Govind Parikh is so soft-spoken and modest in his demeanour that even if we bumped into him somewhere, we wouldn’t realize that he is an accomplished investor with several mega-bagger stocks in his portfolio.
This attitude of Govind Parikh is refreshing and in sharp contrast to our own attitude of gloating over our petty successes.
In his latest interview with Ramesh Damani for CNBC TV18’s wizards of Dalal Street series, Govind Parikh has offered important nuggets of advice to which we need to pay close attention:
(i) Always only buy stocks with “gold standard” quality:
Govind Parikh’s eyes lit up with pride when he talked about stocks like 3M India, Bosch, Madras Cement, Lakshmi Machine Works (LMW), Dr. Reddy’s Labs, Sundaram Fasteners, Sundaram Clayton, Sundaram Finance etc. He called these stocks the “gold standard” of investments meaning that they are of such impeccable quality that you cannot go wrong even if you mistakenly end up paying an exorbitant price for them.
(ii) Once you have found a winner stock, hold on to it for decades:
Govind Parikh revealed that he bought 3M India decades ago, when he was still a strapping young man. He paid a throwaway price of Rs. 200 for the stock. The stock has slowly and steadily compounded over the years and is now a mind-boggling 60-bagger at the CMP of about Rs. 11-12,000 (excluding dividends).
All the other stocks in Govind Parikh’s portfolio are of similar vintage.
This reminds me of the remarkable story of Sharad Banavadikar who bought MRF stock when he was still in his teens. Today, 40 years later, the stock is up an eye-popping 2000x.
(iii) Don’t hesitate to cash out if the valuations become unreasonable:
To an untrained eye, there appears to be a contradiction in Govind Parikh’s advice to hold on to the stock for decades but at the same time to cash out if the valuations are unreasonable. However, what he is advising is that everything has a value. Even a “gold standard” stock can sometimes get irrationally valued by the market. At times like that, it is sensible to take some profits from the table and to reenter the stock when the valuations cool down.
Of course, Govind Parikh candidly admitted that his decision to “cash out” had badly backfired on a few occasions because the stocks that he thought were “overvalued” went on to give even more gains after he had sold them.
(iv) Go to AGMs and factory visits and spend at least half an hour with the management:
Govind Parikh laid a lot of emphasis on the quality of management. He revealed that one reason he is/ was so convinced about Dr. Reddy Lab’s prospects is because of what he heard from Dr. Reddy himself at a brokers’ conference (the stock is a ten-bagger in the last 10 years). Similarly, he explained that going on a factory visit can tell you a lot about the respect and esteem that the workers have for the management.
Another interesting revelation was that most of Govind Parikh’s investments are in South based companies and the reason for this is that they are close to where he is based (Chennai) and he can attend AGMs and spend half-an-hour with the managements.
(v) Take advantage of bad markets to buy stocks at a discount:
This advice sounds melodious to our ears in normal times though we invariably go numb with fear when the markets do go bad.
Govind Parikh put it in the simplest of terms “I like to buy things in a bad market”. He also advised investors to keep some cash on hand at all times to have “bear market buying power”.
(vi) Always ensure that there is ‘margin of safety’ while buying stocks:
Govind Parikh hedged his advice to us to buy “gold standard” stocks with the caveat that we have to be careful of what we pay for it. “You can’t buy at any price, anything” he warned. He also advised that while valuing the stock, we should focus on what the future cash flows are likely to be.