1 00:00:00,519 --> 00:00:04,550 Speaker 1: This podcast is brought to you in association with BSC 2 00:00:04,630 --> 00:00:07,619 Speaker 1: and its investor awareness initiatives. 3 00:00:09,170 --> 00:00:14,270 Speaker 1: Investing holds different meanings for different people. For many, it's 4 00:00:14,279 --> 00:00:18,209 Speaker 1: simply a process of making money for some. It's a 5 00:00:18,219 --> 00:00:22,450 Speaker 1: lot more philosophical and then there are those who find 6 00:00:22,459 --> 00:00:25,690 Speaker 1: a spiritual meaning in it. These days, we are hearing 7 00:00:25,700 --> 00:00:28,969 Speaker 1: a lot about investing, being in art and then there 8 00:00:28,979 --> 00:00:32,189 Speaker 1: is plenty of debate around that too. We are about 9 00:00:32,200 --> 00:00:35,879 Speaker 1: to find that and a lot more from two accomplished 10 00:00:35,889 --> 00:00:38,310 Speaker 1: practitioners in the field of investing. 11 00:00:38,918 --> 00:00:43,250 Speaker 1: They need no detailed introduction to the investing community, having 12 00:00:43,259 --> 00:00:48,389 Speaker 1: managed public money for decades. What these gentlemen buy and 13 00:00:48,400 --> 00:00:52,790 Speaker 1: sell is watch closely in the market, listen on because 14 00:00:52,799 --> 00:00:55,360 Speaker 1: this promises to be a great conversation. 15 00:00:56,790 --> 00:01:00,419 Speaker 1: I am Nishant Vasudevan, the markets editor of the Economic 16 00:01:00,430 --> 00:01:02,869 Speaker 1: Times and your host in this episode. 17 00:01:14,150 --> 00:01:18,779 Speaker 1: First, I'm pleased to welcome Kenneth Andrey founder and Cio 18 00:01:18,790 --> 00:01:21,378 Speaker 1: of Old Bridge capital management. 19 00:01:22,110 --> 00:01:26,209 Speaker 1: Welcome Kenneth Hi. Not to start with for many people 20 00:01:26,220 --> 00:01:30,330 Speaker 1: in the investment industry. The the process of investing typically 21 00:01:30,339 --> 00:01:34,929 Speaker 1: starts with uh with numbers and ratios and spreadsheets and 22 00:01:34,940 --> 00:01:39,419 Speaker 1: other things for you as an investment practitioner. When does 23 00:01:39,430 --> 00:01:42,830 Speaker 1: this science evolve to or something like an art. 24 00:01:42,949 --> 00:01:45,369 Speaker 2: Well, it's a mathematical introduction at the end of the 25 00:01:45,379 --> 00:01:48,440 Speaker 2: day and you get better at it after you have 26 00:01:48,449 --> 00:01:51,639 Speaker 2: been through years of experience with it. Right. 27 00:01:52,430 --> 00:01:55,650 Speaker 2: So my investing journey started almost 30 years ago and 28 00:01:55,660 --> 00:01:58,400 Speaker 2: I've been through a couple of bear market cycles and, 29 00:01:58,410 --> 00:02:00,860 Speaker 2: and a lot of bull market cycles. Uh and I 30 00:02:00,870 --> 00:02:04,290 Speaker 2: think experience has taught us everything. So the numbers ratios 31 00:02:04,300 --> 00:02:08,270 Speaker 2: deductions of how a company will grow, et cetera would 32 00:02:08,279 --> 00:02:10,728 Speaker 2: be completely meaningless if I haven't gone to see how 33 00:02:10,740 --> 00:02:13,649 Speaker 2: all of these ratios did, all of these structures did 34 00:02:13,660 --> 00:02:16,019 Speaker 2: well uh did in the past. So it's just a 35 00:02:16,029 --> 00:02:19,330 Speaker 2: accumulation of experiences that you have. That is what brought 36 00:02:19,339 --> 00:02:20,210 Speaker 2: us to this stage. 37 00:02:20,800 --> 00:02:22,839 Speaker 2: Uh So yes, there's a science behind it and there's 38 00:02:22,850 --> 00:02:25,539 Speaker 2: a math behind it. The art comes with experience, 39 00:02:26,270 --> 00:02:29,538 Speaker 1: right, correct. Perfect. As a, as a fund manager, as 40 00:02:29,550 --> 00:02:33,130 Speaker 1: an investor, was there a big turning point in your 41 00:02:33,139 --> 00:02:37,039 Speaker 1: life that that changed your approach towards investing, you know, 42 00:02:37,050 --> 00:02:41,600 Speaker 1: that moment of epiphany, you know, where you feel felt that, 43 00:02:41,610 --> 00:02:44,008 Speaker 1: you know, this is what you know, I shouldn't be 44 00:02:44,020 --> 00:02:45,728 Speaker 1: doing or this is what I should be doing. 45 00:02:46,589 --> 00:02:50,789 Speaker 2: So it was that effective journey in year 2000 all 46 00:02:50,800 --> 00:02:54,559 Speaker 2: the way from 1997 to 2000 where nothing went wrong. 47 00:02:54,990 --> 00:02:58,970 Speaker 2: And in 2000 to 2003, everything went wrong. It was 48 00:02:58,979 --> 00:03:01,570 Speaker 2: that journey between, between buying value, 49 00:03:02,440 --> 00:03:07,270 Speaker 2: ok? To believing that growth would uh to buying growth 50 00:03:07,279 --> 00:03:09,899 Speaker 2: at any price or holding on to growth at any price. 51 00:03:09,990 --> 00:03:13,190 Speaker 2: And the cycle that came after that, it was a 52 00:03:14,309 --> 00:03:18,449 Speaker 2: significantly large learning experience and that's what's made me what 53 00:03:18,460 --> 00:03:19,179 Speaker 2: I am today, 54 00:03:19,729 --> 00:03:23,299 Speaker 1: right? Many people in the market will be familiar with 55 00:03:23,309 --> 00:03:26,779 Speaker 1: your portfolio. Uh They kind of might be knowing your 56 00:03:26,788 --> 00:03:29,990 Speaker 1: stocks by heart, but very few might be knowing about 57 00:03:30,000 --> 00:03:34,220 Speaker 1: your stock selection process. Basically, how do you identify a stock? 58 00:03:34,229 --> 00:03:36,190 Speaker 1: When do you decide to buy it? And how much 59 00:03:36,199 --> 00:03:36,779 Speaker 1: do you buy it? 60 00:03:37,130 --> 00:03:40,369 Speaker 1: Now, it would be helpful for our listeners if you 61 00:03:40,380 --> 00:03:43,199 Speaker 1: could elaborate with some kind of an example, something that 62 00:03:43,210 --> 00:03:45,910 Speaker 1: you've done in the past, have you kind of how, 63 00:03:45,919 --> 00:03:47,949 Speaker 1: how does the entire process work for you? 64 00:03:48,259 --> 00:03:51,259 Speaker 2: So, so fundamentally, we try to buy capital efficiency at 65 00:03:51,270 --> 00:03:54,139 Speaker 2: a price and that's where the art of investing actually goes, 66 00:03:54,619 --> 00:03:57,990 Speaker 2: right? Capital efficiency. Everyone knows how a business is managed. 67 00:03:58,000 --> 00:04:01,539 Speaker 2: Everyone can calculate the Roe and Roc of the business, right? 68 00:04:01,789 --> 00:04:04,479 Speaker 2: But if the Roc and the Roe or capital efficiency 69 00:04:04,490 --> 00:04:08,199 Speaker 2: is very high in most contexts or in most environments, 70 00:04:08,259 --> 00:04:12,250 Speaker 2: you end up paying a, a very large price for it. OK. 71 00:04:12,259 --> 00:04:15,330 Speaker 2: A great business is always available at a great price. 72 00:04:15,929 --> 00:04:17,799 Speaker 2: So what we try to do is try and find 73 00:04:17,809 --> 00:04:20,450 Speaker 2: a great business in an industry which is not doing 74 00:04:20,459 --> 00:04:21,049 Speaker 2: very well. 75 00:04:21,428 --> 00:04:24,450 Speaker 2: The company's profitability is also not great, but it is 76 00:04:24,459 --> 00:04:27,049 Speaker 2: better than the rest. And that's where we like to 77 00:04:27,059 --> 00:04:30,500 Speaker 2: step in simply as an investor. What I'd like to 78 00:04:30,510 --> 00:04:34,839 Speaker 2: see in multiple markets. So that is which company or 79 00:04:34,850 --> 00:04:37,589 Speaker 2: its stock in a 52 week low. That's my go 80 00:04:37,600 --> 00:04:41,290 Speaker 2: to place. Ok. So capital efficiency of one of the 81 00:04:41,299 --> 00:04:43,969 Speaker 2: best businesses in a down cycle is a time where 82 00:04:43,980 --> 00:04:46,089 Speaker 2: you get it at that at a reasonable price. 83 00:04:46,730 --> 00:04:49,558 Speaker 2: Uh That that's a short and the long form of, 84 00:04:49,570 --> 00:04:51,558 Speaker 2: of what the process is all about. 85 00:04:52,170 --> 00:04:54,899 Speaker 1: Uh uh Could you elaborate that, you know, for, in, in, 86 00:04:54,910 --> 00:04:57,469 Speaker 1: in terms of an example that you know, something has 87 00:04:57,480 --> 00:04:59,630 Speaker 1: worked well for you in the past. 88 00:04:59,640 --> 00:05:01,729 Speaker 2: So let's put a, let's put a case of something 89 00:05:01,738 --> 00:05:04,410 Speaker 2: that we've done and it's held us in relatively good 90 00:05:04,420 --> 00:05:09,428 Speaker 2: stead since we started our journey, right? Largest airline debuted at, 91 00:05:09,549 --> 00:05:11,760 Speaker 2: at the next amount of market cap when the industry 92 00:05:11,769 --> 00:05:14,269 Speaker 2: had four or five participants at that point in time, 93 00:05:14,839 --> 00:05:19,609 Speaker 2: right, a very attractive business, a cost leader, profitable, generating 94 00:05:19,619 --> 00:05:22,510 Speaker 2: cash flows in an industry which was which you would 95 00:05:22,519 --> 00:05:26,630 Speaker 2: always find businesses struggle to generate cash flows and then 96 00:05:26,640 --> 00:05:30,670 Speaker 2: you hit a down cycle this business on every single parameter. 97 00:05:31,059 --> 00:05:34,420 Speaker 2: OK. And traded at a valuation which is much lower 98 00:05:34,428 --> 00:05:37,599 Speaker 2: than we've ever seen it before. OK. And continued its 99 00:05:37,609 --> 00:05:40,299 Speaker 2: ability to be the cost leader today. The metrics is 100 00:05:40,309 --> 00:05:44,779 Speaker 2: completely changed. So aviation and in India, India's largest aviation 101 00:05:44,790 --> 00:05:47,290 Speaker 2: company is today the second largest in terms of market 102 00:05:47,299 --> 00:05:48,519 Speaker 2: capitalization in the world. 103 00:05:48,829 --> 00:05:51,950 Speaker 2: OK. Has got cash on its balance sheet is something 104 00:05:51,959 --> 00:05:55,720 Speaker 2: that the word and something that this industry has never seen, 105 00:05:55,738 --> 00:05:58,649 Speaker 2: probably globally, you've probably seen it one or two companies, 106 00:05:58,660 --> 00:06:01,089 Speaker 2: but in Indian company has that and one of the 107 00:06:01,100 --> 00:06:04,489 Speaker 2: most important things is the marketplace is completely consolidated. 108 00:06:04,988 --> 00:06:07,570 Speaker 2: So you got the price right when you got and 109 00:06:07,579 --> 00:06:10,510 Speaker 2: and it still holds itself in good stead in in 110 00:06:10,519 --> 00:06:13,469 Speaker 2: the entire competitive framework in its within its industry, 111 00:06:13,839 --> 00:06:17,609 Speaker 1: right? So, so yeah, so everybody focuses on buying a stock, 112 00:06:17,619 --> 00:06:20,410 Speaker 1: you know, when to buy, when to you know the 113 00:06:20,420 --> 00:06:24,209 Speaker 1: timing of the purchase, the price of the purchase. But 114 00:06:24,220 --> 00:06:27,609 Speaker 1: there is very little literature on selling part of it, 115 00:06:27,619 --> 00:06:28,010 Speaker 1: which 116 00:06:28,339 --> 00:06:31,760 Speaker 1: typically tends to be a lot more complicated. How do 117 00:06:31,769 --> 00:06:33,899 Speaker 1: you think about this entire approach of selling 118 00:06:33,940 --> 00:06:34,299 Speaker 2: well, when 119 00:06:34,309 --> 00:06:38,010 Speaker 2: an industry does well, the last common denominator in that 120 00:06:38,019 --> 00:06:40,909 Speaker 2: industry or the smallest company in that industry starts doing 121 00:06:40,920 --> 00:06:44,489 Speaker 2: extremely well. Now think about it this way when everyone 122 00:06:44,500 --> 00:06:47,459 Speaker 2: in an industry makes money, you are heading towards hyper 123 00:06:47,470 --> 00:06:51,678 Speaker 2: competitive competition, right? Because the largest company is investing in 124 00:06:51,690 --> 00:06:55,480 Speaker 2: the smallest companies investing, which means more capacity is coming in. 125 00:06:55,950 --> 00:06:59,809 Speaker 2: Quite contrary to what most investors would like to believe 126 00:06:59,820 --> 00:07:03,130 Speaker 2: that any industry where everyone makes money is a great 127 00:07:03,140 --> 00:07:06,089 Speaker 2: place to be in. We hate being in a place 128 00:07:06,589 --> 00:07:11,450 Speaker 2: where every single participant in an industry is profitable or 129 00:07:11,459 --> 00:07:14,809 Speaker 2: is making money and reinvesting its money back into that industry. 130 00:07:15,140 --> 00:07:18,850 Speaker 2: That's our side discipline, quantitatively putting it together 131 00:07:19,869 --> 00:07:22,459 Speaker 1: in the, in the recent past. Have you come across 132 00:07:22,470 --> 00:07:24,619 Speaker 1: any such set up in an industry 133 00:07:25,089 --> 00:07:27,260 Speaker 1: which is kind of gone through this kind of a 134 00:07:27,269 --> 00:07:29,579 Speaker 1: phase and where you felt that, you know, there is 135 00:07:29,589 --> 00:07:31,149 Speaker 1: going to be a, there's going to be a fair 136 00:07:31,160 --> 00:07:33,670 Speaker 1: bit of competition and you think that it's a time 137 00:07:33,679 --> 00:07:35,049 Speaker 1: to kind of move. So 138 00:07:35,059 --> 00:07:38,540 Speaker 2: let me give you a sense of what happened in 2006, 139 00:07:38,549 --> 00:07:41,399 Speaker 2: 7 and eight, right? And you see some similarities of 140 00:07:41,410 --> 00:07:43,910 Speaker 2: that lay out in today's environment though. What happened in 141 00:07:43,920 --> 00:07:47,109 Speaker 2: 67 and eight, we had this big boom in infrastructure 142 00:07:47,119 --> 00:07:49,450 Speaker 2: and every company that was out there was setting up 143 00:07:49,459 --> 00:07:50,149 Speaker 2: was bidding. 144 00:07:51,209 --> 00:07:51,640 Speaker 2: What is 145 00:07:53,010 --> 00:07:56,750 Speaker 2: so the higher order book, higher market gap, more ability 146 00:07:56,760 --> 00:08:00,450 Speaker 2: to raise money, more ability to raise money, higher ability 147 00:08:00,459 --> 00:08:01,829 Speaker 2: to take more contracts. 148 00:08:02,649 --> 00:08:06,119 Speaker 2: Ok. And that became the most inefficient part of the marketplace. 149 00:08:06,130 --> 00:08:09,549 Speaker 2: At that point in time, capital is usually available. Companies 150 00:08:09,559 --> 00:08:12,040 Speaker 2: want to say company want to build auto book because 151 00:08:12,049 --> 00:08:13,690 Speaker 2: the minute you want to build auto book, you're getting 152 00:08:13,700 --> 00:08:16,589 Speaker 2: market cap. The minute you get market cap, you have 153 00:08:16,600 --> 00:08:19,260 Speaker 2: to demonstrate the ability to get a higher order book, 154 00:08:19,670 --> 00:08:22,470 Speaker 2: which is the first structure of deterioration of 155 00:08:23,190 --> 00:08:26,109 Speaker 2: margins. When you have deterioration of margin. There's someone who 156 00:08:26,119 --> 00:08:28,290 Speaker 2: is going to come and be big below your price, 157 00:08:29,000 --> 00:08:32,189 Speaker 2: something similar took place. And, and within our portfolios at 158 00:08:32,200 --> 00:08:35,760 Speaker 2: the asset management company, we we basically build out a 159 00:08:35,770 --> 00:08:41,250 Speaker 2: structure around pharmaceuticals which are outwardly facing. Ok. And the 160 00:08:41,260 --> 00:08:45,069 Speaker 2: Indian manufacturers actually consolidated the global space in terms of 161 00:08:45,080 --> 00:08:46,260 Speaker 2: generic manufacturing. 162 00:08:47,059 --> 00:08:49,840 Speaker 2: Ok. That's the consolidation part. What are you seeing bringing 163 00:08:49,890 --> 00:08:54,099 Speaker 2: is the fragmentation part in the infrastructure, infrastructure business. Now 164 00:08:54,109 --> 00:08:57,280 Speaker 2: timing this is completely different. Yeah, you you will have 165 00:08:57,289 --> 00:08:59,109 Speaker 2: to work to see that you do not sell too 166 00:08:59,119 --> 00:09:00,559 Speaker 2: early into a cycle like this. 167 00:09:01,489 --> 00:09:05,530 Speaker 1: Perfect Kenneth. The other question that we have in mind 168 00:09:05,539 --> 00:09:09,030 Speaker 1: is generally, you know, you are a stock picker and 169 00:09:09,520 --> 00:09:13,109 Speaker 1: the biases normally tend to be the smaller caps. The 170 00:09:13,119 --> 00:09:16,500 Speaker 1: general perception over there is that the corporate governance standards 171 00:09:16,510 --> 00:09:20,348 Speaker 1: are not the best in my in this entire space. 172 00:09:21,070 --> 00:09:23,900 Speaker 1: So for you as a fund manager, what comes first? 173 00:09:23,909 --> 00:09:26,929 Speaker 1: Is it the price or the corporate governance? So 174 00:09:26,940 --> 00:09:30,459 Speaker 2: again, the corporate governance can be quantified. OK. Uh Now 175 00:09:30,469 --> 00:09:32,419 Speaker 2: let me put it this way, take a portfolio in 176 00:09:32,429 --> 00:09:33,049 Speaker 2: our company 177 00:09:34,179 --> 00:09:36,280 Speaker 2: and see if it's attracting the right talent. 178 00:09:38,049 --> 00:09:41,940 Speaker 2: OK? And it is getting incremental market share in its industry. 179 00:09:42,780 --> 00:09:44,890 Speaker 2: OK? It was attracting the right talent 180 00:09:45,880 --> 00:09:48,169 Speaker 2: and it's getting higher market share. Now, how can two 181 00:09:48,179 --> 00:09:50,659 Speaker 2: of these things be wrong if it's got bad governance? 182 00:09:51,780 --> 00:09:54,719 Speaker 2: So when I say you can quantify corporate governance, we 183 00:09:54,729 --> 00:09:56,820 Speaker 2: can actually quantify corporate governance out there. 184 00:09:58,179 --> 00:10:01,439 Speaker 2: Why am I talking about governance in, in a small 185 00:10:01,450 --> 00:10:05,119 Speaker 2: cap business? Right. So usually when you, when you look 186 00:10:05,130 --> 00:10:07,289 Speaker 2: at a business in a down cycle or, or you know, 187 00:10:07,349 --> 00:10:09,319 Speaker 2: in a down cycle and you try to capture a 188 00:10:09,330 --> 00:10:13,090 Speaker 2: great business in a down cycle, mostly investors, we keep 189 00:10:13,099 --> 00:10:16,069 Speaker 2: that space because they want industry to well and the 190 00:10:16,080 --> 00:10:17,449 Speaker 2: company to actually grow well. 191 00:10:18,320 --> 00:10:20,969 Speaker 2: And when there is no ownership in that entire business, 192 00:10:20,979 --> 00:10:23,450 Speaker 2: because going through a rough patch, you usually get them 193 00:10:23,460 --> 00:10:27,780 Speaker 2: at mid cap market caps, mid cap market caps, right? 194 00:10:28,150 --> 00:10:29,960 Speaker 2: And I think that's a great entry point for all 195 00:10:29,969 --> 00:10:30,380 Speaker 2: of us. 196 00:10:31,280 --> 00:10:35,760 Speaker 2: So while a portfolio kind of represents a small cap 197 00:10:35,859 --> 00:10:39,729 Speaker 2: and mid cap is bias, they usually the largest companies 198 00:10:39,739 --> 00:10:43,849 Speaker 2: in their categories, just they represent their market capitalization because 199 00:10:43,859 --> 00:10:45,218 Speaker 2: they're going through a weak cycle. 200 00:10:45,969 --> 00:10:51,359 Speaker 2: OK? So when we invest, we don't compromise on corporate governance. OK? 201 00:10:51,440 --> 00:10:53,909 Speaker 2: And we try to find this pricing which you most 202 00:10:53,969 --> 00:10:58,159 Speaker 2: most often than not usually get it in this space 203 00:10:58,169 --> 00:11:01,429 Speaker 2: or this these kind of companies. And that's what we, 204 00:11:01,440 --> 00:11:04,348 Speaker 2: we try to, I try to enable with the process. 205 00:11:04,880 --> 00:11:07,968 Speaker 1: Yeah. So Kenneth, you know, investing tends to be, it's 206 00:11:07,979 --> 00:11:11,069 Speaker 1: it's tricky people kind of, you know, it is subjective, 207 00:11:11,460 --> 00:11:15,309 Speaker 1: but according to you in investing, what is the skill 208 00:11:15,320 --> 00:11:17,690 Speaker 1: that is the most overrated and what is the skill 209 00:11:17,700 --> 00:11:18,979 Speaker 1: that is the most underrated? 210 00:11:19,890 --> 00:11:22,909 Speaker 2: Okay, the most underrated skill I would think is patience. 211 00:11:23,760 --> 00:11:27,419 Speaker 2: Ok. Nobody likes to wait on the stock. Uh Nobody 212 00:11:27,429 --> 00:11:29,419 Speaker 2: wants to buy it at its appropriate time. 213 00:11:30,979 --> 00:11:35,080 Speaker 2: Ok. And that's what I think most investors almost always forget. 214 00:11:36,450 --> 00:11:39,329 Speaker 2: Ok. And it's happened with me as a beginner investor. 215 00:11:39,340 --> 00:11:41,280 Speaker 2: I just didn't have the patience to, to wait on 216 00:11:41,289 --> 00:11:44,419 Speaker 2: a stock or to find it a little cheaper and 217 00:11:44,429 --> 00:11:46,349 Speaker 2: to understand what makes a good business. 218 00:11:47,289 --> 00:11:50,950 Speaker 2: Ok. And I think the most overrated part of investing 219 00:11:50,960 --> 00:11:51,710 Speaker 2: is gut feel. 220 00:11:52,520 --> 00:11:54,358 Speaker 2: OK? Our intuition 221 00:11:55,460 --> 00:11:58,630 Speaker 2: because what drives intuition and what drives gut feel has 222 00:11:58,640 --> 00:12:00,190 Speaker 2: to be quantitative at the back end? 223 00:12:01,320 --> 00:12:03,750 Speaker 2: OK. You can't wake up one day and say that 224 00:12:04,900 --> 00:12:07,580 Speaker 2: intuitively. I think this company will do well because this 225 00:12:07,590 --> 00:12:09,960 Speaker 2: is a limited amount of data that I have. So 226 00:12:09,969 --> 00:12:12,239 Speaker 2: you have to watch a business for an extremely long 227 00:12:12,250 --> 00:12:13,039 Speaker 2: period of time. 228 00:12:13,690 --> 00:12:15,669 Speaker 2: OK. And that will drive intuition, 229 00:12:16,679 --> 00:12:21,189 Speaker 1: right? Uh Kenneth, before we wind up this discussion, our 230 00:12:21,200 --> 00:12:24,859 Speaker 1: listeners would want to get some wisdom from you on 231 00:12:24,869 --> 00:12:28,380 Speaker 1: some kind of advice from you on investing. Uh If 232 00:12:28,390 --> 00:12:31,679 Speaker 1: you were to give them one good advice, one solid advice, 233 00:12:31,940 --> 00:12:32,900 Speaker 1: what would that be? 234 00:12:33,789 --> 00:12:36,650 Speaker 2: I think everyone is in the process of finding the 235 00:12:36,659 --> 00:12:37,150 Speaker 2: next 236 00:12:38,419 --> 00:12:40,830 Speaker 2: big winner in the market cycle like this side. 237 00:12:41,489 --> 00:12:43,820 Speaker 2: So if you're trying to find a value where it exists, none, 238 00:12:45,229 --> 00:12:48,630 Speaker 2: OK. Don't go searching for it. And I think this 239 00:12:48,640 --> 00:12:51,608 Speaker 2: is very contextual and I learned it in 2017, 18, 240 00:12:51,619 --> 00:12:55,500 Speaker 2: despite all the years in of, of investing into 2017 241 00:12:55,510 --> 00:12:58,190 Speaker 2: and 18, we went into a market cycle where I 242 00:12:58,200 --> 00:13:01,539 Speaker 2: went looking for value as they exist. Not right. So 243 00:13:01,549 --> 00:13:04,080 Speaker 2: you want to tread a little carefully, have that patience 244 00:13:04,090 --> 00:13:06,750 Speaker 2: and the discipline to stay away from things you don't know. 245 00:13:07,809 --> 00:13:11,348 Speaker 2: Ok. And, and in a market environment like this, I 246 00:13:11,359 --> 00:13:14,349 Speaker 2: don't think there's any value that you to search out. Yes, 247 00:13:14,359 --> 00:13:16,989 Speaker 2: there are businesses that will grow, there are businesses that 248 00:13:17,000 --> 00:13:19,000 Speaker 2: will keep you safe and there are businesses that will 249 00:13:19,010 --> 00:13:21,989 Speaker 2: compound capital. They are all out there. So you just 250 00:13:22,000 --> 00:13:24,409 Speaker 2: have the discipline to wait till it comes to your price. 251 00:13:25,390 --> 00:13:28,429 Speaker 1: Thank you, Kenneth. Thank you for talking to us. Thank 252 00:13:28,440 --> 00:13:31,569 Speaker 1: you for this great discussion. It was nice having you 253 00:13:31,580 --> 00:13:34,799 Speaker 1: and I'm sure our listeners have benefited a lot from this. 254 00:13:35,469 --> 00:13:37,109 Speaker 2: Thanks. Thanks for having me on the show. 255 00:13:37,820 --> 00:13:41,169 Speaker 1: Now. I would like to welcome Sunil Singhania, founder of 256 00:13:41,429 --> 00:13:46,530 Speaker 1: a asset management. Welcome Sunil. So thank you for having me. So, 257 00:13:46,539 --> 00:13:50,900 Speaker 1: so basically, you know, people know about Sunil Singhania portfolios, 258 00:13:50,909 --> 00:13:53,010 Speaker 1: about the stocks, you own, etcetera, 259 00:13:53,409 --> 00:13:57,429 Speaker 1: but they don't know much about your stock selection process. Basically, 260 00:13:57,440 --> 00:14:00,190 Speaker 1: how do you identify a stock? How do you buy 261 00:14:00,200 --> 00:14:03,250 Speaker 1: a stock? How much, how much do you buy? I mean, 262 00:14:03,260 --> 00:14:05,079 Speaker 1: if it would be nice if you could tell our 263 00:14:05,090 --> 00:14:09,049 Speaker 1: listeners about this entire process, probably through an example of 264 00:14:09,059 --> 00:14:12,309 Speaker 1: something how, how a past some kind of a pick. 265 00:14:12,840 --> 00:14:16,039 Speaker 1: So when we set up a backers, we had a very, 266 00:14:16,049 --> 00:14:19,130 Speaker 1: very clear investment philosophy, you know, very quickly I can 267 00:14:19,140 --> 00:14:21,950 Speaker 1: run you through the investment philosophies of first is we 268 00:14:21,960 --> 00:14:24,239 Speaker 1: don't allocate, we invest, you know, we are not going 269 00:14:24,250 --> 00:14:26,900 Speaker 1: to invest in a company just because, you know, you 270 00:14:26,909 --> 00:14:29,770 Speaker 1: want to have an exposure to the particular sector or something, 271 00:14:29,780 --> 00:14:34,099 Speaker 1: we would like to individually on merit, look at each company. Secondly, 272 00:14:34,109 --> 00:14:36,719 Speaker 1: at least from our perspective, we are very, very balance 273 00:14:36,729 --> 00:14:39,090 Speaker 1: sheet focus. So we don't look at loss making companies. 274 00:14:39,099 --> 00:14:42,200 Speaker 1: So for us, the return on capital employed is sector. 275 00:14:42,539 --> 00:14:45,900 Speaker 1: And therefore, you know, typically we invest only in companies 276 00:14:45,909 --> 00:14:49,119 Speaker 1: with the Roc or Roe is at least 14 15%. 277 00:14:49,130 --> 00:14:52,359 Speaker 1: The second important criteria for us is the profit growth. 278 00:14:52,559 --> 00:14:55,280 Speaker 1: And therefore, typically we look at companies which can double 279 00:14:55,289 --> 00:14:58,989 Speaker 1: profit ideally in four years, a maximum of five years, 280 00:14:59,119 --> 00:15:02,049 Speaker 1: which is a 14 to 18% cagle growth. Because you know, 281 00:15:02,059 --> 00:15:04,580 Speaker 1: if the profits double the value of the business will 282 00:15:04,590 --> 00:15:08,109 Speaker 1: automatically double. The third thing we look at which is 283 00:15:08,119 --> 00:15:11,280 Speaker 1: in the current kind of an environment which is, you know, disruptions. 284 00:15:11,869 --> 00:15:15,119 Speaker 1: Then the other thing is, you know, the valuation, our 285 00:15:15,130 --> 00:15:17,489 Speaker 1: view is that the best company is not necessarily the 286 00:15:17,500 --> 00:15:20,500 Speaker 1: best stock. So if you remember four or five years back, 287 00:15:20,510 --> 00:15:22,049 Speaker 1: we had come out with a note called bubble in 288 00:15:22,059 --> 00:15:25,090 Speaker 1: quality and our view was that yes, quality is good. 289 00:15:25,099 --> 00:15:27,390 Speaker 1: But at what price? So you know, if a company 290 00:15:27,400 --> 00:15:30,809 Speaker 1: is trading at 7080 P multiple growing at 10% 291 00:15:31,229 --> 00:15:33,309 Speaker 1: I don't think that investor is going to make returns 292 00:15:33,320 --> 00:15:36,609 Speaker 1: out of it. So we are very conscious about the valuations. 293 00:15:36,780 --> 00:15:38,570 Speaker 1: So I think all said and done, these are the 294 00:15:38,580 --> 00:15:41,609 Speaker 1: key criteria which we look at recently, we bought an 295 00:15:41,619 --> 00:15:45,609 Speaker 1: auto ancillary company called sh it was ignored, but it 296 00:15:45,619 --> 00:15:47,700 Speaker 1: clicked all the boxes, you know, and I think so 297 00:15:47,710 --> 00:15:50,419 Speaker 1: far touch wood, it's been going very well, very, you know, 298 00:15:50,429 --> 00:15:55,690 Speaker 1: evaluation focused investment of 24 25% and growing also decent, 299 00:15:56,119 --> 00:15:58,330 Speaker 1: you know, this is just an example, but I'm just 300 00:15:58,400 --> 00:16:01,020 Speaker 1: giving a broad perspective of how we look at things 301 00:16:02,020 --> 00:16:05,380 Speaker 1: great. So as a as an investor, as a fund manager, 302 00:16:05,780 --> 00:16:09,690 Speaker 1: what has been the biggest turning point in your life, 303 00:16:09,700 --> 00:16:13,510 Speaker 1: you know, that is kind of changed your approach towards investing. No, 304 00:16:13,520 --> 00:16:16,340 Speaker 1: I think two or three things, one is obviously joining 305 00:16:16,349 --> 00:16:21,159 Speaker 1: a mutual fund and basically, you know, getting into the 306 00:16:21,169 --> 00:16:24,650 Speaker 1: groove as far as long term investing is concerned. Second, 307 00:16:24,659 --> 00:16:26,960 Speaker 1: as I said, you know, we all learn from our mistakes. 308 00:16:27,179 --> 00:16:30,619 Speaker 1: So many times you end up selling early 309 00:16:31,000 --> 00:16:33,700 Speaker 1: and those were huge lessons. You know, I think in 310 00:16:33,710 --> 00:16:36,229 Speaker 1: the case of Bajaj finance, we were large investors. When 311 00:16:36,239 --> 00:16:39,140 Speaker 1: I was in reliance mutual fund, we made good money, 312 00:16:39,150 --> 00:16:41,270 Speaker 1: but we sold early and from there on the stock 313 00:16:41,280 --> 00:16:44,729 Speaker 1: has multiplied 50 times. And I think from a turning 314 00:16:44,739 --> 00:16:49,059 Speaker 1: point perspective, I think the biggest I would say learning 315 00:16:49,070 --> 00:16:51,780 Speaker 1: is that if you are investing in equity, 316 00:16:52,049 --> 00:16:55,109 Speaker 1: you have to be positive on the economy or vice versa. 317 00:16:55,119 --> 00:16:57,070 Speaker 1: If you are positive on the economy, then only you 318 00:16:57,080 --> 00:16:59,630 Speaker 1: should be investing in equities. And I think that is 319 00:16:59,640 --> 00:17:01,469 Speaker 1: what we have basically tried to do 320 00:17:02,210 --> 00:17:05,670 Speaker 1: so beyond ratios and the balance sheets and and you know, 321 00:17:05,680 --> 00:17:09,109 Speaker 1: the industry prospects. Do you also look at the so 322 00:17:09,160 --> 00:17:13,629 Speaker 1: the softer aspects in your investment uh checklist? So Nishan 323 00:17:13,750 --> 00:17:17,150 Speaker 1: in a in a mid size or smaller company, obviously 324 00:17:17,160 --> 00:17:19,949 Speaker 1: meeting the company makes a big difference in a mid 325 00:17:19,959 --> 00:17:24,260 Speaker 1: to small size company. The management becomes very important because 326 00:17:24,270 --> 00:17:26,699 Speaker 1: the second layer and the third layer might be might 327 00:17:26,709 --> 00:17:28,550 Speaker 1: not be as strong as the top layer. 328 00:17:28,869 --> 00:17:32,569 Speaker 1: And therefore meeting companies become very, very important hygiene factors. 329 00:17:32,579 --> 00:17:35,219 Speaker 1: You know, we do company visits when we do company visits, 330 00:17:35,229 --> 00:17:37,310 Speaker 1: we come to know, you know how they are treating people. 331 00:17:37,319 --> 00:17:40,520 Speaker 1: What is the cleanliness? What is the, you know, the 332 00:17:40,530 --> 00:17:44,649 Speaker 1: whole quality aspect that becomes very important. Obviously, when we 333 00:17:44,660 --> 00:17:47,650 Speaker 1: go through multiple year balance sheets, you know, they are 334 00:17:47,660 --> 00:17:49,920 Speaker 1: compliance in terms of taxation. 335 00:17:50,410 --> 00:17:53,119 Speaker 1: There any red flags by the auditors. I think those 336 00:17:53,130 --> 00:17:55,719 Speaker 1: are again, things which we have to basically look at. 337 00:17:55,869 --> 00:17:58,030 Speaker 1: And more importantly, you know, if you have a history 338 00:17:58,040 --> 00:18:01,179 Speaker 1: of the company over the last 1015, 20 years, then 339 00:18:01,189 --> 00:18:04,069 Speaker 1: you know how the company has behaved in different cycles. 340 00:18:04,349 --> 00:18:08,599 Speaker 1: I think that also helps now. So most investors, you know, 341 00:18:08,609 --> 00:18:10,800 Speaker 1: at least the people who kind of, you know, who 342 00:18:10,810 --> 00:18:13,989 Speaker 1: has started off the entire focus is on buying the 343 00:18:14,000 --> 00:18:17,149 Speaker 1: timing of the purchase, the price of the purchase. 344 00:18:17,569 --> 00:18:21,159 Speaker 1: But there is very little discussion on when to sell. 345 00:18:21,859 --> 00:18:24,079 Speaker 1: Uh What is your philosophy in this? 346 00:18:24,729 --> 00:18:27,369 Speaker 1: No, I completely agree with you. I think uh when 347 00:18:27,380 --> 00:18:30,000 Speaker 1: to sell, how much to sell, whether to sell food, 348 00:18:30,010 --> 00:18:32,979 Speaker 1: whether to sell partial is always a concern or a 349 00:18:32,989 --> 00:18:36,020 Speaker 1: question or uh I would say an uncertain kind of 350 00:18:36,030 --> 00:18:39,569 Speaker 1: a decision from our perspective. There are three reasons why 351 00:18:39,579 --> 00:18:42,349 Speaker 1: we would sell a stock first is if we go 352 00:18:42,359 --> 00:18:44,540 Speaker 1: wrong in our hypothesis, you know, so we invested in 353 00:18:44,550 --> 00:18:48,250 Speaker 1: a company based on particular assumptions or hypothesis and that 354 00:18:48,260 --> 00:18:49,349 Speaker 1: is not turning out well, 355 00:18:49,675 --> 00:18:52,655 Speaker 1: maybe the sector has gone, you know, worse than what 356 00:18:52,665 --> 00:18:56,063 Speaker 1: we expected. The company is not performing the way we expected. 357 00:18:56,224 --> 00:18:58,464 Speaker 1: So I think the earlier you realize and the earlier 358 00:18:58,474 --> 00:19:01,314 Speaker 1: you sell out, the better, you know, then you should 359 00:19:01,324 --> 00:19:03,915 Speaker 1: not look at whether you would want to wait for 360 00:19:03,925 --> 00:19:05,804 Speaker 1: a pop up or not. I think you have to 361 00:19:05,814 --> 00:19:08,324 Speaker 1: sell second is a lot of times, you know, you 362 00:19:08,334 --> 00:19:12,294 Speaker 1: go right and the stock moves much beyond what you 363 00:19:12,305 --> 00:19:14,114 Speaker 1: would expect is to be the fair. Value. 364 00:19:14,530 --> 00:19:16,939 Speaker 1: See, ultimately, we are investors, we are investing from a 365 00:19:16,949 --> 00:19:20,389 Speaker 1: 345 years perspective. But if you feel that, you know, 366 00:19:20,400 --> 00:19:23,339 Speaker 1: in the next two years, the stock has discounted what 367 00:19:23,349 --> 00:19:27,020 Speaker 1: you thought was uh possible in 4 to 5 years 368 00:19:27,060 --> 00:19:30,910 Speaker 1: without any significant improvement in fundamentals, you would want to 369 00:19:30,920 --> 00:19:35,510 Speaker 1: book profits. And the third important uh decision is, you know, 370 00:19:35,520 --> 00:19:36,869 Speaker 1: capital is limited. 371 00:19:37,189 --> 00:19:39,448 Speaker 1: So if you have something in the portfolio and you 372 00:19:39,459 --> 00:19:43,140 Speaker 1: come across something else, which is looking much better than 373 00:19:43,150 --> 00:19:45,729 Speaker 1: what you already have in the portfolio. Obviously, you would 374 00:19:45,739 --> 00:19:47,880 Speaker 1: like to switch, you know. So these are the three 375 00:19:47,890 --> 00:19:50,810 Speaker 1: main reasons why we would sell a stock. And what 376 00:19:50,819 --> 00:19:54,639 Speaker 1: according to you is the most overrated part of investing 377 00:19:54,650 --> 00:19:56,520 Speaker 1: as a, as a profession and what is the most 378 00:19:56,530 --> 00:20:00,810 Speaker 1: underrated skill required? I mean, that is not being talked about. 379 00:20:01,510 --> 00:20:05,260 Speaker 1: I see one thing is every investor I just said 380 00:20:05,270 --> 00:20:08,770 Speaker 1: would have a different way of investing. I would say 381 00:20:08,780 --> 00:20:13,089 Speaker 1: that the most overrated is, you know, trying to figure 382 00:20:13,099 --> 00:20:15,889 Speaker 1: out when to buy, when to sell on a daily basis. 383 00:20:16,060 --> 00:20:19,170 Speaker 1: You know, it just adds to the noise, it doesn't 384 00:20:19,180 --> 00:20:22,669 Speaker 1: add to the returns. I think the most underrated is 385 00:20:22,680 --> 00:20:23,770 Speaker 1: the compounding effect, 386 00:20:24,219 --> 00:20:27,229 Speaker 1: you know, in reliance when I was managing growth fund, 387 00:20:27,280 --> 00:20:31,709 Speaker 1: we became 100 X in 100 years in sorry, 21 years, 388 00:20:31,900 --> 00:20:35,030 Speaker 1: but that was a keg of only 20 to 23% 389 00:20:35,349 --> 00:20:38,170 Speaker 1: which is great. But it doesn't look very big, but 390 00:20:38,180 --> 00:20:40,869 Speaker 1: when you see 100 X in 21 years, that looks very, 391 00:20:40,880 --> 00:20:44,469 Speaker 1: very big. I think investors instead of looking at who 392 00:20:44,479 --> 00:20:47,069 Speaker 1: did the best in the last one year and switching 393 00:20:47,079 --> 00:20:50,140 Speaker 1: from one fund to the other fund, I think more 394 00:20:50,449 --> 00:20:52,630 Speaker 1: than that they should find someone who would be very 395 00:20:52,640 --> 00:20:53,329 Speaker 1: consistent 396 00:20:53,589 --> 00:20:57,359 Speaker 1: and we would keep on just adding to the returns. Yeah. Yeah, 397 00:20:57,369 --> 00:20:59,099 Speaker 1: soon as that's a, that's a great point, you know, 398 00:20:59,109 --> 00:21:02,670 Speaker 1: to actually, you know, stick to a particular investment and 399 00:21:02,680 --> 00:21:04,579 Speaker 1: you know, stay with it, you know, so that allowing 400 00:21:04,589 --> 00:21:08,250 Speaker 1: it to allowing it to compound assets. So before we 401 00:21:08,260 --> 00:21:11,329 Speaker 1: uh wind up this discussion, you know, our listeners would 402 00:21:11,339 --> 00:21:15,479 Speaker 1: want to know your some important advice on investing. What 403 00:21:15,489 --> 00:21:15,839 Speaker 1: would you add? 404 00:21:16,329 --> 00:21:20,380 Speaker 1: See, investing one has to be first positive on the 405 00:21:20,390 --> 00:21:24,030 Speaker 1: underlying country and the and the asset class. So I 406 00:21:24,040 --> 00:21:26,119 Speaker 1: think if you are positive that India is going to 407 00:21:26,130 --> 00:21:29,119 Speaker 1: grow from four trillion to eight over the next eight years, 408 00:21:29,189 --> 00:21:32,479 Speaker 1: then you should definitely invest in equity. Second is, you know, 409 00:21:32,489 --> 00:21:36,369 Speaker 1: don't try to maximize return every day. I think equity 410 00:21:36,380 --> 00:21:39,930 Speaker 1: is ultimately investing in companies and your returns are going 411 00:21:39,939 --> 00:21:42,599 Speaker 1: to be commensurate with the earnings growth of the company. 412 00:21:42,900 --> 00:21:44,650 Speaker 1: I think the other thing is you have to give 413 00:21:44,660 --> 00:21:47,140 Speaker 1: time to your investments. You know, you can't invest for 414 00:21:47,150 --> 00:21:49,050 Speaker 1: one month, two months and six months and then get 415 00:21:49,060 --> 00:21:52,199 Speaker 1: scared because of some event uh because then you will 416 00:21:52,209 --> 00:21:54,649 Speaker 1: be entering at the wrong time and uh exiting at 417 00:21:54,660 --> 00:21:58,099 Speaker 1: the wrong time. More importantly in this today's world where 418 00:21:58,109 --> 00:22:02,709 Speaker 1: knowledge and information has become a commodity. I think don't microanalysis, 419 00:22:02,750 --> 00:22:05,910 Speaker 1: micro analyze everything, you know, something or the other will 420 00:22:05,920 --> 00:22:07,438 Speaker 1: be wrong in some part of the world. 421 00:22:07,760 --> 00:22:10,938 Speaker 1: I think that doesn't mean that you get negative and 422 00:22:10,949 --> 00:22:13,459 Speaker 1: not disillusioned from investing. I think you have to just 423 00:22:13,469 --> 00:22:16,380 Speaker 1: look at the broad perspective. And as I said, be 424 00:22:16,390 --> 00:22:18,780 Speaker 1: confident on the country you are investing on the asset 425 00:22:18,790 --> 00:22:20,219 Speaker 1: class or you will make money. 426 00:22:21,369 --> 00:22:24,390 Speaker 1: Great, great. Thank you, Sunil for joining in. It was 427 00:22:24,400 --> 00:22:28,129 Speaker 1: great talking to you. I'm sure our listeners would have benefit. No, no. 428 00:22:28,140 --> 00:22:30,369 Speaker 1: Thanks a lot. And thanks for having me. It was 429 00:22:30,380 --> 00:22:33,670 Speaker 1: a pleasure sharing uh my experience with your viewers. I 430 00:22:33,680 --> 00:22:35,630 Speaker 1: hope uh they find it useful. Thank you 431 00:22:36,510 --> 00:22:40,089 Speaker 1: with this. We wrap up our episode. The key takeaway 432 00:22:40,099 --> 00:22:43,859 Speaker 1: from both conversations is that money is not just about 433 00:22:43,869 --> 00:22:48,369 Speaker 1: getting lucky. It's more about having proper systems in place 434 00:22:48,500 --> 00:22:51,569 Speaker 1: that need to be followed with a lot of discipline 435 00:22:51,579 --> 00:22:55,040 Speaker 1: and patience. Thank you once again, Kenneth and Sunil for 436 00:22:55,050 --> 00:22:58,849 Speaker 1: joining us in this conversation and a big thank you 437 00:22:58,859 --> 00:22:59,920 Speaker 1: to our listeners. 438 00:23:01,530 --> 00:23:05,329 Speaker 1: This episode was produced by Vinai Joshi and the sound 439 00:23:05,339 --> 00:23:06,880 Speaker 1: was designed by Amrit Regi. 440 00:23:07,900 --> 00:23:11,800 Speaker 1: This is your host, Nishan Vasudevan, signing off. Thank you 441 00:23:11,810 --> 00:23:12,900 Speaker 1: and stay tuned.