Socially Responsible Investing?

Dear Nishant,

This will be a long post so please bear with me.

I saw your VP intro. and my situation is similar to yours. I manage the family portfolio: this means that I have to act with great responsibility to ensure that the capital is protected.

I actually apply the ‘inner scorecard’ and the indicated rules to decide what NOT TO BUY.

Typically, Many of us will have some standard AVOIDs like Not buying badly run companies, companies producing “me too products” with low pricing power, low promoter holding, low integrity management etc. etc.

To list Specific dislikes based on my individual values and experiences:

• Tobacco – zero positive and poses active and passive danger to our lives.

When I earned the confidence of the family to start managing the portfolio in 2011 the first decision I executed was to liquidate ITC (about 30% of the portfolio) which was a several decades holding.

I looked back often at the decision and often agonised if it was right to liquidate a hallmark holding which had the potential to continue to offer growth for years ahead – purely due to my personal bias.

However, I was fortunate to bounce this situation off one of the eminent Indian sages of value investing and came away with the conclusion that I was right to exit the holding.
As long as I am able to beat inflation while ensuring that there is optimal margin of safety for my holdings, I have the full right to invest in companies that I believe check the right boxes.

• Avanti Feeds – is also an avoid due to a personal bias. We suffered a bad business consequence during the avian flu crisis, many of our customers were poultry feed manufacturers. We all accepted mortality and annual flu outbreaks as “part of the game”, but everyone was grossly unprepared for the severity with which the last crisis struck. Several of our customers were bankrupt, we lost all our profits earned over a decade and closed operations. A major disease outbreak is a possibility for the shrimp industry and hence Avanti is a definite avoid for me.

As far as companies that pass the “avoid” criteria and ultimately make it to my “BUY” List- I have a varied basket:

A. Companies I can consider excellent and am happy to continue to hold as a core long term holding (assuming something does not radically change and secular earnings growth of 20% p.a. are achieved / a better long term secular growth story does not appear), they are:

Page Industries, Eicher Motors, Gruh Finance, HDFC Bank.

Pharmaceutical Companies such as Shilpa Medicare, Torrent Pharma, Alembic Pharma, Granules Ltd. all hold promise and if they continue to deliver year on year I am happy to continue to hold them. (I take this opportunity to acknowledge the assistance of @hitesh2710 for his kind and patient assistance to a number forum members queries on the pharma sector)

I believe quality Midcaps like Navin Fluorine resembles PI industries 5 to 6 years ago. There is a recent HDFC Securities report which you can refer to – elaborating the tailwinds. Good management and execution capability now it remains to be seen if they can deliver in the coming years.

Niche KPO company EClerx has been a holding for sometime, and will continue to be as long as earnings growth is decent. Tata Elxsi also is a holding and seems to have earnings momentum.

There are other speciality chemical companies, which are also discussed on this forum which are pretty interesting.

I have bought companies like RBL Bank and Pru ICICI insurance early and offmarket, and believe that such companies have the potential to offer secular growth in the medium to long term.

I also buy turnaround stories (E.G. Dharamsi Morarji) though I may switch out of turnarounds faster – if they achieve what I consider as fair valuation – or if a better turnaround presents itself.

In an ideal world (time permitting) I would have liked to do more active scuttlebutt, meet emerging companies and try and buy them really young, but I have professional commitments and enjoy my work – so I am happy to apply whatever time at hand – and be a hobby investor.

My ability to grow as an investor is entirely owed to the ability of great individuals to put on paper / internet / forums like ValuePikr their learnings, experiences and thoughts – which help me evolve. My gratitude to all.

The word “inner scorecard” is inspired by writings on this philosophy. Here is text of a mail Prof. Bakshi sent to his students on Inner Scorecard v/s Outer Scorecard:

https://www.evernote.com/shard/s41/sh/299cb3b1-85ec-4744-8c55-075ad8f9f1e1/c2f2e8fc0726b8f9

Wish you all the best and much success with your investment journey.

Very Best regards,

Aniket.

Disc: Stocks discussed hereabove (other than the avoids) are held by me in my Portfolio. These are NOT buy recommendations. Please do your own homework.