Multi-Disciplinary Reading – Book Reviews

From master class with super investors

Ramesh Damani

• When a bull market gets over, the leaders are squashed completely.
• Great opportunities come rarely so when they do, bulk up the truck
• Another thing great investors do is that they don’t hesitate from averaging up!
• No one rings a bell when there is a great idea. Actually, if people doubt it and disparage it, you are onto a good idea. There has to be scepticism in buying. If everyone applauds you: it’s probably not a good idea.

Similarities between the investors

Between the Ramesh Damani sir and Raamedao Agarwal sir

• integrity
• Tons of reading everyday
• Never leverage in life
• Always optimistic and bullish. Buy the bear market and have faith! Be lucky to be born in India. The opportunities in the next 20 years will always triumph the ones in the past 20 years.
• Very hardworking obviously
• Emphasis on the 100 bagger! A big idea comes once in 3/4 year which is the defining moment. The rest of the portfolio are just there.
• The most important criteria: business has to double in 3 years otherwise not interested!

A key difference

• Raamedo agarwal topped up his 100 bagger Hero motorcorp.

Rajashekar Iyer

• when economies do well, all companies do well but when the growth stalls, big companies cope better!

• Doesn’t believe in averaging down! Because we can’t always be right and the information we have is incomplete so it’s good to accept that and wait for market confirmation.?

• Only two people can afford to look at stock charts: one with 5-10 year horizon view such promoters and the other who has a continuous flow of funds. They have funds to buy drawdowns and hence can buy good businesses. People who have limited capital are in a box and they can’t afford to lose a big capital in drawdown and hence becomes important to sells these businesses when they get sell calls.

• Two types of errors: TYPE A and TYPE B. A is when you buy stocks you shouldn’t have and B is when you don’t buy stocks you should have. B is fine because there are unlimited opportunities and they will keep coming but A is not because capital is limited and that needs to be protected. So don’t buy at expensive valuations

• just cheap valuations don’t matter. There is no trigger for the market to rerate the company and the company’s opportunity also does not expand.

• how to define the quality of management: for a cyclical business, see how they manage the downturn.

• the stock that gave great returns over 10 years also gave good returns on day 1. The fundamentals should have already turned around and growth triggers should be present. Key to big success: deep value, immediate growth triggers and big long term position

Anil Goel

• one can not sustain producing below the cost of production for long, so normally it marks the bottom of the cycle! Very important for understand cyclicals

My note: it’s like purely competitive markets in economics, you can’t differentiate and hence are the same products. If it leads to overproduction than the price goes down to price of capital/production and some more. Eventually people get out of business and oversupply restores to equilibrium.

Hiren Ved

To tackle laggards, check them on a relative basis, if they do not perform well for 6/9 period and remain laggards, there is something up and should be looked at.
1-2 laggards in a 20 stock portfolio is fine but 3/4 is not and hence needed to be looked at
If it’s 4-5, you have to sell 3 and keep 2. You decide which two

Two most important aspacts of successful investing: reading and reflecting
Two problems for bright people: lack of discipline and lack of self awareness

Kenneth Andrade

• if the ROE is like 30-35% and incremental ROE does not grow, then it only increases the downside of the business
• It EV/sales and market cap/ sales is one but the PE is elevated at like 20-30 PE that means that business isn’t earning enough. Look at the cycle it’s in and see how can bring an uptick to its earnings. And this will be the case with the industry at that time so look for market leader with low debt.
• Seen time and time again that the most depressed sector turns out to be quite profitable.
• Doesn’t believe in structural or cyclical businesses, and does not look at sectors. It’s all about capital efficiency
• Chooses business quality over management quality
• Sees everything in cycles, cycle in interest rates, macro trends, micro trends, real estate, business earnings. Everything is a cycle if you spot it.
• Prioritise not losing money over making money. Find cheap valuation beaten down good quality stocks, and buy them when they are bottomed out. Chances of losing money aren’t much
• Cycles are disrupted by technology disruptions

Vijay Kedia

• Management is very important for Indian businesses, and even more for small businesses
• Selling shoukd be merciless, if your thesis breaks: sell ruthlessly.
• If it’s a doubler in three years, WONT invest: has to have a potential of being a ten bagger.
• Uses observation as a key screen to filter stocks.
• Three things to evaluate management: honesty, hunger and smartness.
• Primary importance is growth for valuations
• Buys sub 10 PE businesses. And invests in high PE with expectations of no growth for the first year or so.
• If your stocks are falling and market isn’t, something to worry and when market is at 52 week high and your stock isn’t, be very worried
• Views on Macro: sector specifc

Shyam Shekhar

• very ethical in terms of approach and believes in high quality business and management
• Balance sheet triumphs over P&L statement. Focusing on P&L over balance sheet means you have to pay a premium. It’s a lagging indicator. A BS statement will triumph over others because you start seeing material changes that and these will reflect on P&L statement later.
• Getting value addition from the market is better than a stakeholder. For example: Selling a product at the same price despite of falling RM prices or increasing pricing by various methods.
• Gives strong importance to working capital. Uses it to sense the direction of a business
• Idea generation is theme based, finds a theme and then invests in business that suit that theme