Super Investors of India

Powered by:
TABLE OF CONTENTS
Page No.
Preface 3
__________________________________________________________________________________
The Secret of India's Superinvestors 4
__________________________________________________________________________________
Cloning Warren Buffett 6
__________________________________________________________________________________
Forget the CNBC Gurus...It's Time to Listen to India's Really Successful Stock
9
Pickers
__________________________________________________________________________________
Our Meeting with India's Peter Lynch 12
__________________________________________________________________________________
Finding Multibaggers - The Kenneth Andrade Way 18
__________________________________________________________________________________
Professor Damodaran: Our Meeting with an Authority on Valuations 23

__________________________________________________________________________________
Meet the Fund Manager Who Walks the Less Trodden Path 28
__________________________________________________________________________________
The Small-cap King You Haven't Heard Of 33
__________________________________________________________________________________
Our Private Class with India's Value Investing Guru 39
__________________________________________________________________________________
Part II of Our Private Class with India's Value Investing Guru 48
__________________________________________________________________________________
The Man Who Knows the Secret to Spotting 100 Baggers 56
__________________________________________________________________________________
A Little Known Way to Clone India's Super Investors 62
__________________________________________________________________________________
How I Discovered Smart Money Secrets 66

__________________________________________________________________________________
Author Profile 70
__________________________________________________________________________________
Disclaimer 71
Index | 2
Preface
Dear Reader,
A year ago, my colleague Kunal Thanvi and I revisited Warren Buffetts classic
presentation about The Superinvestors of Graham-and-Doddsville.
This elite group of superinvestors had an envious track record of beating the S&P 500
index for more than a decade.
Kunal and I couldnt help but wonder: Who are the superinvestors of India? What is
their secret recipe? Which stocks are they buying? And most importantly, how can we
develop a way for retail investors to benefit from that knowledge?
These questions led to us to meeting, and interviewing some of the most successful
stock-pickers in India.
And we are happy to bring to you what we learnt from them in this special report
worth Rs. 950. We hope that you find their insights as deeply inspiring and enriching
as we did.
But let me tell youthis is just the beginning of our project of following Smart Money
Secrets. This journey will get bigger and deeper in the coming weeks and months.
Our goal is to enable you to ride the wealth-creation journey of the superinvestors of
India, sitting secretly next to them in their sidecar.
Happy reading.
Rohan Pinto (Research Analyst)
P.S: We had the great opportunity to interview two investing geniuses outside of
India Professor Aswath Damodaran and Chris Mayer. We didnt want you to miss out
on their valuable insights. So, we decided to include their interviews in this special
report.
3 | Preface
The Secrets of India's Superinvestors
Winning a coin flipping contest does not sound exciting enough. Does it?
One would remotely associate such an exercise with his intellectual capacity. And
evaluating success in investing based on such menial task would seem like a joke.
But exactly 35 years back, Warren Buffett used this example to prove the efficacy of
a small group of investors.
In his 1984 speech at Columbia University, Buffet made an interesting argument. That
if Americans were to participate in a national coin flip, only a small group would be
consistently successful. This group would be more than eager to flaunt their success.
And everyone would be curious to know their secret.
It would be intriguing if the individuals had similar origins. Perhaps it would explain
their luck. Of course, each individual would have their own technique, but maybe
some common thread causes them to win.
As you may have guessed, Buffett was referring to himself and his co-disciples -
the followers of Benjamin Graham who swore by their teacher's value investing
principles. He called this group The Superinvestors of Graham and Doddsville and
attributed the success of their varied stock-buying techniques to the common
thread of Grahamian value investing.
Even at the time of Buffett's speech, the funds managed by Graham's nine disciples
had outperformed the benchmark indices by two to seven times.
The Secrets of India's Superinvestors | 4

Gold to Silver price ratio
Times Benchmark Index

8.0
6.0
4.0
2.0
0.0
Walter Buffett Pacific Tweedy Munger Sequoia
Schloss Partnership Partners Brownie Fund
www.equitymaster.com Source: Superinvestors of Graham and Doddsville
Each superinvestor at Graham and Doddsville had a different approach to selecting

stocks. Yet they owed their success to keeping a common principle at the core.
Years later, Charlie Munger laid out what he believed was the reason for his stock
picking mastery too..
I believe in the discipline of mastering the best that other people have ever
figured out. I don't believe in just sitting down and trying to dream it all up
yourself. Nobody's that smart.
Now, this group of superinvestors committed to the art of value investing remains
disproportionately small. In the Indian context, just finding the truly successful value
investors is a tall task.
But we've been able to conduct a series of exclusive interviews with some India's
best, yet largely unknown, superinvestors of the value investing tradition. As
we make the attempt, the secrets and track records of some of these little
known superinvestors we came across, left us hugely impressed.
More on this in the days to come...
5 | The Secrets of India's Superinvestors

Cloning Warren Buffett
I clone my mentors. I copy everything they do, and then I innovate on top of it.
- Henry Markram.
Warren Buffett's performance as a stock picker and business manager is par

excellence. The numbers speak for themselves. The man has trounced the benchmark
big time over the past five decades.
Now, what if we could tap into Buffett's stock picks and mimic his portfolio? And what
if we didn't have to pay a cent for the privilege?
Well, the Securities Exchange Commission (SEC) requires all institutional investment
managers with more than $100 million in assets under management to file Form 13F
every quarter. Form 13F asks for positional level details of all securities the firm has
invested in.
The catch is that these details are filed online after a delay of 45 days from the end
of every quarter.
Berkshire Hathaway latest Form 13F was filed for the December 2016 quarter. The
top ten holdings form almost 80% of Berkshire Hathaway's public investments.
Berkshire Top 5 Holdings (%) Dec-16 Sep-16

Kraft Heinz Co. 19.2 22.6
Wells Fargo and Co. 17.9 16.5
Coca Cola 11.2 13.1
International Business Machines 9.1 10.0
American Express 7.6 7.5

Source: Seeking Alpha
Cloning Warren Buffett | 6

Now, starting in, say, 2000, if you decided to mimic Berkshire's top ten holdings to
form a group...and rebalanced, added, and sold every quarter based on Buffet's SEC
disclosures...how would you have done at the end of fifteen years?
In his book, Invest with the House, Meb Faber did precisely this exercise. Here are the
results: The cloned group of stocks returned 10.5% compounded annually compared
to 4.3% for the more volatile S&P 500.
Berkshire Hathaway Clone Beats the S&P 500
Rs 100 invested...
500
Berkshire 13F Clone S&P 500 BRK
375
250
125
0
2000 2002 2004 2006 2008 2010 2012 2014
www.equitymaster.com Source: Yahoo Finance, Mebfaber.com
While we don't have similar disclosure requirements in the Indian market - and
therefore can't employ the same strategy - we still learn a very important lesson from
this approach.
Stock picks of these smart minds available in the public domain could act as a
basic yet effective first level filter towards identifying some great businesses.
Not to mention they could be potentially rewarding as well.
The Art and Science of Cloning
Mohnish Pabrai, famed value investor and managing partner at Pabrai Funds, is a big
believer in cloning. However, he has a slightly different take on it. He seeks to learn
7 | Cloning Warren Buffett

from the processes of respected value investors rather than just blindly copy their
actions.
We agree: Learning and mastering the philosophies of respected value-style

investors can give us a long-term edge. The key here is to go beyond the stock
picks of these smart minds and understand their thought process behind buying
them.
Cloning Warren Buffett | 8

Forget the CNBC Gurus...It's Time to Listen to
India's Really Successful Stock Pickers
I believe in the discipline of mastering the best that other people have ever figured
out. I don't believe in just sitting down and trying to dream it all up yourself.
Nobody's that smart. - Charlie Munger
Some of the most successful people are shameless copycats.
You don't need to reinvent the wheel every time. Take what others have built and
develop it further.
The world's richest person, Bill Gates, understood this.
He setup Microsoft, one of the most profitable enterprises in the world, building on
the work of others.
Warren Buffett, too, internalises this philosophy.
Inspired by his mentor, Benjamin Graham, Buffett began investing in statistically

cheap and undervalued companies. And later in his career, Buffett added Phil Fisher
and Charlie Munger's philosophy of paying up for quality.
Mohnish Pabrai, a respected value investor, copied Buffett's partnership setup and
imbibed his investment philosophy. In fact, Pabrai is a self-proclaimed clone aka
copycat.
The message from these three giant's is simple: Copy the process of people you
admire and then build on it further.
If I have seen further, it is by standing on the shoulders of giants. - Isaac Newton
9 | Forget the CNBC Gurus...It's Time to Listen to India's Really Successful Stock Pickers
That's why I made it my mission to meet some of the most successful investors in
India.
Riding on Coattails
Imagine this. You are sitting in a sidecar. Warren Buffett is driving. You make a fortune
just letting him drive you around.
Source: Lalocracio/www.istockphoto.com
In investing terms, riding on Coattails of the best stock picker involves understanding
their investment philosophy and looking to profit from their ideas. yes, including
their stock picks.
The driver could be any investor you admire. Wouldn't you just love to ride with your
hero and profit along with them?
But who you ride with does matter. You should connect with your driver's investing
philosophy. And of course, you wouldn't want a driver who isn't extremely successful.
On my mission to uncover some of the most successful investors in the Indian stock
market, I have found a competent and curious partner in Kunal. He's an avid reader
Forget the CNBC Gurus...It's Time to Listen to India's Really Successful Stock Pickers | 10
who believes it's better to learn vicariously than from experience (that way, you get
the lesson without getting the scar). Kunal, a contributor to Equitymaster's Hidden
Treasure and Phase One Alert services, brings with him his unique insights on small
obscure companies few know about.
Together, we have set out to find and talk to the best investing minds in India, relatively
unknown ace stock pickers.
We have spent the better part of the last six months doing this. We reached out to
these investors and interviewed them in detail.
Beginning next week, every Wednesday, we will bring you a personal discussion with
one of India's finest, yet relatively unknown, stock pickers.
Here is a preview of next week's conversation...
He works out of a non-descript location. If he walked by you on the street, you wouldn't
know him. And yet, he is one of the best thinkers when it comes to synthesizing stock
ideas.
In our conversation, he told me about a new idea that is exciting him... and I think it
could be the next big idea for our readers too.
More on that next Wednesday...
11 | Forget the CNBC Gurus...It's Time to Listen to India's Really Successful Stock Pickers
Our Meeting with India's Peter Lynch...
As promised, Kunal and I are extremely excited to bring you a personal discussion
with one of India's finest stock pickers.
But first, a quick question.
What does it take to be called a successful fund manager?
One who beats the benchmark market indices by a few percentage points over three
to five years.
Now you might not think that's a difficult task.
But it is.
The competition is intense. Every year new funds are launched. Most fund managers
chase the same stocks.
The result? Underperformance.
It's very difficult to beat the index year after year.
But Kenneth Andrade beat the market by three times over a decade.
That period included the global financial crisis.
So, who is Kenneth Andrade?
From 2005-2015, Andrade managed IDFC Premier Equity mutual fund.
The fund produced a stellar absolute return of 616% over a decade. The benchmark
Our Meeting with India's Peter Lynch... | 12

Midcap index returned 201% during the same period.
This is an outstanding outperformance.
This placed him comfortably in the top quartile of fund performance in the small and
mid-cap segment.
How did he do it?
The short answer - smart stock picking coupled with prudent risk management.
I am an avid reader of all that Kenneth has to say. I've been inspired by his clear,
simple, yet powerful approach towards picking stocks since the past five years.
Take his bet on Asian Paints way back in 2008. While the whole paints industry bled,
Andrade was one of the first to identify the potential of Asian Paints.
The stock has multiplied almost 10 times since then.
This was not an isolated bet that worked for him. He successfully replicated his bets
with others like Page Industries, MRF, Bata India, Va Tech Wabag, among others.
His unique and differentiated thinking style gives him an edge.
In his present avatar, Kenneth is the Founder and Chief Investment Officer of Old
Bridge Capital Management.
When we met him recently at his Mumbai office, we asked him his formula for
selecting a stock.
"Scale of opportunity, quality of the business, and price to be paid."
Andrade has been active in the stock markets for over 25 years. He began investing
at the age of 16.
13 | Our Meeting with India's Peter Lynch...

www.equitymaster.com (Left to Right: Kenneth, Kunal and Rohan)
We asked him, what got him interested in stocks.
"It was the process of...what was the science that drove stock prices."
His first investment was in an IPO of a company called Digital Equipment India. The
company no longer exists, as it was acquired by HP.
The large gains made during the IPO boom of the late 80's and early 90's further
boosted his passion for stock investing.
A big transition for Andrade happened in the 1999-2000. He got an opportunity to

head the portfolio advisory business working for Sharekhan.
"The tech bubble taught me how to manage risk."
His first investment was in an IPO of a company called Digital Equipment India. The
company no longer exists, as it was acquired by HP.

The large gains made during the IPO boom of the late 80's and early 90's further
boosted his passion for stock investing.
A big transition for Andrade happened in the 1999-2000. He got an opportunity to

head the portfolio advisory business working for Sharekhan.
"The tech bubble taught me how to manage risk."

On Circle of
Competence: "I
He then moved to Kotak AMC in 2002 where he managed
can do only one
a small fund called Kotak MNC fund. A limited universe of
thing right. I can
stocks to choose from taught him a valuable lesson.
buy right or sell
right. I have far
"I learned to optimize given the constrained fewer cases of
universe of stocks at my disposal and tried to selling right than
come out better than most." buying right."
His next stint saw him become the CIO of IDFC Asset Management. The learning was
good and according to Andrade, he did better than what he set out to do at IDFC.
His investing mantra is simple:
"Buy when no one else is buying. In times of maximum pessimism is when

you get right prices to buy. The risk-reward is most favorable.
"I look for price to be paid for any company. I also look at status of the
industry the company is in."
We quizzed him further. What type of sectors does he like?
Here are the tell-tale signs Andrade looks for in a sector:

1. Consolidation in the sector -> Resulting in fewer players.
2. Low future capital needs -> It means there's enough capacity to fulfil future
demand.
3. Improving industry profitability.
And when you are looking to sell, the reverse holds true. Look for signs of
fragmentation of industry (addition of new players), large build-up of capital needs,
and slow improvement in profitability.
How did he navigate the 2008 market crash?
"We stayed out of businesses that had too much debt."
The ability to minimize mistakes by knowing what not to do was of prime importance
to him.
Looking back at his varied experiences through life and having seen multiple market
cycles has taught him the importance of staying curious and being a life-long learner.
So, who are his role models?
Andrade thoughtfully replied that he doesn't have any one role model in particular.
There are many people who study other people's successes and make them their
role model to emulate... Not Andrade.
"You learn a lot from people who have succeeded but you learn even more
from those who have not been able to."
"I learnt from the mistakes that other people made. What not to do is also as
important as what to do. In the last fifteen years, a lot of management have
taught me what not to do."
In November 2016, Andrade referred to notebandi like a speeding car having hit a
wall. He felt it would take at least a year for the economy to stabilise. We asked him
about his views on the current situation.
"I misjudged that one completely. Indian economy is much more resilient than I
had anticipated. Overall, it got over pretty fast."

Towards the end of our interview, we asked him to answer a few rapid fire questions.
Questions Kenneth Andrade's Quick Fire Responses

MRF or Asian Paints Both.
Movie or Annual Report Annual Report. I don't watch many movies.
You look for a scalable business but it's always

Growth or Valuation
dependent on the price to be paid.
Management or Strong Business Strong Business.
Price/Earnings or DCF or Enterprise Value/
Enterprise Value/Sales.
sales
Investing Horizon - 5 Years or 10 Years 5 years itself is too long!
Stocks - Historical Performance or Future
Historical Performance.
Expectations
Cash Flow Statement or Profit & Loss State-
Cash Flow Statement.
ment
Your Favourite Movie/TV Series I don't have a television that works at home!
In today's interview, we've covered some ground with Kenneth Andrade.
Stay tuned. In this week's edition of the Research Digest, I'll discuss his investment
philosophy, his views on analysing stocks in detail, and more...

Finding Multibaggers -
The Kenneth Andrade Way
In a recent edition of The 5 Minute WrapUp, we wrote about our meeting with Kenneth
Andrade, one of India's most successful stock pickers. In case you missed it, here's
an excerpt:
So, who is Kenneth Andrade?
From 2005-2015, Andrade managed IDFC Premier Equity mutual fund.
The fund produced a stellar absolute return of 616% over a decade. The benchmark
Midcap index returned 201% during the same period.
This is an outstanding outperformance.
This placed him comfortably in the top quartile of fund performance in the small
and mid-cap segment.
How did he do it?
The short answer - smart stock picking coupled with prudent risk management.
In today's Research Digest, we're sharing our in-depth discussion with Andrade on
his investment philosophy and stock-picking approach.
Rohan Pinto: Mr Andrade, can you tell us about your investment philosophy? What kind
of businesses do you like to buy?
Finding Multibaggers - The Kenneth Andrade Way | 18

Kenneth Andrade: I love to invest in businesses that are
efficient allocators of capital. As a financial analyst, you have The Core Idea - I
to buy businesses that are efficient allocators of capital and love to invest in
you have to decide how much money you would pay up for businesses that are
such a business. efficient allocators
of capital.
I look for a scalable business. I look for a company that is
doing well in its industry. And the valuation needs to be attractive.
For example, I go for an industry that is consolidating (the

number of players are shrinking), where 65-70% of the Business
industry participants are losing money. And you probably Checklist in Brief:
got the bottom of the cycle there. I want to allocate my Deleveraging
money to the leadership in that segment. A leader who Balance Sheet,
has survived with the highest return on capital in a down Increased Market
share gains.
cycle. Return on capital of 8-10% is fine. And when you
are doing that the valuations are always in your favour.
So, you don't lose much, and risk-reward is in your favour.
Kunal Thanvi: How do you find great stocks? Can you take us through your stock
shortlisting process?
Kenneth Andrade: I usually run screeners.
I go back into history and look for companies that have shown resilience across multiple
business cycles. If they have survived through multiple cycles, it establishes their
sustainability and longevity.
Which companies survive over long periods of time. It is those that have got the financial
liquidity to sustain multiple cycles. So, when I talk about deleveraging, efficient allocators
of capital. I don't mean a 30% return on capital throughout the cycle.
A business can be 10% return on capital when the entire industry is losing money. But the
10% return on capital where the guy has got no debt. Now what kept his mortality rates so
high when 75% of its competitors struggled? Its financial discipline. Identify reasons for
19 | Finding Multibaggers - The Kenneth Andrade Way

why the business has been in existence through multiple cycles.
This is my framework when I want to identify potential bets. I also have communicating
lines open with the industry for bouncing off ideas.
Rohan Pinto: What is the right price to pay for a business?
Kenneth Andrade: First, you look to protect your capital on the downside, then you can
make money on the upside.
Look at industries which is not doing too well. Here you will get the right prices. In a down-
cycle you invest only in the leader in that space. When the entire industry cycle changes,
you can invest in the next rung of leadership.
Go back to March 2013, look at the small cap index, and look at companies that made
losses versus those who made profits. The ratio was 3:1. The small cap index bottomed
out in the same timeframe. Peak profitability of small cap index was Rs 55,000 crores. It
went down all the way to Rs 13,000 crores in 2013. That was the best time to buy leading
businesses.
Don't buy underlying business, buy underlying profitability.
The reason for my preference for both tyre and paint stocks has been the fact that both the
sectors were consolidated. There are 3-4 major market players in these sectors.
We bought MRF in 2004-05. Asian Paints in 2009. We got the valuations right. We simply
rode the cycle for all the companies. We kept tracking the cash flows. Remember, it is not
always about good business or good stocks. You also have to find the stock that will make
the most money for you.
Kunal Thanvi: Can you tell us about your winners and losers?
Kenneth Andrade: My winners had a scalable opportunity, and multiple years of

growth. The industries were getting consolidated. All you had to do was pay the

right price. For that you needed patience. That was the
greatest difficulty. "I am open to look
at anything and
We had our fair share of errors too. Whenever we looked everything. Every
at valuations in isolation, we struggled. We bought PSU balance sheet tells
companies...mostly public sector banks just looking at you a story."
valuations. It taught us a lesson. Looking at valuations in
isolation was incorrect.
Rohan Pinto: Can you tell us your secret to identifying and riding multi-bagger stocks?
Kenneth Andrade: Everyone talks about growth in earnings. You can have growth only
if the size of the opportunity is large. Everyone also talks about earnings multiples. I need
both of those to work for me. I need a price to earnings (P/E) multiple of 10x to expand to
a PE of 40x. And I need the company's earnings to grow from Rs 10 to Rs 100. That way I
compound both together.
Kunal Thanvi: According to you, what's the next big theme in the Indian stock markets?
I am trying to find the next MRFs and Asian Paints. PVR, Eicher
Motors and Interglobe Aviation came in the last decade. They "My objective
captured a chunk of the industry profitability. You have to today is to go
out and find new
find companies who would demonstrate their ability
businesses that are
to garner higher profitability of that industry. As long
exhibiting the same
as you do that you will do well.
characteristics of
those businesses
Every investor is different. Everyone has his own way of that were successful
pricing companies. I won't turn blind eye to valuations if earlier."
business opportunity looks great. I look at opportunity that
exists first and then I am willing to pay an 'X' price for it.
My objective today is to go out and find new businesses that are exhibiting the same
characteristics of those businesses that were successful earlier.
21 | Finding Multibaggers - The Kenneth Andrade Way

I am not saying it will come from only one particular industry now. It can come from
anywhere.
Now balance sheets have stopped growing in the past two years. Payback of debt is huge
and it is all coming out of cash flow from operations.
Let's take the BSE 500, and particularly the manufacturing companies. Profits have
remained range bound for about five years. These have to revive now and the revival in
profits will come in the operating cash flows.
If you just followed that metric, then this year saw cash flows at an all-time high for sugar
and oil & gas companies.
The power industry might just perform well next year. Overall, I think companies are
deleveraging and balance sheets are shrinking which is great.
Our Three Key Takeaways from Kenneth
The three critical factors that were essential learning for us from the meeting with
Kenneth were these:
1. Invest in businesses that are great capital allocators - Put simply, one needs to
look for businesses that have earned decent returns on capital invested over a
complete market cycle.
2. Try to buy assets when they are out of favour - Times of maximum pessimism
creates buying opportunities in the market. During this time, good businesses
are available at reasonable valuations.
3. Multibaggers or Compounders have two levers, growth in earnings and an expansion

of its valuation multiples. Both of them need to work in your favour to create
disproportionate wealth in stocks over a long period of time.
We hope you enjoyed reading investment insights from one of India's most successful
stock-pickers.

Professor Damodaran: Our Meeting with an
Authority on Valuations
Kunal and I have been working on a project.
To tell you the truth, it has consumed us.
The inspiration behind this little project was nothing short of mastering The Art of
Stock Picking.
This took us on a journey to track the smartest minds in the world of investing.
In an earlier WrapUp, we wrote to you about how tracking smart money can give you
an edge.
We then shared with you what we learned from India's Peter Lynch, Kenneth Andrade.
In this week's edition, we bring you an international guru, a professor who has been
teaching valuations to students for decades.
Professor Aswath Damodaran is an authority on valuations. He teaches a popular

course on corporate finance and valuation at the Stern School of Business at New
York University.
We have been the beneficiaries of Professor Damodaran's pearls of wisdom in the

past. However, this time around, we covered more ground.
Without any further delay. Here is our conversation with the legendary Professor.
What got you interested in stock markets?
23 | Professor Damodaran: Our Meeting with an Authority on Valuations

To be honest, I am not that interested in stock markets. I don't follow stocks religiously,
don't watch market TV shows, or read about stocks intensely. I am interested in
markets of any sort, since I find it fascinating that thousands of buyers and sellers
can create a market clearing price even on the most obscure and complex of claims.
Who has been your biggest inspiration?
My inspiration has always come from within. I think that looking to other people for
inspiration is a dangerous thing to do. Even the best and most amazing people are
human beings, filled with all of the false pride, blind spots, and frailties of humanity.
What according to you is the most difficult part in investing?
Learning what you don't know and what your blind spots are in investing. We all have
our weaknesses, and often we are the last ones to recognize those weaknesses.
If you could change one thing about your investing approach in the past, what
would that be?
Nothing. I am who I am today (as a person and as an investor) because of the mistakes
(and right decisions) that I have made in the past. I don't believe in regretting or
reliving the past and I also believe that going back and selectively changing only the
things that you don't like about your own history is never as easy as it looks.
Could you tell us something about your mistakes in picking stocks?
If by mistakes, you mean stocks that I have bought that have gone down, what is there
to tell? The nature of investing is that you are going to be wrong not just sometimes
but a lot of the time and the way you insulate yourself is not by trying to avoid making
mistakes but by spreading your bets.
What kind of businesses do you think will be the biggest wealth creators over
Professor Damodaran: Our Meeting with an Authority on Valuations | 24

the next two decades?
Who knows? This is the kind of hubristic macro question that people like to hear
profound answers to, and I am afraid that I not only don't have the answer but don't
even try to answer.
What do you think is the 'one thing' that every Indian investor should keep in
mind?
That we live in a world where change is the only constant, that you have to keep an
open mind, learn from everyone around you, and be willing to say the three most
difficult (and freeing words) that anyone can say, 'I was wrong'.
If you had an extra hour each day, what would you like to do?
Sleep.
Do you prefer a concentrated portfolio or a diversified one and why?
I am surprised that people still ask this question. It takes a special combination of
arrogance and ignorance to think that you are so good at picking the right stocks and
that so convinced that the market will come around to your point of view that you put
all their money into four or five stocks. I don't have that conviction and I have always
held a broader portfolio. Contrary to popular wisdom, there are enough stocks in the
world that I can both pick stocks and be diversified at the same time.
What is your preferred Valuation metric and why?
I don't use metrics (by which I think you are talking about multiples like PE, price to
book, or EV/EBITDA). To be honest, if you pick stocks based on metrics, you should
just throw in the towel and just buy an index fund or ETF. After all, if you can screen
stocks based on metrics, what makes you think that an automated process cannot do
it much more efficiently and cheaply?

Towards the end of our interview, we asked him to answer a few rapid fire questions.
Questions Professor Damodaran's Responses

Moneyball. A Conspiracy of Paper. Thinking
Your Top Three Favourite Books
Fast and Slow.
Lost, ABC. The Walking Dead. The Twilight
Your Favourite Movie/TV Series
Zone.
Graham or Fisher or Lynch Lynch.
Alphabet or Apple or Amazon Amazon.
Growth (Size of the Opportunity) or Valuation A false choice!
Movies or Annual reports Movies.
Great Management or Business Moat Neither; the right price.

Come on! Does anyone pick historical perfor-
Historical Performance or Future Expectations
mance?
Cash Flow Statement or P&L Cash flow statement.
We appreciate the Professor taking the time to answer our questions, and we hope
you enjoyed his often-amusing insights.
As I mentioned earlier, we are on a journey.
In the process, we have met-discussed-debated with some of the smartest minds in

the world of investing, both India and abroad.
Now, there are many ways of picking stocks. Different investment philosophies exist
to exploit the inefficiencies in the market.
However, we believe there is a great merit in marrying different yet proven investing
approaches.
I highly recommend you to watch this space closely as Kunal and I are fully geared up
to bring some interesting stuff in the coming days.
And Next time, we will share more value investing insights with you from one of
Professor Damodaran: Our Meeting with an Authority on Valuations | 26

India's best value investors. In our view, this man is both an accomplished teacher
and successful practitioner of his craft.
In the interview, he told us what patterns investors should seek, which ones to avoid,
and much more.
We are excited to share all his learnings with you.
Stay tuned...

Meet the Fund Manager
Who Walks the Less Trodden Path
A slight detour before I introduce you to this brilliant fund manager we've been
tracking...
I was part of the interview panel when my colleague Rohan Pinto applied to join our
equity research team. I remember a particular moment during the interview when
Rahul Shah, in his usual measured tone, asked his famous questions: What do you
like to read? Who are the three people you admire the most and why? (Read about
the neuroscience behind these questions here.)
The mere mention of the word 'read' brought a big smile on Rohan's face. As he
talked (and talked, and talked) about his love for books, the people that inspired him,
and the investors he admired and studied, we realised we'd bumped into a learning
machine...and an obsessive bookworm.
I remember him quoting Charlie Munger:
I believe in the discipline of mastering the best that other people have ever figured
out. I don't believe in just sitting down and trying to dream it all up yourself.
Nobody's that smart.
The reason I'm sharing this is because sometime last year Rohan came up with a
novel idea: I want to develop a way to copy the best investors out there...
Our other colleague, Kunal Thanvi, a very savvy stock picker, also shared Rohan's
passion for 'copycat' learning and investing. He was instantly drawn to Rohan's idea.
I'm thrilled to announce that Rohan and Kunal have been working on this exciting
project for several months. They've been studying the secret recipes of India's super
Meet the Fund Manager Who Walks the Less Trodden Path | 28
investors...and even more interestingly...they've been actively tracking and evaluating
their recent stock picks. (You will hear more about this in the coming weeks.)
I hope you read their deeply insightful interview with Kenneth Andrade - India's
Peter Lynch. And also an interesting conversation with famous value investing guru
Professor Aswath Damodaran.
I've been keen to participate in this project. So, today I'm going to talk about yet
another Indian super investor who we like to track...Akash Prakash.
Akash Prakash is the co-founder and CEO of Amansa Capital, a Singapore-based fund
management company. An MBA from IIM-Ahmedabad, he was ranked among the
top 20 Fund Managers in Asia by Asia Money in 1999. In 2004, he was ranked among
the top three by Indian corporates in Institutional Investor's 'Best of Buy-Side' survey.
To date, he has a knack for picking winning stocks, one after another. According to
Economic Times, many of his stock picks - including Cholamandalam Investment,
Edelweiss Financial Services, Bharat Financial, and Ashok Leyland - have more than
doubled in a couple of years.
Besides an enviable track record, Akash's investing philosophy resonates with our own
in-house approach. Here's some interesting aspects about his investing philosophy...
Investing approach in a nutshell...
Akash prefers 'companies that are well managed and financially disciplined, with a
strong growth potential that can be held for multiple years and trade at a reasonable
price'. And before making the investing decision, he follows a rigorous research
process that spans the entire eco system in which the company operates.
Bottom-up or top-down?
He follows a bottom-up stock-picking approach. This means that he focuses more

on individual stocks, and that his investment decisions are not primarily driven by
macroeconomic calls. He also doesn't believe in following a sector-focused approach.
29 | Meet the Fund Manager Who Walks the Less Trodden Path
Relative returns or absolute returns?
Let me first explain the difference between 'relative returns' and 'absolute returns'.
The term 'relative returns' refers to returns as compared to a benchmark index. Most
fund managers aim to produce returns that beat a benchmark. Given the intense
competition, a fund manager who beats the benchmark by even a few percentage
points over three to five years is said to be successful. Because of this intense focus
on relative performance, many fund managers tend to follow what Warren Buffett
calls 'the institutional imperative' - a tendency to blindly imitate the action of peers.
But what happens when let's say the Sensex falls 25%? A fund manager who produces
a 20% fall will appear successful, relatively speaking. And that's the trouble with
relative returns.
On the other hand, 'absolute returns' are not compared with any benchmark.
Managers focused on absolute returns have a long term orientation and therefore
are able to take contrarian bets and not be index huggers. And this is the orientation
that Akash follows.
Short-term or long-term?
Akash follows a long-term investing approach. In an interview with ET Now in February

2017, this was his message:
Investors should remain invested and just fill it, forget it and look at it after
five years. They will have very strong returns.
Small cap, midcap, or large caps?
Akash invests across the market cap spectrum. But he does have a special liking for
midcap stocks.
Popular or contrarian?
Akash likes to take the less trodden path. He likes to go where not many fund
managers would go. He particularly likes midcap companies that have limited or no
coverage by brokerages.
Let's talk a look at some of his top holdings. The chart of the day shows the top
holdings of Amansa Capital in value terms. At Rs 6.5 billion, Federal Bank is the largest
holding.
Akash Prakash: Walking the Less Trodden Path
Amansa Capital - Top Holdings*(Rs bn)

7
6.5
6.1
6
5
4.3
4.0 3.9
4
3
Federal Bank SRF Bharat Chola- Tata Comm
Financial mandalam
Investment
www.equitymaster.com Source: Economic Times

*Data is based on December quarter
shareholding at prices as on 7 April 2017.
Economic Times estimates Amansa Capital's total holdings to be in excess of Rs 81

billion.
Some of the big winners for Akash Prakash have been Cholamandalam Investment
(up 5.6 times since December 2010), Edelweiss Financial Services (up 4.2 times since
December 2009), Cyient (up 3.4 times since June 2011), Triveni Turbines (up 3 times
since March 2012), among others.
2017, too, has been a big success for the fund manager. Right after the Union
31 | Meet the Fund Manager Who Walks the Less Trodden Path
Budget this February, he was bang on with his prediction that the benchmark Indian
stock indices could hit new highs during the year and stabilise at that level for some
time. He was proven right in less than two months with the Indian markets zooming
higher in recent weeks.
As per Capitaline data, among the 29 stocks where Amansa Capital has more than
1% stake, twelve have given 20-86%, sixteen are in double digits, and five stocks are
down so far for the year.
Now, let me caution you. Do not blindly copy Akash's stock picks. Or for that
matter any other successful investor. That's not how copycat investing works.
Copycat investing is an art that requires a disciplined and diligent process to imitate
successful investors.
And that's exactly what my colleagues Rohan and Kunal are working on.
They're building a solid process to sift through the stock ideas and strategies
of the smartest and most successful investors in India...and to help you ride
along with their success.
Stay tuned for more...
The Small-cap King You Haven't Heard Of
There's enormous advantage in finding your calling early in life. The word has it that
by the time he was in his teens, Warren Buffett had read every investing book at
his local library. And he was all of 17 when he first chanced upon Graham's The
Intelligent Investor.
The rest as they say is the power of compounding.
I wasn't all that lucky. I was introduced to the world of Graham and Buffet investing
at a not so early stage in my life. And the more I talk and interact with two of my
colleagues, Rohan and Kunal, the more I am reminded of this small injustice meted
out to me.
These guys are only in their 20s. Yet, they already know so much about value investing
and its most successful practitioners that I struggle to keep pace.
Regular readers of this column would be aware that both Rohan and Kunal have
already started turning their passion into a full-blown project.
A project that involves getting into the minds of some of the most successful value
investors and come out with the most penetrating insights on successful stock picking.
They have travelled far and wide and they have put in a lot of energy to reach out to
experts who they think have extremely valuable investing ideas.
Their effort is beginning to bear fruit.
Their interesting interview with a man they rightfully call India's Peter Lynch has
already been published and so has been their interaction with famous value investing
guru Professor Aswath Damodaran.
33 | The Small-cap King You Haven't Heard Of

Today, Kunal is going to shine the spotlight on a gentleman who has such an amazing
track record he is surprised he is not already well known.
Over to Kunal.........
We like to invest in companies where we can get an edge. - Sumeet Nagar
He's not like the pseudo experts you see daily on television. This man is truly a wizard
of Dalal Street.
Sumeet Nagar is the co-founder of Malabar Investments LLC. Malabar is an India-

focused foreign portfolio investor (FPI). It collectively manages more than US$15
billion. Malabar specialises in value investing in small and mid-sized Indian stocks.
Nagar is a graduate of Indian Institute of Technology, Bombay. He has an MBA in

Finance and Entrepreneurial Management from the Wharton School, University of
Pennsylvania.
Prior to starting Malabar in 2008, Nagar was a consultant at McKinsey. He was a

founding member of McKinsey's dedicated private equity group.
Malabar Investments has won numerous awards including 'Best Single Country Fund'
from Asia Hedge in 2014 and 'Best Fund for Small-Cap Indian Investments Since
Inception' from Hedge Fund Awards in 2015.
Sumeet Nagar is someone I like to read and listen to. He always talks clearly and
sensibly. He rarely uses financial jargon.
Most importantly, he thinks long-term.
Multibaggers Are a Result of Long-Term Investing
Many of his top small-cap picks have been multibaggers.
La Opala, Page industries, eClerx Services, Symphony, Mayur Uniquoters, Hawkins,

Cholamandalam, Eicher Motors, Motherson Sumi, CCL Products, and Avanti Feeds.
The Small-cap King You Haven't Heard Of | 34

These stocks have created huge wealth for investors. Many of them are no longer
'small'. It pays to be patient. Let compounding do the work for you.
Today's chart below gives an idea of just how high the compounded returns were.
Defying Convention
The common theory about small caps is that they are risky. Thus, it's wise to spread
the risk by diversifying widely.
But Sumeet Nagar does not diversify. He runs a concentrated portfolio. He has about
fifteen core holdings. The top five are about 35-40% of the total portfolio.
I found this very interesting. It's rare to find an advocate of concentrated investing in
small cap stocks.
In contrast, the portfolios of the top performing small-cap mutual funds in India are
all very diversified.
But What about Risk Management?
As per Malabar's website, Nagar mitigates risk by focusing on companies that...
Are leaders in niche industries.

Have a long history of excellent financials.
Are run by highly capable managers who have the best interests of shareholders
in mind.
Have a sustainable competitive advantage, i.e. a moat.
Have demonstrated pricing power.
Have a long runway to grow profitably.
Finally, he'll buy them only when these stocks trade below his conservatively estimated
intrinsic values.

Then he'll hold them for a long time. He invests with a three to five-year perspective.
He doesn't mind holding for longer. His portfolio turnover is very low, about 10-
15%. This means the overall capital turnover is seven to ten years.
Nagar also adds to his positions if the stocks offer enough margin of safety.
In an interview with the Economic Times in October 2015, he summarised his stock
picking process:
The underlying thought process is that you are buying businesses that can
compound well over a long period of time. Valuation - to an extent - is not under
your control, so at times it will be low, and at other times it will be high. As a
matured long-term investor, you need to take advantage of that. When things get
beaten down, you like these businesses, you add to them, and when it becomes too
expensive, you either hold on to them or eventually trim them.
This may sound simple. But Nagar's investing philosophy is not simplistic.
An Investing Edge
He knows that managements can make or break a small firm. So he doesn't rely only
on the what they say in public.
He spends a large part of his time assessing whether they have the drive and the
capability to take the business to a whole new level.
He is known for conducting extensive due diligence by talking to competitors,

regulators, suppliers, distributors, retailers as well as visiting factories, depots, and
retail outlets.
This is his edge: Conducting very deep fundamental analysis to identify the key
growth drivers of a stock.
A Contrarian View on IT and Pharma: Go Where the Fish Are
Sumeet Nagar thinks there are good long-term opportunities in IT and pharma stocks.

Unlike many people on the street, we share this view.
In August 2016, he told Economic Times:
I think today is an environment where there is a lot of optimism around. So you

are not going to find great bargains like that, but I think as Warren Buffett said if
you want to fish, go where the fish are, not where the fishermen are. So go where
investors are not looking today. Things which are unloved so perhaps things like IT
and pharma and maybe there are some great opportunities there for a long-term
investor.
I couldn't agree more.
Are Markets Overvalued?
Nagar believes they are.
Why?
Because earnings haven't caught up.
In the same Economic Times interview, he said:
Either the markets have to get aligned with the earnings so that they get time
corrected or they get pulled down or the earnings have to move up. What we have
seen over the last say two or three years is that the earnings always seem to be two
quarters that is six months away but it has been slow in coming.
I do not think you will find a lot value in today's market given all the positives that
are out there. There are no screaming buys out there but you would find pockets
of opportunities here and there.
Indeed. Many stocks have clearly run up well above their fair values. But I believe
there are still opportunities to be found.

Sumeet Nagar's bottom-up approach is one we like very much. In fact, his process
closely resembles the one followed by Richa's monthly small-cap recommendation
service, Hidden Treasure.
But this doesn't mean you should blindly follow Sumeet Nagar's picks...or anyone
else's for that matter.
If you must copy a successful investor, you still need to follow a proper method.
Rohan Pinto and I are building one. We have been sifting through the strategies
of the smartest and most successful investors in India...and I believe we can
help you ride their coattails.

Our Private Class with India's
Value Investing Guru
I am fascinated by the idea of learning from the successes and failures of other
people.
My colleague Rohan Pinto is also a firm believer in this practice.
I joined Equitymaster last year. My first day at work, I was assigned a desk next to
Rohan.
A great coincidence!
We spoke a bit. Conversation drifted to books. I remember how animatedly Rohan

talked about the book he was reading, Grinding It Out by Ray Kroc.
I too had read the book and loved it.
Rohan and I had another passion in common: tracking India's super investors.
It came naturally to us. We both knew we could reduce our learning curve in the
markets if we stood (metaphorically, of course) on the shoulders of the giants.
And thus, we began our journey to meet those giants...
Our goal was to understand their approach to stock picking. Our first conversation
was with India's Peter Lynch, Kenneth Andrade. The second in the series featured the
famous valuation professor, Aswath Damodaran.
Then my colleagues Ankit and Rahul introduced you to other super investors like
39 | Our Private Class with India's Value Investing Guru

Akash Prakash and Sumeet Nagar.
And this week, Rohan and I are excited to bring you our conversation with a highly-
respected professor and practitioner of value-style investing in India.
Introducing Professor Sanjay Bakshi...
We have been following Professor Bakshi for many years. In fact, I was fortunate
enough to attend his three-day workshop on behavioral finance at FLAME University
Pune.
The professor teaches MBA students (at Management Development Institute

Gurgaon) a popular course on 'Behavioral Finance & Business Valuation'. He also
helps countless students understand the nuances of value investing through his blog
and Twitter.
www.equitymaster.com (Left to Right: Kunal Thanvi, Sanjay Bakshi,

Rohan Pinto)
Without any further ado, here is our conversation with the legendary Professor
Bakshi.
Rohan Pinto - Professor how did you get introduced to the world of stock markets?
Could you walk us through that initial period of your life?
Our Private Class with India's Value Investing Guru | 40

Sanjay Bakshi - My father used to invest in stocks including initial public offerings
(IPOs) and was a big fan of Dhirubhai Ambani and his company.
While pursuing chartered accountancy (CA), my first investments were in IPOs of

Orissa Synthetics and India Polyfibers. Both companies went bust, so that was a
pretty good start for a career in investing.
Chartered accountancy taught me the language of financial analysis, i.e. accounting,

but didn't teach me anything about business economics and human psychology.
While studying for my masters course in the London School of Economics, I read
about Warren Buffett in a newspaper. I read that he had a wonderful track record,
works from a place far away from Wall Street, believes that the markets are often
inefficient, and also that he writes wonderful letters that anyone can ask for. So I
wrote to him for the letters and I got a reply from his secretary, Debbie, asking me to
send her the money for the postage! That was probably the best investment I ever
made.
The letters arrived within a few days of my sending Debbie the money. And reading
them changed my life forever. Basically, reading those letters made me find my
calling.
Kunal Thanvi - Warren Buffett started his career as a strict follower of Graham and
then got influenced by people like Charlie and Phil Fisher. Was there any event-
person-company-management that in anyway changed or improved your investment
philosophy?
What is your story professor?
Sanjay Bakshi - I too have evolved as an investor over the last 23 years. Buffett's
letters marked the beginning of my investing journey. Those letters also led me to
his mentor Benjamin Graham. Graham was a big influence towards shaping my
investment philosophy in the initial days. Between 1994-2011, I was a statistical
bargain investor, a risk arbitrageur, and also an activist investor. My focus was more
towards risk arbitrages, special situations, and cigar butt investing.

By 2011, I transitioned from a quantitative-focused investor who would look for
margin of safety only in a low price in relation to estimated intrinsic value, into a
qualitative investor who sought margin of safety from the quality of the business,
the quality of the people running it, and of course also from a low price in relation to
probable future value in the future.
This transition was, in a way, prompted by an introspection about a few mistakes I

had made over the years. While the consequences of these mistakes did not show up
in the returns, they still mattered because they showed up in the 'opportunity P&L
account', which measures the cost of what you could have done but did not do.
One mistake was that, by focusing on cigar butts selling for low single-digit multiple
of earnings or a low price in relation to liquidation value, I missed out buying into
higher-quality businesses like Asian Paints and Pidilite, which compounded capital at
high rates of return for a long time.
And the second mistake was that, while I would sometimes buy into a great business
because it became cheap by the standards laid down by Ben Graham in his books, I
also sold out of them when they were no longer cheap by Graham's standards. And
that cost me helluva lot of money. For example, I bought Eicher Motors at Rs 200
and sold it at Rs 600 and now it sells for Rs 26,000. This type of mistake helped me
realise that one can get disproportionate payoffs by staying invested in high quality
businesses for a long time.
Realising the importance of keeping an 'opportunity P&L' account marked a turning

point in my investing career.
I also realised the importance of slowing down. More action means more decisions,
which increases the likelihood of error and often results in selling your winners too
early.
Rohan Pinto - You are a firm believer the role biases play in investing. What do you
see as the most dangerous bias?

Sanjay Bakshi - Well, it is not correct to point out any particular bias as the most
dangerous. All the biases like availability, anchoring, commitment bias, social proof,
among others are important. One needs to overcome all of them through deliberate
practice over the long term. And of course, that's not easy because one is really
fighting biology...
Charlie Munger has talked about twenty or so behavioral biases in investing. I believe
one cannot afford to ignore any of them.
Kunal Thanvi - According to you, what is most difficult part in investing? How do you
tackle both Buy and Sell decisions?
Sanjay Bakshi - Both decisions require different approaches.
Decision to sell is the more difficult of the two because one tends to not sell something
that should be sold thanks to commitment bias including endowment effect, social
proof, and psychological denial.
What's interesting to note is that endowment effect is not always bad. If you look
at successful investors that didn't sell stocks of great companies, they bought and
their money compounded over the years and made them very wealthy. If you take
a sample of 100 very successful investors who made money in the stock market, I
would argue that an overwhelming majority of them will be long-term buy and hold
investors. They would have bought into great businesses and just held on to them
through thick and thin. If this is not endowment effect, then what is?
Incidentally, Ben Graham's best idea - the one that made him the most money - was
GEICO, which he bought and held for long time.
So the decision to sell is very complicated. One needs the right dosage of detachment,
but then one also needs to be very much attached to the right kinds of businesses
and people who run them.
The buying decision comes with its own set of complications. Different investment

strategies have different rules for buying. But the kind of investing I now like requires
me to look at three key things before I decide to buy a stock. Those are business
quality, management quality, and valuation. All three are critical and a low price
cannot, under the investment process I now follow, compensate for poor quality of
business or management. Now, of course this does not mean that everyone should
follow this approach and the other approaches don't work. They do. In fact, they may
even work better than mine. But I like mine because it suits my personality. And my
partner likes it too, because it suits his personality. And we are very much at peace
with that kind of investing, even if other approaches may do better.
Rohan Pinto - How do you start your day? What you love to do when not thinking
about investing and teaching?
Sanjay Bakshi - I do not have any structured day schedule. I like to keep things very
simple and do things that stimulate creativity. Usually that means lots of reading. So
out of 24 hours, I try to read around seven to eight hours a day.
It's hard for a teacher who loves teaching to not think about teaching when he is not
teaching. So I am always looking for new ways to teach and become a better teacher
over time. I think this is important for all professions and sports. You don't have
to compare yourself with others (although they may inspire you). But one should
compare oneself with an earlier version of oneself and seek ways to get better over
time.
Kunal Thanvi - When you went through testing times, especially in your earlier days
in London, how did you learn to endure the pain? What were you thinking then?
Sanjay Bakshi - Well, it was not just in the early days, even when I came back to
India it was a struggle. I had to make compromises in my life to make ends meet,
for instance, by teaching things like CAPM and EMT and MPT to CFA Students (their
curriculum did not allow me to say that markets can be inefficient). But I did it because
I needed the money. Those were very tough times.
Adversities and tough times give you determination and make you stronger. It forces
you to visualise a better future and makes you move in the right direction. And a lot
of persistence with a bit of luck can do wonders in the long run.

As for pain endurance, well, the stock markets teach you that very well indeed.
Rohan Pinto - Value investing is simple but not easy. How do you bridge the gap
between what is written in supertexts versus reality? Transitioning the gap between
professor and practitioner.
Sanjay Bakshi - Practise. Practise. Practise. You need to train yourself to think
different.
For instance, if you are playing tennis for the first time, you will mistime your shots.
When Roger Federer plays in court, he consistently hits winners. However, imagine
Federer when he was starting out. He too would have made mistakes like you. He
went through a steep learning curve and improved himself.
Here's the key. Deliberate practice is required to be successful in any craft. This
applies to investing as well. Focus on learning. Keep at it. And you will get better over
time through deliberate practice.
Now, there is a big difference when we compare sports and investing. And that
difference is to do with feedback.
In sports, you get instant feedback. The learning improves faster - i.e. if you mistime
a shot, you know it instantly and can work on your mistake.
In a long-term investing process, the feedback is delayed. So if you invest in a company

with a time horizon of say five years. That's a long time to figure out whether you
made mistake in buying the company or not.
This is exactly where reading has helped me. I have learned and observed from
extreme investing successes and failures in the past. So you need to know a lot
of things beforehand. It is thus imperative to learn from others, to study the
past and apply those learnings in the current context. Life is not long enough to
learn long-term investing because there aren't sufficient data points of feedback to

Rohan and Kunal's Rapid Fire Questions
Questions Professor's Rapid Fire Answers

Graham, Buffett or Munger Munger.
P.V Chandran, Prem Watsa, Ajay Piramal or
All of them.
Achal Bakeri
Management Meeting or Annual report Annual report.
Growth (Size of the Opportunity) or Valuation Growth.
Management or strong business Management.
Your Preferred Valuation Metric Expected return over 10 years.
100% in a year or 15% cagr over 5 years 15% CAGR over 20 years.
With respect to Stocks - Historical Perfor-
Always future expectations.
mance or Future Expectations
Cash Flow Statement or P&L The Trinity. Balance sheet, P&L, and cash flow.
Poor Charlie's Almanack by Charlie Munger. All
I Want to Know is Where I am Going To Die So
I Never Go There by Peter Bevelin. My Name is
Red by Orhan Pamuk
Your Favourite Annual Report Berkshire Hathaway.
Your Favourite Movie & TV Series Sherlock Holmes.
Rohan and I admire Professor Sanjay Bakshi a lot. We and countless others have
been beneficiaries of his teachings, his blog and course lectures, and his book
recommendations.
We made full use of our meeting the professor. Our curiosity and a long list of
questions ensured we overran the one-hour time limit. But the professor was very
gracious to allow us to call him later to continue the interview.
'I don't want any good question to be left unanswered,' he said with a smile.

In our tomorrow's 5 Minute WrapUp, Rohan will bring you the second part of our
interview. Teaser: It's even more exciting and thought provoking. Here's a sneak peek:
I am a pattern seeker. I seek success patterns and avoid failure patterns.
Please join us in the classroom again tomorrow.

Part II of Our Private Class with
India's Value Investing Guru
We hope you didn't miss class yesterday.
Kunal and I shared the first part of our interview with Professor Sanjay Bakshi.
Before we get to the second part, allow me to share our experience meeting the
professor in his office.
As soon as we walked through the doors of ValueQuest Capital, the firm Prof Bakshi
and his partner Paresh Thakker manage, this quote welcomed us...
The difference between successful people and really successful people is that really
successful people say no to almost everything. - Warren Buffett
We thanked our lucky stars he agreed to the interview!
www.equitymaster.com (Left to Right: Kunal Thanvi, Sanjay Bakshi,

Rohan Pinto)
Part II of Our Private Class with India's Value Investing Guru | 48

We found the office layout very unconventional.
Imagine this: No television screen - an office detached from the daily ticker. We saw
more philosophical and investment quotes. When we asked about the office layout,
the professor replied with a knowing smile: 'This is definitely by design. It helps induce
creativity.'
On entering his personal cubicle, we saw a neat collection of his books. Again, no
screens. No distractions.
Now here, we thought, is a teacher and practitioner who understands the importance
of atmosphere for creative work.
Without any further ado, lets us continue where we left off yesterday...
Rohan Pinto - Professor, what is your investment philosophy in brief?
Sanjay Bakshi - Oh, I will be very brief: Own quality.
Kunal Thanvi - How do you find stocks to invest in? What is your investment checklist?
Sanjay Bakshi - Stock picking is a creative pursuit. I need to have some inspiration
for good ideas to come. Here is an interesting book titled Where Good Ideas Come
From by Steven Johnson. I highly recommend it to you. Also read Peter Bevelin's A Few
Lessons from Sherlock Holmes.
I am a pattern seeker. I seek success patterns and avoid failure patterns.
One needs to find common patterns over and over again across businesses. One
pattern I seek is that of an Owner-operator with a right mix of conservatism and
aggression and 'soul in the game'.
I like the pattern of managers who are 'learning machines' - i.e. they learn from both
their own mistakes and those of others. I also like the pattern of niche businesses
hiding underneath a commodity label because that's what creates a market
49 Part II of Our Private Class with India's Value Investing Guru

inefficiency.
These patterns can be found in annual reports, magazines, and where not. One needs
to be alert to recognise these patterns and act on them.
Further, you need to be open to reject your own idea. Any good pattern may or may
not turn out to be an investment opportunity. One needs to enjoy the whole process
of identifying good ideas and rejecting them. The mindset one has to adopt is that
of a detective or an investigative journalist. That's why I highly recommend Peter
Bevelin's book on Sherlock Holmes.
Kunal Thanvi: You just spoke about importance of recognising both success and
failure patterns. Can you run us through some of the important ones, say the top five
patterns, to seek and avoid?
Sanjay Bakshi: Well, I have a longer list of patterns to avoid as compared to success
patterns.
Serial acquirers: I generally dislike companies which grow inorganically, especially

when they take a lot of debt to finance the acquisitions. While some platform
companies - Berkshire Hathaway being the prime example - are huge wealth creators,
generally speaking, platform companies destroy value. So one needs to be skeptical
while evaluating serial acquirers.
Industries going through disruption: I like to avoid companies in industries which are
susceptible to disruption. For instance, if you look at the automobile industry, it looks
attractive now with good growth, but I believe electric vehicles will be a big disruption
in the long run.
Weak balance sheets: I avoid businesses with weak balance sheets. One needs to
understand there is a big difference between weak balance sheets and highly levered
balance sheets. All banks are highly leveraged, but some have very strong balance
sheets.
Inefficient capital allocation: I also avoid businesses where there are serious

instances of capital misallocation. Any poor capital allocation in the past is fine, if the
management learns from that.
I don't like businesses where one segment is doing good and other segment is
burning cash. I much rather prefer partnering with managers who understand and
apply common sense principles of capital allocation and don't throw good money
after bad.
Bad governance: I try to avoid managements with bad corporate governance track
records. I don't mind high compensation for executives, but it should not be at the
expense of the shareholders. I avoid companies where related party transactions
reflect greed in the management at the expense of the minority shareholders.
Short term over long term: I really don't like managements which display propensity
to show near-term earnings at the expense of long-term earnings. I like it the other
way around - i.e. hurting short-term earnings to build sustainable long-term earnings
with strong entry barriers.
About the patterns I seek in the companies I invest:
Moat: I love businesses with moats around them. Isn't it obvious that a business
which can protect its margins and returns on capital is likely to last longer than one
which can't?
People factor: I would much rather invest in a reasonably good quality business or
even a touch business run by an exceptional manager who is creating a culture of
excellence which will last for a long time.
Owner-operators: Owner-operators with soul in the game, statistically speaking, do

far better than professional managers who don't have ownership or managers of
government-owned companies.
Learning machines: I like managements/owners who make mistakes and learn from
both their and mistakes made by other people.
51 | Part II of Our Private Class with India's Value Investing Guru

Market inefficiencies: There are times when a business is treated as a commodity
business and priced as such by the investment community for a long time. However,
sometimes there is a wonderful niche in there which has escaped the attention of
many others.
Management investing for the future: Businesses where management is investing

heavily for the future but still generate cash flows. Basically, one is looking for
managers who, when they were kids, would have done very well in the 'marshmallow
experiment'. Someone like Amazon's Jeff Bezos. I am always trying to find people
who understand long-term free cash flow, focus on customers, and have plenty of
staying power - both financial and psychological.
Rohan Pinto - In your last year's address at FLAME University. You spoke about a
preference for Indian consumption driven stories over export dependent ones. Can
you walk us through with your reasoning for that?
Sanjay Bakshi - Well, other things remaining the same, one should be investing in
business models with fewer movable parts. The problem is that other things are
never the same. While, it's true that Indian companies targeting Indian customers
are easier to understand, it's also true that many of them - especially those that are
already dominant in their respective markets - are so well known that their stock
market valuations make them unattractive as investments.
I like to look for businesses that are globally competitive or are on a well-defined
path to become so. For instance, they sell products for which Indian markets are not
ready right now. However, when Indian markets develop, they are at right place and
the right time.
Kunal Thanvi - Professor how do you decide exit multiples and what are your
thoughts on averaging up?
Sanjay Bakshi - Thinking about exit PE multiples is very subjective, but one can use
a framework. One needs to de-anchor from entry multiples. There is this wrong
perception in value investing community that a high PE multiple cannot be cheap. As a
group, high PE stocks will probably underperform, but there are exceptions. The way

I try to de-anchor from 'high' or 'low' PE multiples at the time of potential purchase is
by thinking in terms of expected returns over the long-term. Now, expected returns
consist of expected dividends and expected stock price appreciation over one's
prospective holding period - say, a decade. And that second component - expected
stock price appreciation - is itself derived from the entry PE multiple, expected
earnings growth over the prospective holding period, and the exit PE multiple. So it
makes a lot a sense to focus on expected returns instead of entry multiples.
Elementary math shows that a high PE stock that sells at a lower multiple a decade
from now may still be cheap today because of other factors in the expected returns
equation - for example, earnings growth. So for me, the expected return framework
has been very helpful.
Now, how does one think about exit PE multiples? What factors determine PE
multiples? Well, I wrote about that in 1999 (see here). Those factors are 1) stability, 2)
growth, 3) dividends, 4) return on invested capital, 5) Leverage, 6) proportion of non-
operating assets in a company's asset base, 7) the financial community's appraisal of
the industry and the company, including its managers, and 8) interest rates.
So one has to think about those factors when estimating exit multiples. One also has
to recognise the reality that, over time, high-growth firms become low-growth firms
and PE multiples will contract over time.
As to your other question about averaging up. I love the idea of averaging up when
it makes sense and it often does. If you have done the job well, there will be
multiple buying opportunities. Again, it's foolish to anchor to historical cost price
paid, which is what many investors do.
If they have paid Rs 100 for the stock of a great business with a long runway for
growth, they will refuse to pay Rs 200 to buy more. But the reality is that it may be
cheaper and more attractive at 200 than it was at 100. When it was at 100, it was
perhaps a much smaller and riskier businesses. Perhaps the moat was just getting
established. At 200, it may be a larger, stronger, and more resilient business with a
wider and deeper moat. And the expected return, conservatively estimated, over the

next ten years may have become very attractive again. So it's foolish, in my view, to
anchor to sunk costs.
Ironically, many value investors love averaging down but hate averaging up. They are
making a big mistake.
Kunal Thanvi - Just a small follow up on that. Does it make sense to look at historical
median PE multiples?
Sanjay Bakshi - Median price to earnings for broader market is fine. It gives us a good
sense of the overall market valuations. However, median PE for individual businesses
is not something that I look at very much.
A historically low PE multiple for a value-creating business may be a buying

opportunity. And then, maybe not, especially if the business is prone to disruption.
The past should be used as a guide, but it's foolish to assume that everything will
mean revert. Sometimes, mean reversion doesn't work.
Rohan Pinto - What gives you the confidence to face a financial write-down of 50%
or more?
Sanjay Bakshi - Well nothing gives me that kind of confidence. I never met anyone
whose portfolio shrunk by 50% in a joyous mood.
Nevertheless, one needs to distinguish between a 50% drop in the market value of
a stock vs a 50% drop in the average earning power of the business underneath the
stock. The latter is far more important than the former, provided one has staying
power - structural (for example, in the form of permanent capital) and psychological.
If one is structurally and psychologically sound, then one can afford to ignore the
market and only worry about the possibility of permanent impairment in earning
power of the businesses in the portfolio.
And if one is not structurally or psychologically sound, one must try to become so
over time.

Rohan Pinto - Professor, you mentioned the three characteristics in the eighth
intelligent fanatic. Integrity, energy, intelligence. What has Modi done right and
missed? What are your parameters/criteria to judge the Indian economy?
Sanjay Bakshi - I completely misjudged him. I underestimated his risk taking

propensity for the benefit of the country. People don't understand the importance
of the structural changes he has brought about, but that should not be surprising to
anyone who understands the 'boiling frog' syndrome.
I believe that, net-net, he is very good for the country.
With this, our session with professor Sanjay Bakshi came to an end. The learnings will
continue with us forever.
Learn and evolve continues to remain our mantra.
I constantly see people rise in life who are not the smartest, sometimes not even
the most diligent, but they are learning machines. - Charlie Munger
We hope you enjoyed this conversation as much as we did.
We want to thank the professor for answering our questions with great enthusiasm
despite his busy schedule.
See you next time.

The Man Who Knows the Secret
to Spotting 100 Baggers
Forty five years. That is how long ago Thomas Phelps published his now famous book
100 to 1 in the Stock Market. But the relevance and succinctness of the contents of
the book were lost on most of us. For decades. That is until a gentleman who answers
to the name of Chris Mayer took inspiration from the book for his herculean project.
I had the privilege of meeting Mr Mayer at a few conferences of Agora Financial. But
it was only 2015 when he published his own book 100 Baggers, that I realized why
Phelps' book is as much an investor's Bible as are Graham's Intelligent Investor and
Security Analysis.
What Chris Mayer did was that he studied in-depth about 365
stocks returning at least 100x between 1962-2014. That's loads
of research whichever way you look at it. And he presented
what he called the secrets to finding 100 baggers in his book
by the same name.
Now, my colleagues Rohan and Kunal, as you already know,

are on a mission to track every smart investor who can give
you an edge. Their interviews with Kenneth Andrade, Ashwath
Damodaran and Sanjay Bakshi have been widely appreciated by our readers.
And recently they had the chance to have a one-one-one with Mr Mayer too...
What got you interested in stock markets?
I remember being curious about the 1987 crash. I was 15 then. I remember just being
fascinated by this thing called 'the stock market' and wanting to know more about it.
The only investor I could think of then was the most famous one of all: Warren Buffett.
The Man Who Knows the Secret to Spotting 100 Baggers | 56

So I started to read and study his career. He talked about his teacher, Benjamin
Graham and so I read and studied his books as well. I remember holding Graham's
Security Analysis, a big fat book, with a sense of wonder. I couldn't understand it. It
was like a book of magic spells to me. But I wanted to learn. And so that set me on
my path studying finance.
Could you define in brief your investment philosophy?
There's an acronym I use that sums up what I'm looking for: CODE. C is for Cheap
- I want to buy stocks that are undervalued. O is for owner-operator. I want to buy
stocks where the people running them have skin in the game. D is for disclosure,
meaning the public disclosures should not raise any red flags. And E is for Excellent
financial condition. I look for companies with great balance sheets.
I think of stocks as representing ownership interests in businesses and I aim to hold

them for a long time.
Who has been your biggest inspiration?
Hard to say... I've taken inspiration from many different investors - Warren Buffett and
Charlie Munger, of course, and Ben Graham. But also Peter Lynch, Martin Whitman,
Seth Klarman and Joel Greenblatt. I've also been inspired by lesser known investors
such as Murray Stahl and Steve Bregman at Horizon Kinetics, Martin Sosnoff (who
wrote a few entertaining books on investing) and Thomas Phelps (the author of 100
to 1 in the Stock Market).
What according to you is the most difficult part in investing?
Selling. Nobody is a good seller.
Waiting can be hard too. It's hard to be patient and give your ideas time to work, to
allow the power of compounding to work for you, and sit through the crazy ups and
downs of the market - and your own emotions.
57 | The Man Who Knows the Secret to Spotting 100 Baggers

If you could change one thing about your investing approach in the past what
would that be?
I wish I'd taken an approach more like what I write about in my book 100-baggers
earlier. I think I would be much wealthier. Early in my career, I started out more as a
conventional value investor in the Graham mould. I'd buy a cheap stock and when it
became more fully priced I'd sell it... I would've been much, much better off looking
for quality businesses I could've sat on for 20 years.
Could you tell us something about your mistakes in picking stocks?
When asked this question, most investors will think of stocks where they lost money.
But my first reaction is to think of stocks I never bought that went up huge. These are
mistakes of omission, as opposed to mistakes of commission. Mistakes of omission
are easy to hide. No one sees them except you, but they are the most costly by far.
Why didn't I ever own Apple, for example? A great stock right under my nose...
I guess my biggest mistakes in picking stock have always come when I've gotten
involved in a lower quality business. You think a business is okay, but it turns out
not to be what you thought it was. I think you're better off sticking with high-quality
assets, even if you have to pay up a little, than buying the cheaper inferior business.
What kind of businesses do you think will be the biggest wealth creators over
the next two decades?
They will probably be businesses that solve the biggest human problems. The
company that does actually cure cancer, or the company that makes 3-D printing
affordable to the masses, or the first gene-editing company that makes a widely
available commercial product... My guess would be those sorts of businesses.
But there are other things that are less obvious that I think can create a lot of wealth.
Aerospace is an interesting one because the number of passenger miles flown seems
to only go up. Financials such as banks and insurers reliably generate wealth. There
is always a consumer brand that creates something new.

Also, let us not forget the rapidly developing markets such as India and China.
Probably there will be enormous wealth creation in these countries over the next
twenty years and in the businesses that serve these populations.
What do you think is the 'one thing' that every Indian investor should keep in
mind?
Stick to businesses where time is your friend. There will be lots of ups and downs, but
if you buy quality assets that you think are a near cinch to be worth a lot more money
in 5 years or ten years, you'll be fine.
If you had an extra hour each day what would you like to do?
Probably more of the same things that I spend most of time doing now. Read and
think.
Do you prefer a concentrated portfolio or a diversified one and why?
Definitely concentrated. It's hard to find good ideas. It's easier to find 10 good ideas
than 30. Why own your 30th best idea? Why own your 20th best idea?
What is your preferred Valuation metric and why?
My favorite is to see what private buyers are paying for the similar assets as I can buy
in the public markets. If, for exampe, I see private buyers paying $150,000 a room for
hotel properties in the private markets, but I can buy them for $100,000 in the public
markets, that might point to something interesting. We call it "private market value."
It's my favorite because it's usually overlooked by most investors who are focused
on things you can readily look up such as price-earnings ratio, dividend yield, price to
book ratio, etc.
But I use whatever valuation metric is most appropriate for the business at hand.

Please tell us about:
Investing books? I'll pick three are less well known...
100 to 1 in the Stock Market by Thomas Phelps
Humble on Wall Street by Martin Sosnoff
Modern Security Analysis by Martin Whitman
Your Favourite Annual Reports
Berkshire Hathaway
Fairfax Financial Holdings
Markel
Your Favourite Movie/TV Series
The Big Lebowski
Kindly pick one of these:
Graham or Fisher or Lynch
I grew up on Graham and to a lesser extent Fisher, but today I'd pick Lynch...
His books One Up on Wall Street and Beating the Street are still worth reading
today.
Alphabet or Apple or Amazon
Amazon, because I use it all the time and love it.
Movies or Annual reports
Annual reports. I don't watch many movies in any given year. Maybe 5, tops.

Growth (Size of the Opportunity) or Valuation
Valuation... I really like growth and the opportunity set, but if the valuation
doesn't make sense, I'm not buying it.
Great Management or Business Moat
A tough one. I'll take great management because there are plenty of businesses
that don't have much of a moat - like in insurance - where I'm happy to invest
with great management (Berkshire, Markel, Fairfax, etc.). Moats are tricky. Very
few companies have a real moat and most moats are crossed over time....
Whereas, smart people don't usually get dumb.
Historical Performance or Future Expectations
Historical performance. Track record can be everything in investing. If you did

nothing but invest with people who had great 10-year+ track records, you'd do
quite well.
Cash Flow Statement or P&L
Cash flow. It's much harder to fake cash. And, as we used to say in my banking
days, cash flow repays loans, not earnings.
Stay tuned. As Rohan and Kunal travel the length and breadth of the country to bring
these pearls of wisdom from the smartest minds in investing, you will find yourself
asking for more...

A Little Known Way to
Clone India's Super Investors
I wrote to you on the merits of cloning a super investor. Warren Buffett.
The results were clear. The cloned group of stocks outperformed the benchmark
indices over a time horizon of 15 years.
We learnt that stock picks of these smart minds available in public domain could act as
a basic yet effective first level filter that would help in identifying quality businesses.
Chris Mayer is of the belief that one needs to hold on to quality businesses once you
own them.
Stick to businesses where time is your friend. There will be lots of ups and downs,
but if you buy quality assets that you think are a near cinch to be worth a lot more
money in 5 years or ten years, you'll be fine.
Unfortunately, for us, in India, we don't have such an individual disclosure as is

available in the US.
However, there is a silver lining.
The regulations require companies to report any public shareholding that is more
than 1% to be mandatorily reported every quarter.
Mind you, tracking all these company disclosures is not an easy thing. However, doing
this provides you with an access of what these super investors are investing.
A Little Known Way to Clone India's Super Investors | 62

Kunal and I believe cloning India's Super Investors could be a great source of
idea generation.
This disclosure has some limitations. The companies update their shareholdings only
every quarter. Generally, there is a huge time gap between time a super investor may
have bought in a stock versus the actual disclosure.
However, there is another potentially rewarding tool available with us to help track
these super investors.
Enter: Bulk and Block Deals
Both the exchanges are mandated to report deals that are over a certain set threshold
daily.
On an everyday basis, the exchanges release the data for all the bulk and block deals
that have happened on its exchanges.
While, over 90-95% of these are mostly noise.
Sifting through the wheat from the chaff could be potentially hugely rewarding for
the curious mind.
Let me walk you through an example.
Now, we spoke in detail about Akash Prakash, co-founder of Amansa Capital. A Fund
manager who walks the less trodden path.
Akash prefers companies that are well managed and financially disciplined,
with a strong growth potential that can be held for multiple years and trade at a
reasonable price.
If you have a similar investment philosophy of Amansa Capital and track the firm's
activities.
63 A Little Known Way to Clone India's Super Investors

On 15th Oct 2008, one would have found a bulk deal wherein, Amansa bought a
0.56% of a stake in Eicher motors at a price of Rs 201.
Date Client Name Deal Quantity Price

15-Oct-08 Amansa Capital Buy 156,727 201
Imagine this, if fundamentals of Eicher Motors at the time passed your earnings
quality checks and you stayed invested in the company.
Every Re 1 invested in the company then would have multiplied by 128 times in
April-2017.
That's a whopping compounded annual return of over 77%.
Eicher Motors - The Compounding Machine
Stock Price Performance - CAGR (%)

80%
60%
40%
20%
0%
Eicher Motors BSE Sensex
www.equitymaster.com Source: Ace Equity
Imagine this, if fundamentals of Eicher Motors at the time passed your earnings
quality checks and you stayed invested in the company.
Every Re 1 invested in the company then would have multiplied by 128 times in
April-2017.
That's a whopping compounded annual return of over 77%.
Well, Amansa Capital has stayed put and rode on this multibagger the whole way.
A Little Known Way to Clone India's Super Investors | 64

According to the Top 10 shareholders list provided in the Annual Report of Eicher
Motors in 2016. Amansa continued to hold around 0.73% of the company.
Now, there are plenty of other examples, wherein tracking such bulk/block deals
could have been resulted in huge wealth creation.
The critical aspect here again is to go beyond the stock picks of the smart money
and understand their thought process behind buying them.
Our research co-head Rahul Shah often says, "it is all about exploring unrecognized
simplicities."
There is another simple yet powerful way to identify promising companies. This
person has the best view of what is happening to the business. He proverbially is in
the driver's seat of the car.
Kunal has all the details. Watch this space tomorrow.
65 A Little Known Way to Clone India's Super Investors

How I Discovered Smart Money Secrets
The idea of meeting and tracking India's super investors wasn't random. We gave this
very serious thought.
Following the smartest minds in finance helps with idea generation and gives an edge
over other market participants.
We, Rohan and I started working on this project, we made a list of our favourite super
investors. We drew down the history of successful yet relatively unknown stock
pickers in India.
Now, stock exchange requires every company to disclose all shareholders with more
than 1% in the company.
We used that public information to 'back track' the activity of these savvy stock pickers
for the last ten years.
We wanted to know what happens when a savvy stock picker buys more than 1%
stake in a company. We thought it would be a great idea to track this data closely.
The problem is by the time the information becomes publicly available, the stock has
already shot up because the super investor exceeded the 1% shareholding threshold
before the disclosure was made public.
This led us to level-two thinking.
How can we catch them earlier, we wanted to know?
Enter bulk and block deals.
Now the basic idea here was to track the smart money early. If we can do so, we can
definitely have an edge.
How I Discovered Smart Money Secrets | 66

This led us to level-three thinking. And to the important question: What or who is
the 'smart money' in stock market?
Generally, the answer is funds, smart stock pickers, FIIs, etc. But we were missing
something: Promoters.
A promoter knows everything about his company. When you see, a promoter
increasing his stake, it's a strong indicator since he believes in his own business. We
believe, one of the strongest source of the smart money is 'Promoters increasing
the stake in their own company'
So, we back tested the idea. The results were overwhelming. Just to give you a flavor...
Imagine a company with return ratios of around 9% and a debt-equity ratio above
two times. Add a declining EPS growth rate...and our screeners would never throw
this kind of company.
However, somewhere between these depressed numbers was something magical -

increasing promoter holdings.
The question here is: Why would the owner buy more into a company with such
depressed numbers?
The reason is simple...yet ignored: The owner knows more about his company and its
prospects than anybody else.
Specifically, in this example, I am referring to auto ancillary company, Steel Strips

Wheels Ltd.
The promoter group has been increasing its stake in the company. From 53.8%
in March 2013, it grew to 54.2% in June 2013 and continued inching upwards and
is at 58.7% in March 2017.
67 How I Discovered Smart Money Secrets

Early Signs of Promoters Increasing the Stake
% of Shares Mar - 2013 Jun - 2013 Mar - 2017

Total of Promoter and Promoter Group 53.82 54.21 58.77
The business fundamentals improved a lot over the same period. As of FY16, the
ROEs improved to 16% and the balance sheet got leaner with debt-to-equity at 1.6
times.
The stock's performance has been stellar, multiplying six times in the last four years
(a CAGR of 65%).
Stellar Stock Performance - Steel Strips Wheels Ltd.
Steel Strips Wheels

1,000
CAGR ~ 65%
750
500
250
0
Jul-13 Apr-14 Jan-15 Oct-15 Jul-16 Apr-17
How I Discovered Smart Money Secrets | 68

This is just one example. Rising promoter stakes often precedes an improvement in
business fundamentals and stock price returns.
So, all the three approaches combined i.e. Tracking shareholdings of Super
investors, catching these investors early (Bulk & Block deals) and increasing
promoter holdings has helped unveil some critical smart money secrets to us.
The excitement level continues to build by the day. Stay tuned.
69 How I Discovered Smart Money Secrets

Authors Profile
Rohan Pinto (Research Analyst), Managing Editor, ValuePro,

holds a bachelor's in engineering and a master's in finance.
He is a practitioner of value investing philosophy inspired
by Warren Buffett and Charlie Munger. Being a voracious
reader, Rohan believes in the philosophy of mastering the best
of what other people have already figured out. In his pursuit
of worldly wisdom, he has constructed a multidisciplinary
mental models framework, which he believes aids in effective decision making. His search
for outstanding stocks is driven by a relentless pursuit of learning from the greatest living
investors and the eminent dead.
Kunal Thanvi (Research Analyst), a member of the Institute

of Chartered Accountants and the Companies Secretaries of
India, started his career with a PMS as a buy-side analyst. He
is a balance sheet driven analyst who loves niche businesses
with competitive advantages. He practices value investing
based on Ben Graham's principles of 'Margin of Safety' and
'Mr Market'. He is an avid reader who believes it's better to
learn vicariously than the hard way.
Coverpage Image Source: chaiwatartwork/Shutterstock
Equitymaster Agora Research Private Limited
All rights reserved. Any act of copying, reproducing or distributing this Report whether wholly or in part,
for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be
copyright infringement.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster')
is an independent equity research Company. Equitymaster is not an Investment Adviser. Information
herein should be regarded as a resource only and should be used at one's own risk. This is not an offer
to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred
or investment(s) made or decisions taken/or not taken based on the information provided herein.
Information contained herein does not constitute personalized advice or a personal recommendation
or take into account the particular investment objectives, financial situations, or needs of individual
subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable
for their particular circumstances and, if necessary, seek an independent professional advice. This is not
directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is
unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement.
All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed
to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims
all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in
the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you
agree to our Terms and Conditions of Use, available here. The performance data quoted represents past
performance and does not guarantee future results.
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant,
Nariman Point, Mumbai - 400 021. India.Telephone: 91-22-6143 4055. Fax: 91-22-2202 8550. Email:
info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
Disclaimer | 71

Super Investors of India

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Super Investors of India

Uploaded by

Copyright:

Available Formats

Powered by:

Professor Damodaran: Our Meeting with an Authority on Valuations 23

How I Discovered Smart Money Secrets 66

Rohan Pinto (Research Analyst)

The Secrets of India's Superinvestors | 4

Times Benchmark Index

www.equitymaster.com Source: Superinvestors of Graham and Doddsville

Each superinvestor at Graham and Doddsville had a different approach to selecting

More on this in the days to come...

5 | The Secrets of India's Superinvestors

Warren Buffett's performance as a stock picker and business manager is par

Berkshire Top 5 Holdings (%) Dec-16 Sep-16

Wells Fargo and Co. 17.9 16.5

Coca Cola 11.2 13.1

International Business Machines 9.1 10.0

American Express 7.6 7.5

Cloning Warren Buffett | 6

Berkshire Hathaway Clone Beats the S&P 500

www.equitymaster.com Source: Yahoo Finance, Mebfaber.com

The Art and Science of Cloning

7 | Cloning Warren Buffett

We agree: Learning and mastering the philosophies of respected value-style

Cloning Warren Buffett | 8

Some of the most successful people are shameless copycats.

The world's richest person, Bill Gates, understood this.

Warren Buffett, too, internalises this philosophy.

Inspired by his mentor, Benjamin Graham, Buffett began investing in statistically

If I have seen further, it is by standing on the shoulders of giants. - Isaac Newton

Here is a preview of next week's conversation...

More on that next Wednesday...

But first, a quick question.

What does it take to be called a successful fund manager?

Now you might not think that's a difficult task.

The result? Underperformance.

It's very difficult to beat the index year after year.

That period included the global financial crisis.

So, who is Kenneth Andrade?

From 2005-2015, Andrade managed IDFC Premier Equity mutual fund.

Our Meeting with India's Peter Lynch... | 12

This is an outstanding outperformance.

How did he do it?

The stock has multiplied almost 10 times since then.

His unique and differentiated thinking style gives him an edge.

"Scale of opportunity, quality of the business, and price to be paid."

13 | Our Meeting with India's Peter Lynch...

We asked him, what got him interested in stocks.

A big transition for Andrade happened in the 1999-2000. He got an opportunity to

"The tech bubble taught me how to manage risk."

Our Meeting with India's Peter Lynch... | 14

A big transition for Andrade happened in the 1999-2000. He got an opportunity to

"The tech bubble taught me how to manage risk."

His investing mantra is simple:

"Buy when no one else is buying. In times of maximum pessimism is when

We quizzed him further. What type of sectors does he like?

Here are the tell-tale signs Andrade looks for in a sector:

15 | Our Meeting with India's Peter Lynch...

3. Improving industry profitability.

How did he navigate the 2008 market crash?

"We stayed out of businesses that had too much debt."

So, who are his role models?

Our Meeting with India's Peter Lynch... | 16

Questions Kenneth Andrade's Quick Fire Responses

Movie or Annual Report Annual Report. I don't watch many movies.

You look for a scalable business but it's always