The best part of Prof. Sanjay Bakshi’s role as a teacher is that he is unable to keep anything a secret. Instead, he is eager to share all his learning and knowledge with his students and with anyone else who is willing to listen.
If we listen carefully to the Prof’s talks and also read his various writings, it is possible to decode the technique that he has successfully used to consistently find winning stocks like Kitex Garments, Relaxo, Ashiana, etc etc.
In his latest talk to the students of IIM Ranchi, Prof. Bakshi has given practical examples from stocks like Pidilite, Astral, Ashiana Housing, Relaxo etc to reveal the “secret sauce” that has enabled each of these stocks to give stupendous returns to shareholders.
He summed up his entire advice in pithy words (@1.03.30):
“In the end, it boils down to this .. time is the friend of the wonderful business and enemy of the mediocre .. the simple equation is that if you combine compound interest with longevity and at a reasonable price, you have the secret sauce of making money out of securities … All the stories about brands, low cost advantages, competitive advantage, entry barriers, etc … converge to this simple equation that there is a business that enjoys a high return on capital and that it will continue to enjoy that high return for several years to come … you just have to sit back and let the business compound for a long, long time.”
The Prof repeated the golden words for emphasis: “Reasonable valuation, compound interest and longevity produces wealth.”
In addition to the lecture, the Prof has also revealed a letter that he wrote to an admirer, which also contains important pointers to the Prof’s technique. The Prof has pointed out that he only looks at stocks with a high ROE and nil/ low debt. He also indicates that he is very disciplined about the price that he is willing to pay. If the stock is quoting at a high P/E, the Prof assumes that the P/E will contract to (a maximum of) 20 within a period of (a maximum of) 10 years and then decide whether it is worth his while to buy the stock at the high P/E.
So, now the million dollar question is which are the stocks that satisfy Prof. Sanjay Bakshi’s parameters of high ROE, longevity and reasonable valuations? If you have any ideas, please do share it!