Basant Maheshwari, the author of the bestseller “The Thoughtful Investor” and founder of “Basant Top 10”, has an investment philosophy which can be summed up in two simple sentences.
First, Basant does not believe in pottering about with “risky” stocks where there is a chance of risk of capital. He prefers stocks where, even if your assumptions go haywire, you will get your money back. He elaborated on this philosophy a few days ago where he advised investors to look for stocks that will protect your capital and “compound” it, year after year.
In this, Basant is echoing the timeless wisdom of Warren Buffett who emphasized the importance of capital protection in pithy words: “Rule No. 1: Never Lose Money; Rule No. 2: Never Forget Rule No. 1”.
Mohnish Pabrai echoed the same wisdom when he advised us to buy stocks where “Heads, I Win; Tails, I Don’t Lose Much”. Mohnish also called the compounding stocks “the holy grail of investment”.
Second, Basant believes that we must identify a dominant theme that is going to play on for the next few years and latch onto the powerhouse stocks in that theme.
In an earlier talk, Basant has already put his finger on the “rural/ semi-urban consumer demand” as being the theme to bet on for the next couple of years under the new NAMO regime. Basant gave convincing logic on how the growing affluence of the middle class and the rapid urbanization by way of construction of malls, housing complexes etc means that stocks that cater to that sector would do very well.
In his latest interview to Nikunj Dalmia of ETNow, Basant elaborated on the same concept. He also identified his favourite stocks as being Page Industries, Hawkins Cookers, Gruh Finance, Repco Home Finance, HDFC Bank, Sun Pharma and Asian Paints. Basant advised investors to create a model portfolio of these stocks and promised that in the next 10 to 20 years, they would see serious wealth creation.
|BASANT MAHESHWARI MODEL PORTFOLIO OF TOP-QUALITY STOCKS|
|Page Industries||Virtual monopoly in high-margin premium inner-wear segment, strong brand, high ROE, debt-free, low capex, huge scale of opportunity|
|Hawkins Cookers||Leader in a duopoly market, strong brand, high ROE, debt-free, low capex, high dividend payout|
|Gruh Finance||Leader in small ticket rural/ semi-urban mortgage. High ROE, management (HDFC) with proven track record, huge scale of opportunity owing to low mortgage penentration|
|Repco Home Finance||Enjoys a ‘moat’ by serving non-salaried borrowers with no income record. High ROE, huge scale of opportunity owing to low mortgage penentration|
|HDFC Bank||Blue Chip growing at 25-30% CAGR. A classic compounder stock|
|Sun Pharma||Blue Chip growing at 25-30% CAGR. A classic compounder stock|
Basant added the caution that investors should not feel wary of buying these stocks in the misconception that they are quoting at “expensive valuations”. He reminded investors that the question whether a stock is “expensive” or not is highly subjective and that these stocks have always looked “expensive” from the traditional parameters of Price to Book (P/BV) and Price to Earnings (P/E). However, this hasn’t stopped these stocks from delivering multi-bagger returns over the years.
Basant advised that instead of focusing on the traditional valuations metrics of P/E and P/BV, investors should consider the quality of management, scale of opportunity, extent of ‘moat’, market dominance, capex requirements, dividend payout etc while deciding on a stock. He assured that the stocks picked by him for the Model Portfolio satisfied all the tests for being winner stocks in the long-term.