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7 KEY
LEARNINGS FROM
SANJOY
BHATTACHARYA
SOIC WORLDLY WISDOM SERIES

School of Intrinsic Compounding

Intrinsic
SANJOY BHATTACHARYA
Compounding
Mr. Sanjoy Bhattacharyya is a Partner at
“Those who keep learning Fortuna Capital. He has earned a PGDM
will keep rising in life”
 -Charlie Munger from IIM Ahmedabad. He was the  Chief
Investment Officer of HDFC Asset
Management Company prior to which he
was associated with UBS Warburg.
He is a value investor with an interest in
behavioral finance.
 LESSON 1: 
Intrinsic COMPETENCY & INTEGRITY
Compounding
OF THE MANAGEMENT
“Just by avoiding thugs in
Indian markets, you can
potentially create a lot of
wealth.” There are two kinds of extremes when it comes to
 -SOIC
assessing managements. On one end, there is a
management which will do everything to cheat it's
shareholders. Their interest is not aligned with that of the
shareholders.On the other hand, there is a management
which is extremely aligned with the shareholders and
does everything which is in the interest of all the
stakeholders involved in the business. And there also
exists a category of management which lies in the in
between area, which lies in the too difficult box. What Mr

School of Intrinsic Compounding

Bhattacharya choses is to be with the management which
is on the extreme end of ethics. Which won't cheat any
shareholder and no one will have to second guess their
moves.
 LESSON 2: 
NEVER TAKE LARGE RISKS

Portfolio allocation is one of the most

important things that an investor should
Intrinsic
follow. Don't be like mutual fund
Compounding
manager who says that I have solid
conviction, and he ends up allocating 2%
“Survival is the only road
to riches”  to his best idea. Neither be like the guy
-Peter Bernstein who puts all his money in 2-3 stocks.
Business is inherently uncertain. Show
your conviction through 7-8%
School of Intrinsic Compounding
allocations. The idea is to not over-
diversify nor concentrate too much.
Position sizing matters as Buffett says,
it's all about how much you make when
you're right. Diversify but don't have 2%
in your best ideas. Conviction can been
seen with 7-8% allocations to a single
position.
 LESSON 3: 
SELLING IS THE DARK
CONTINENT OF INVESTING

There have been many books which have been

Intrinsic written on buying. Very few books have been
Compounding written on selling. As selling is considered to be
the dark continent. Getting the selling part right is
“Sell, when you think you 50% of successful investing. You actually make
can permanently impair money when you sell, many investors get this
your capital or your thesis part wrong. One of the advice which Mr
hasn't played out” 
Bhattacharya's mentor gave him was to sell early
-Sanjoy Bhattacharya
and to leave money on the table. For some
businesses if we just study their last 10-15 years
of balance sheet and P&L we get to know what

School of Intrinsic Compounding

will happen. These are cyclicals which go through
mutliple cycles of profitability and losses. If
investors just respect history enough, in some
businesses they know when is the time to sell.
Other reasons for selling include , when the
thesis breaks down. When what you were
expecting doesn't happen.
 LESSON 4: 
REAL RISK IS THE
LONG-TERM VOLATILITY OF
CASH FLOWS

Real risk in a business comes from 5 sources which

determine how stable the cash flows would be in the
long run. First, source of risk is to check how much
leverage the business has and whether it generating
Intrinsic
free cash flows or not. A business has to survive in the
Compounding
long run to maximize the "N" in the formula of
“There are no sure bets in compounding which is linked to the long term growth
the world of investing; of cash flows.
there is a risk in
everything. Be prepared
for the ups and downs” 
Secondly, the risk comes from the integrity of the
-Sanjoy Bhattacharya management. If you're in bed with an unethical
management, no matter how the business does in the
long run. The cash flows which were supposed to
come to the shareholders, won't ever materialize. As a
result, the shareholders end up losing in the long run.

Thirdly, the competitive intensity of the industry

matters a lot. If there are no sustainable barriers to
entry, sooner or later your returns on capital will be

School of Intrinsic Compounding

competed away in the long run. As more and more
competitors enter the business.

Finally, one has to think what the business will look like
5 years down the line. What changes can happen or
how much the competitive intensity can increase. One
has to understand the changing landscape before
investing the hard earned money.
 LESSON 5: 
UNDERSTANDING OF THE
BUSINESS DRIVES
VALUATION

Investing is a probabilistic exercise. Many investors

torture DCF calculations to confirm to their
perspective of what a business should be valued.
This is a classic mistake. As the quality of the
Intrinsic business, stability of the industry, competitive
Compounding advantages a business has built, longevity of growth,
whether entry barriers are there or not and
presence of a capable management and the
“Beware of Geeks bearing
directional trend of ROIIC should be the first filters
formulas” 
before one starts valuing a business. However, what
-Warren Buffett
I've observed as Mr Bhattacharya says, that many
investors value first and then try to understand the
business. Eg- Low pe stocks are good that is what
many first time value investors think. This cannot be
further from the truth, as what drives PE is the
stability and the growth of cash flows and long term
sustainable advantage that the company has built.
School of Intrinsic Compounding
Most of the times low PE stocks deserve to be
cheap as there are some structural challenges to the
business model. Eg: Low PE newspaper stocks
which are experiencing disruption.
 LESSON 6: 
INVESTING IS NOT ABOUT
MULTIBAGGERS

If you invest with the frame of mind that you're

spotting the next multibagger. You're setting up
Intrinsic yourself for failure. The biggest difference between
Compounding a smart investor and novice is that the smart
investor is focused on the business and risk. He is
“Investment is most constantly looking for what can disprove his thesis.
intelligent when it is He realizes the fact that he's investing in a business
most businesslike” and his returns depend upon how the business
performs in the future. Whereas, a novice is always
 -Benjamin Graham
focused on mutlibaggers. For him the risks don't
matter that much as he hasn't thought about them.
He is only focused on generating returns, which
leads to arrogance and confirmation bias. Such an

School of Intrinsic Compounding

investor never looks disconfirming evidence as it
might to uncomfortable for him to think of
something which doesn't confirm his previous
existing notions (multi-bagger returns)
 LESSON 7: 
FORECAST IS FOR
PUBLIC ENTERTAINMENT

Rule number one of smart investing is to never try

Intrinsic to forecast. It has zero value and tells you about the
Compounding character of the forecaster i.e. a cheat. Since he
pretends to know the future. Business is an
“We've long felt that the uncertain activity, how can an analyst forecast profit
only value of stock write up to decimal points and the appropriate Pe
forecasters is to make that should be assigned to a stock. How can one
fortune tellers look good” forecast the Target price that should be given to a
 -Warren Buffett stock? Target price in our view, is the biggest
stupidity that exists in the world of Investing today.
Do you know the record of forecasting in equity
Markets? 85% of the forecast made by analysts are
off by more than 15% from the actual results. This
just shows us the folly of giving target prices and
revision of those prices upwards or downwards.
School of Intrinsic Compounding
What really matters is the directional trend of the
business. Target price and Eps forecasting to the
decimal point is just an exercise in writing fiction.
Just like fiction, it is fun to read.
 BOOKS
RECOMMENDED
BY
SANJOY
BHATTACHARYA

School of Intrinsic Compounding

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