Sunday Musings!

I’ve been torn to decide as to which stock does I really love as the third best idea. The first two are clearly BSE and TaMo and BSE wins hands down for it was a micro cap when I began to invest and it still is a small cap. My bet on TaMo can’t be said to have discovered the stock for it has been the part of Sensex ever since the inception of Sensex!

There are some investors who pride themselves on the idea of having discovered a stock and they come on TV and keep repeating the fact that they’re the ones who have discovered HDFC Bank and Nestles and Eicher and Page. I mean seriously? How can you discover a publicly listed company! That idea is a formality in self-aggrandisement. Just watch TV and people, especially the Saurabh Mukerjee types come on TV and say they have discovered the beauty of a Nestle or an Astral. It works like this- some people do take a contra bet and buy distressed stocks or the out of favour large caps or unloved small caps. They make the first double or triple for the stock does well on its merits. The Stock then starts to appear on every screener and charts as it beats the markets. Then the momentum players get in and so does these PMS walas who buy when the tide is rising and then hype the stocks as the solution to AIDS!

The stock, if managed well, does well and then the mutual funds have to jump in. I can’t stop repeating that most, if not all of these fund managers are just momentum hunters who will say anything to justify their buying and sound intelligent.

Ramdeo Agarwal was talking how he only buys quality stocks like Nestle Eicher in 2017-19 and how he had held quality stocks for decades until Zomato happened. He hyped zomato in 2021 and dissed it in 2022 publicly and is back to singing praises as the stock has moved up! Such buffet like geniuses I must say.

Samir Arora was all about only buying HDFC Bank and Bajaj Finance and how he has beaten every index since inception and he never touches a PSU until SBI began to outperform the market and he quickly discovered the greatness of SBI as his top holding! He couldn’t stop dissent PSUs in 2017-20 until he realised HPCL was the stock of the season and I heard him yesterday that it also pays out hefty dividends. I mean wasn’t this the same reason why they criticised the capital allocation policy of PSU! so basically, don’t trust anyone who’s job is to sell you the idea of being rich when in reality he’s living off the commision of your investments in his funds.

So coming back to the idea of inventing ideas. There is no such thing as the first prize for discovering a stock as it doesn’t pay anything. The real prize or the only prize in holding on to the stock for the longest possible time and making the most money off it. There aren’t many people who can claim to discover Apple or Alphabet or Nvidia but there are guys who made their millions holding on to them.

I’m not too interested in self praise but I guess I have been able to discover my style of stock picking. I love a stock when it’s out of favour- be it ITC/HDFC AMC/TaMo or even Oracle Financial. It pays to look at companies when nobody wants to buy them and you literally have to pay people to buy them. Nobody wanted to hear about Colgate till July this year for it had done nothing for years. It’s up 60% this year. Oracle Financial was a dud for a decade but is up 50% since March lows.

ITC has been a double while TaMo is up a whopping 13x from COVID lows. I’ve said this before that even Rakesh Jhunjhunwala, the greatest Indian investor and possibly one of the best investors globally of all times too bought stake in TaMo around and that time for the same reason- TaMo was selling vehicles for over ₹3 lakh crore but had a market cap of less than 25k crore! It just didn’t add up. Today, the market cap is ₹2.99 lakh crore and like I have been saying, it will be a momentous occasion when it crosses Maruti’s market cap and become the most valuable automobile company in India. The distance is hardly 15k crore, or less than 5% move in stock price.

So now finally coming back to my question of the third best stock idea- I guess it has to be HDFC AMC. And no prizes for discovering as it is a no brainier cash minting machine. Its operating profit is over 76% and net profit margin of over 61%! How is it even legal! The stock hasn’t done anything on a five year basis but I believe as the market grows, it will be one of the companies who’s shares will be worth their weights truly in gold over the next decade!