by a
journalist I would like to read his or her other
columns, so you hae all these people who think
the way you want to think and who think better
than you think and you want to emulate them.
1o gie you an example, there is a lady by the
name o Judith Rich larris, she writes on eolu-
tionary psychology which is a combination o
eolution and psychology. She has written two
books and one is called "1he Nur-
ture Assumption" and the other
"No 1wo Alike: luman Nature and
luman Indiiduality".
\hen you read these books, you
not only learn about a new ascinat-
ing subject, you also learn how this
remarkable woman thinks, how she
deelops her thesis and you really
hae to read the book to under-
stand what she is saying, but the algorithm she
uses is a fabulous one, its the one which Charlie
Munger reers to as "inersion" or "proo by
contradiction."
Judith larris has a question and she seeks ari-
ous answers to that question and with extremely
logical way to thinking she starts dismantling one
reason ater another and in the end she is let
=9? I6?@AP>5B96? N9B:=
I use tools to eliminate
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Depth is also as important,
:"$2#:/ ?3$" 0?:3$&#%& &2#%
breadth.
5;P9MJUNE 12 | BLUE CHIP ISSUE 1
! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! !
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#$% &'()
! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! !
Monetrix is the linance and Lconomics club o Management Deelopment
Institute ,MDI,, Gurgaon. As one o the most actie clubs in the campus,
Monetrix continuously stries to contribute to the inancial and economic
knowledge o the MDI community by holding eents and conducting
knowledge sessions and other interactions.
1he magazine, Blue Chip, is an eort in the same direction, o contributing
not just to the MDI community, but to the raternity o MBA undergrads
throughout India.
lope this issue o Blue Chip has sered as an interesting read. Do watch out
or our next quarter issue to be released in October this year!

More inormation on Monetrix can be ound at http:,,mdi.ac.in,students-lie,academic-
clubs.html. lor any other eedback or inormation, please mail in to us at
monetrixmandeian.com
?14%S \ou may hae noticed that some o the articles in this magazine hae been written by team
Blue Chip or team Monetrix. 1hese articles hae been kept in the issue only with the purpose o
making the magazine content wholesome and are not considered or the prize money.