Ten Investing Lessons I Learned In Samvat 2075

Diwali and the festive season surrounding the big day is all about giving. And what I have tried to do every year is distill some of the key investing insights that I have come across, into a single article. Here’s this year’s shortlist of the 10 standout investing perspectives that I have come across since over the last Samvat.

1. Ramesh Damani, #BQEdge Mumbai - March 2019

“Here is the key to success in the stock market. It is very difficult to get rich quickly and it is almost easy to get rich slowly. The trick to it is compounding. You move your money to 22-23 percent regularly, I don’t care if someone has doubled the money in three months, he is not going to beat me because the weight of history is on my side.”

Almost every great investor tells us to keep it simple. And it can’t get simpler than to remember the holy grail of wealth creation - compounding. Ramesh puts it beautifully, in a live chat on BloombergQuint.

2. Ravi Dharamshi, #AlphaMoguls - July 2019

“The reason why markets might turn, despite the economy doing badly, is that we will hit such a trough in valuations, that people will stop thinking about the next six months and start thinking about the next 3-5 years. Usually, that’s how the bottoms are made in the market.”

While we are yet to see evidence of this happening market-wide, we have started seeing this in specific sectors for the last 2-3 months. Some of the beaten-down sectors have started inching up. The bulls will be hoping that Ravi was prophetic.

3. S Naren, #BQEdge Chennai - April 2019

“How many weathermen get everything right? Fund management is the same. The only fund managers who got it right the next day were Harshad Mehta and Ketan Parekh, and both of them went to jail. So I don’t think it’s possible. You won’t be right always.”

It’s vital for every investor or trader to realise that he or she will get it wrong, often, and that it is okay to get it wrong.

4. Kavin Bharti Mittal, Twitter - October 2019

“The simpler the principles, the more you’re on point. This is a great filter not just for us but for anyone launching something new. The more points that check off the higher the probability of success of a project.”

While this is business insight, it finds its way into my investing insight list simply because portfolio building also thrives on this approach.

5. Basant Maheshwari, Twitter - September 2019

“The market is getting narrow by the day. The leaders continue to move up while the craps keep slipping by the wayside. To understand the theme this time one needs to read through all the past bull market history. Tweeting against them in frustration won’t help - buying them might!”

This is so pertinent in today’s scenario, when many wise men have commented on polarised valuations, only to see the expensive stocks do better. Why fight the trend, as Basant said, instead, make it your friend.

6. Ramesh Damani, #BQEdge Mumbai - March 2019

“You know that after every winter, there will be spring. It is true of seasons and stock markets also. It is very important keep that in mind. Great business will find a way to create value. Good stocks compound over a long period of time. Once you develop that philosophy it is liberating. You get so much noise in the stock market, but this philosophy changes your life.”

Again, so pertinent in the current scenario where midcap portfolios are bleeding. Investors would do well to not withdraw their SIPs or sell good quality stocks at lows, simply because, after the lows, the highs could well come too.

7. Prashant Khemka, #AlphaMoguls - June 2019

“If governance is not adequate, then the cash flows (that we talked about), they don’t truly belong in their fair proportion to the minority shareholders and ultimately, we are minority shareholders. So, all the attributes are present but if governance is lacking then it is a great business but only for the controlling shareholder and not for the minority shareholders because there is no sanctity to valuation. Because we as minority shareholders don’t know how much of cash flow we are going to receive.”

While the whole environmental, social and corporate governance or ‘ESG investing’ framework is not yet the rage in India, considering the number of companies that have destroyed investor wealth due to corporate governance issues, Prashant’s advice on why governance takes centrestage over strong cashflows - is on point.

8. Sumeet Nagar, #AlphaMoguls - June 2019

“One of the best things is to talk to management during the bad part of a cycle and see what kind of things they are doing at that point of time to strengthen the company and widen it. And not that for everything to take at the face value. But equally, it is more important to validate that outside. You can talk to the company’s customers, dealers, distributors and see what they say about it. Through some of these conversations, you find very valuable insights. That can build your conviction further or otherwise.”

Sumeet sums up the extent of the work people like him do before betting on a stock. It goes to show that investors who are willing to put money in specific companies should not chance their arm, but do some hard groundwork before risking the capital. There is just no alternative to primary research in single-stock investing.

9. Vijay Kedia, #BQEdge Delhi - April 2019

“Don’t look at Rakesh Jhunjhunwala or Radhakishan [Damani] and enter in the trading business because it is not that easy as they perceived it to be. They are legends. Certainly, it is a difficult game. Most important is your mindset. If you have affection for your money, then you can’t trade. You need to be ruthless with your money.”

Noted investor Vijay Kedia has spent a third of his stock-market life as a trader, and when he says it is not easy, I am inclined to believe him.

10. Prateek Agarwal, #BQEdge Mumbai - October 2019

“Just think about it. What is it [the subset of the market that] you are looking at? You’re looking at a company which is shown to you. And, what gets shown to you? It’s where things have been good... for a period of nine months or twelve months, for somebody to have noticed it and for that company itself to have become positive and stand in front of investors. The life itself is 2.5 years for midcaps. So now by the time you see it and by the time you invest in it, you are very close to the peak anyways. So, that is how it is. It is a very difficult part of the market.”

It often happens that most retail investors are the last ones to lap up a theme. It is important to understand that what comes to you as a ‘hot tip’ is most probably being handed down to you after already having passed through a lot of hands. Be mindful of that.

While we are at it, here’s an eleventh, as a bonus.

“Markets do not reward a company for survival, no matter how good the company may be at it. Markets reward a company for growth.”

I happened to say these words while analysing a housing finance company on BloombergQuint’s weekday morning show Indian Open. It’s when people quoted me on Twitter, I realised that there is a growing acknowledgment about this in the current slowdown. Stick to quality which is growing, and not to perceived quality which is just trying to survive.

There have been many more fabulous conversations that I have had with noted investors over the last year But these ten top the list.

I hope the wisdom of these veteran investors helps you in some small way, in carrying out the appropriate allocation in your portfolios. Happy investing, and a very Happy Diwali to one and all.

Niraj Shah is Markets Editor at BloombergQuint.