Author Archives: ZerotoBillion

So this is an attempt to structurise what I have learnt over the past four years and see if I can develop some sort of decision tree or a checklist to value a stock.

Investing is the last liberal art for a reason. You can value a stock to the last decimal and feel happy about it but the market can create its own price movement and you’re left flummoxed as to what is wrong with you. A lot of subjectivity is included and what matters the most is whether you can see a light bulb glowing and say- Aha! You must be able to visualise the future reasonably well, at an early stage,buy large enough and hold it long enough for thr story to play out.

As I say, find a reason to say no to a stock within five minutes. So let’s see what can help us in this aspect. Too much debt, capital intensive industries with no clear difference in product( construction etc) are a clear no for me. I will say no to a stock also if I can’t understand and reasonably explain a business model to someone who doesn’t have anything to do with investing. This allows me to negate a lot of ideas which can possibly block my capital.

Now the first and foremost checkpoint is if the company has a reasonable possibility to be alive after 10, if not 20 years. To find such companies, I look for companies which have been around for the past 30-50-100 years and are still going strong. HUL, Colgate, Reliance, ITC etc are all in this category. This helps me avoid the new new things which glitter a lot today but can fade in no time tomorrow.

Second, find companies which you believe can not just be alive but thrive in ten-twenty year’s time in India. This means, you’re inherently betting on a growing India and investing in companies which will grow bigger as India does. So anything which is not going to be profitable as India grows richer, eliminate all of them.

Third, if the company ticks the above two, find out if it can grow by investing more capital or less capital or basically no capital. A company like say a Bank or Larsen will definitely grow but it’s going to need a lot more capital to increase its balance sheet and to generate those profits. However, the companies which need this capital may also raise fresh equity capital leading to dilution of current equity, which means my shares are at a risk of being diluted to the extent of fresh equity raised. It’s a red flag for me. Also, if the company raises fresh debt capital and the market goes south, I might be staring at a potential bankruptcy. So a no no to me.

However, if there are companies which can grow reasonably well with India without raising fresh capital, you’re staring at a multi year multibagger story. The profits will rise but since the number of shares remain constant, the market capitalisation will only rise even taking into account a very high dividend payout. This is what I love. The brokers, the AMCs, the stock exchanges, HUL, ITC etc are all in this category and this is what I’m buying. The price movement can be anything in the meantime, but if you can hold them long enough, for 10+ years, you’re bound to be proven right.

Now comes the question of how to value a company which ticks all these boxes and if it should be bought or not. You’ve eliminated close to 80% of the market by these three checkpoints. So on a piece of paper, write out the name of a stock and dig down deep. See what can you understand about it and have the following in mind:

Sit down calmly and read the annual reports for the past three years and contemplate whether the story is getting clearer or not. If you’re still convinced, then ask yourself what according to you a similar company in US would be worth. This has helped me to calculate the runway ahead of us as the real destination of all capitalistic society is at WallStreet. So when I looked at valuations of NYSE and NASDAQ, it allowed me to believe that one fine day, if BSE can even become one tenth of what NYSE is, it can be valued North of $7 billion. When I valued ICICI securities, I looked at what Charles Schwab was doing in a quarter and realised that our brokers can do ten times more profits than today in ten years and still they’ll have more to go ahead of them.

This is how I’ve tried to build stories in my head. Once you’ve the story in your head loud and clear, you stop worrying about the price fluctuation and focus only on annual performance, that too over three year blocks. This is how conviction is built and you get the courage to hold.

PS: read Nick Sleep’s letters, available to download on Google and trust me, this man’s a genius!

How should I invest? This is one question which has my attention all the time. The more I hear biggies like Mohnish Pabrai and Guy Spier, the more clarity emerges in a cluttered mind which has all sort of crazy ideas in it.

Everyone who enters the world of serious investing goes through some phases. We all start with Ben Graham and his value investing thesis- don’t pay more than 15x earnings and 1.5 times book. This is what I did for close to two years before moving on to the other guys. I then was reading Howard Marks and basically every other thing on value investing, trying to learn from everyone from Buffett to Klarman and to who not. All of this led me to believe, erroneously though that buying and sitting on cheap companies with high assets will eventually make me rich.

I’ve been pretty passionate about investing. Thus, watching everything on YouTube available about Investing led me to the greats of Indian and Global investing. RJ, Ramesh Damani, Ramdeo Agarwal, Samir Arora and everybody else in the Indian league while Marks, Buffett and Munger and others on the global arena. I’ve heard them all, multiple times. When you’re young and new, everything looks wow. You’re drawn towards everything they say and you try and see whether you can replicate some or any of it. However, as time progresses and your portfolio reflects the real results of your actions, you realise Investing is simple but not easy.

I was possibly the only person praying for a 2020 type crash in the markets, when it was going up and above all through 2017-19( 2018 was all but a minor blip). This was more behavioral than analytical that led me to invest heavily all through the crash and call the bottom of the market and also start of the current bull run. Being contrarion is difficult. I firmly believe that the current bull run is here to stay longer than we all expect and this is not even the beginning of a mega run. However, today’s blog isn’t about the market. This is about how I’ve evolved as an Investor.

The big change in my thesis came when I made some real returns on my portfolio in early 2021. Everyone makes money in a growing market but not many sustain it through the next fall. So I was extremely worried about learning two things- how to invest in a rising market and how to avoid a washout in the next bear market. This led me to the key words of longevity and quality. If you buy companies which are going to be around here for the next ten years and will make more money than they do currently, you’re sure to be around in the markets with a higher networth.

Also, the best decision of 2021 was to read this book called Richer, Wiser and Happier by William Green. I got introduced to Nick Sleep and also a new version of Pabrai. In 2019,I’ve read Pabrai’s Dhndho Investor wherein he talked of the truest cigerette butt style of investing we call Value Investing and wasn’t impressed much. However, through him I had also heated Guy Spier who then said how buying Google or Apple was actually Value Investing. Then I was too immersed in the Grahamical philosophy to even take him seriously. A costly mistake it was on my part. So after this book, I heard Pabrai and Spier again along with Nick Sleep’s letters. This I believe is the Holy Grail of Investing.

Nick Sleep and Guy Spier have possibly influenced me the most wherein the two talk of almost two different yet similar kind of investing. Nick talks of understanding the vision of a company early and buying big enough to make a difference in portfolio while Spier talks of buying companies which are going to be around for a hundred years and sitting tight atop them. Both of them have a monk like existence , Nick more of a hermit than anyone else( not one Youtube interview I could find). Also, Nick hates diversification and portfolio sizing which I agree with. If you want to have outsized returns, you must be able to withstand outsized drops in your portfolio valuations in the meantime or else you’ll make stupid decisions. He has held Amazon from the real price at around $20, all the way to $3600! That’s balls! Also, it is 70%of his portfolio. Now how many of us are ready for anything like that.

So here’s what I’m trying to do with the portfolio. Most of my portfolio is in a handful of stocks which I believe are going to grow very, very big five years from now without requiring any fresh capital, thus not diluting equity. Thus my portfolio swings wildly both ways but I’m not worried until 2025.( I’ve held them for three years already and have promised myself to not touch them for next three, easier said than done). Also, one half is in companies which are already pretty large, the gold plated companies I call them, which are serving such simple needs in human lives that they cannot be thought of going away in the next ten-twenty-fifty years. And no, I don’t subscribe to that guy Mukerjee who’s main job is to own whatever is going up and intellectualise it on CNBC.

Holding companies is a game of patience. Most of the people around you are not even trying to hold anything for one year. So once you start to play a game with a longer horizon, you’re at an incredible advantage to everybody around you. If you can invest something with a vision of seven years, you’re a pseduo-promoter. The price may go anywhere in the meantime while the value will grow over time. I may do worse than an index but it doesn’t matter. I’m not playing the game everyone else is. I’m not trying to beat an index or look good on TV. I am trying to invest in a way not many do these days. The returns, well, will take care of themselves.

I guess I’m the only one in my circle who’s convinced that what we have seen in the markets in the last one year is nothing and a mega Bull Market is still in it’s infancy. This viewpoint was also voiced by the great RJ in his latest interview and let’s see why!

A Bull Market is a period of prosperity,joy and riches. It’s a period where outsized gains are made by the believers and by the time it’s over, there is a significant difference in networth of the ones who benefited vis-a-vis the doubting Thomases. RJ went from a crore to 100crore in 1992, and so did Ramdeo Agarwal who went from nothing to 30crores in the same period. Companies worth next to nothing became household names and a new breed of investors made mark in the markets. So did the 2003-07 market which made an entire new set of India Bulls very, very rich. RJ became the legend he is while Ramesh Damani, Ramdeo Agarwal and all others turned everything they touched into Gold. Moral of the story is- a Bull Market is extremely beneficial to your networth.

So what’s happening currently. People who made money are doubting the sustainability of this run, the guys looking at economy are out of the market and every Tom dick and his brother are predicting Market topping out, not tomorrow but yesterday. Newspaper headlines, Twitter etc is filled with news of imminent crash and everyday when the market falls, people sigh a sense of relief. This is the typical syndrome of second stage of the Bull Market- Skepticism.

Bull Market climbs the wall of worry at every stage. Even from the absolute bottom, we’re only up 2x on an index level. if we study the previous markets, every mega run ends in 4-10x on the index level in two-five years. Our Sensex went from 700-4500 in two years in 1990-92 and from 4000-20000 between 2003-07. The market I believe we’re going to replicate most closely is the Sensex run from 2003-07 and the American great run of 1980s when Dow went from 1000-11000 before topping out in 2000! There are eerie similarities between then and now.

1980s was preceded by horrible times in America. High inflation, Oil shortage, recession of 1970s had all but predicted the death of equities( an eponymous article came out in Business Week in 1979!!!) Cut to 2002-03 in India- Kargil war, three years of failed monsoon and severe market correction. Sensex never crossed it’s high of 4500 made all the way back in 1994! Everyone had given up on Stocks! The markets and economy made simultaneous bottom. What followed was the glorious bull run which led to multi years of prosperity and riches. US won the cold war while India went from a third world country to a Trillion Dollar economy!

Coming back to 2021, India! COVID-19 killed the growth story, markets collapsed and people ran for cover. Headlines still predict the third wave and people would rather want the markets at 10000 Nifty than 20k Nifty! Come-on guys, history rhymes and is making all the noises to grab this opportunity and change your lives. People are making money and still doubting it. The 🐂 is still a young calf! We’ll see this grow into a multi year mega run which can propel nifty to 25-30k( maybe more) before topping out.

Just a few examples. Bajaj Finance was available less than 200 ten years ago and is up 30x from there. TTK prestige is up 15x, Nestle is up 6x, Eicher went 15x before correction. So if you would have listened to economists and experts in 2009, you’d have certainly not bought any of these. Ask yourself, would you have bought Bajaj Finance at 500 after it had doubled in three months? The answer is No. You’d have said, I’ve seen it at 300, and I’ll again buy it thereabouts. So you’d have seen it crossing 800,1000,3000 and all the way to 6000!

Now come back to BSE. It crossed 1200 for the first time in its history this month. People who’ve seen it double in three months want it at 500. It might go there but it might also double from here before correcting 40%. That will also mean it’ll be 1500! I don’t know when it’ll top out. People have been predicting Amazon’s top for 10 years. It’s nonsense! It may or may not happen but by the time it does, you’d be so poor to even think of buying.

A 🐂 run is always followed by a 🐻 market. However, if something goes up 10x and corrects 40%, it’s still up 6x! That’s the point most are missing. Nifty can very well correct 40% someday, but what if it goes up 3x from here before that? Think about it!

In the midst of the bull market which we are in, it’s time for me to share some new insights which I have gained recently. This mostly is a mix from the last two books which I have read- Richer, Wiser, Happier and Masterclass with SuperInvestors.

If you study the successful investors across market cycles, there are certain similarities they all share. One, within the first five-seven years of their career, they rode a couple of stocks which went all the way up 10-50-100x and become financially independent. Rakesh Jhunjhunwala had Sesa Goa and Madhu Dandavate budget while Ramesh Damani had Infosys and Radhakishan Damani held HDFC Bank at 40rs! Secondly, once they identified a stock and the price went up, they increased their holdings at periodic intervals to multiply the eventual gains which created enormous wealth for them. And third, they held these stocks through thick and thin and didn’t panic their way out at the worst instance. Let’s look at it closely.

We have talked about multiple mistakes people do to lose money. This blog is dedicated to discern mistakes which Investors do when they’re in the money, i.e.when their stocks go up. There are three types of investors. At the bottom of pyramid is typical retail- they sell half their shares when it doubles and say I have recovered my cost and the rest of the stocks are for free. I won’t care even if it goes to zero. Well, this is the dumbest thing one does in the markets while making money.

There is a deep concept which few of us understand. This is, color of the money is same. What it means is that every penny in your bank account has equal purchasing power. Money doesn’t care whether you have won it in a lottery, or your mother gave it for your birthday or you’ve worked hard to get it as a salary. This is a Eureka moment once you realise what difference it makes to the way you think of money. So the shares which you think are worth zero are actually potential capital for you to invest somewhere else and compound it even further.

I’ll give you an example. I bought NALCO at average of 40 and sold it on the way up at an average of close to 72-75. Now my friends also did the same but he sold half his shares at close to 80 and is holding the remaining half saying it’s for free. I reinvested the money in ISEC and BSE and that money is up 50-60%. This means I have sold NALCO effectively at close to 120 as the 75 has also gone up 60%. This is the magic of consistent compounding.Today NALCO is at 88. So my rate of return has moved higher significantly.

Luckily for my friend, nalco has also gone up. Imagine the pain when he could have sold it for 85 but didn’t and now the price is 50 and he can’t sell! This is a classic case of destroying compounding.

The second type of investors are those who buy low and ride all the way up while basking in glory as their stock has turned multibagger. They gain lots of praise from friends, broker and colleagues. However, as they are too attached to their low buying price, they don’t add anymore and hold insignificant quantities and thus, don’t generate the wealth which was for them to take. Let’s take an example. You bought 100 BSE at 500 and it’s now 1200. You’ve turned 50k into 1.2l. congratulations. However, your absolute gain is only 70k. Now imagine you added on the way up and have 500 shares at and average of 800. So you turned 4l into 6l. Your absolute gain is 2l. Now let’s say you hold 1000shares at average of 900. Even then, your 9l has become 12l and your absolute wealth is higher! This is the key to riches. It doesn’t matter what you make in percentage terms, what matters is the absolute money you’ve made.

Look at RJ. He bought 1cr Tata Motors last year when the price was close to 120. He also bought 27.5lakh shares in this year March quarter when the price was close to 325. So even if his average has gone up, the real money he has made has also gone up significantly.

Third kind of investors are the genius ones. They hold stocks which they believe are worth much more than the price they’re paying now, add all the way up and aren’t rattled with a 40-60% price cut. RJ must have held Titan through multilple 70% price drops in the 23 years he has held the stock. This also means now his holding in Titan itself is worth over $ 1Billion. This is the magic of long term compounding.

So identify the mistakes you have been making and correct them in time. Otherwise, you’ll remain where you are and see other people getting rich!

There’s immense buzz around all of us with regard to Zomato’s ongoing public issue and hence, the blog is here.

There are a few aspects my friends have gotten excited about. One is that the price band is very cheap at 72-76 per share. This makes them believe that it’s a good bet. Second, with Amazon and Google valued at what they are, no-one wants to be left behind in this potential get rich quick IPO.

Firstly, price per share is a simple yet stupid way to identify if a share is cheap or not. The key is market capitalisation. Different companies have different equity capital based on which they issue total number of shares. BSE has an equity capital of 9 crores, made up of 4.5 crores shares of rs 2 each while IOC has an equity capital of 10000 crores approx, made up of 1000 crore shares of rs 10 each. So the per share value will signify different level of ownership. Holding 1000shares of BSE will obviously give you more ownership than holding 1000 shares of IOC.

Zomato is raising close to 9375 crores at a market cap of close to 60000crores. So at 72rs per share, it is issuing close to 833 crores shares and thus, you can calculate your ownership levels. So, never judge a company by price of its share. Dig deeper and look for balance sheet.

Second, it’s a loss making machine. To generate 2000crore in sales, it needs 2850 crores in capital. This is insane. The company says it is not looking to get profitable anytime over next 5-10 years. This basically means, it’s selling something worth rs 2850 for rs 2000, by funding the gap between the two by somebody’s money. That someone used to be venture capitalist until the ipo and now it’s going to be your money! So choose yourself if you want to forever fund a loss making venture with no returns except how Bitcoin works- the hope that it will go up in price and you can sell it to someone more dumb. Well, like I say, that is not investing. It’s called speculation.

For 2000 crores of sales, HDFCAMC generates over 1600 crores of profit( ebitda) and 1200 crores of net profit. That’s a business I’d be happy to own. So, with no profits in sight, I don’t think investors can see anything but losses all over them while the promoters bask in glory and media coverage.

So does this mean all potential startups are bad? Nopes. Look for businesses catering to niche groups which can later be scaled up significantly and need no discounts to grind growth. There is no difference between swiggy, Zomato or dunzo. A customer will order from whichever app offering more discount. I do that myself. So these businesses are like airline companies. They have growth, scalability and repeat customers. They however are best wealth destroyers. They never make sustained profits, if they make any.

So choose your companies well. Find out why do you want to own what you do. And if it’s just a long bet on- oh this might be the next Amazon, god bless you.

There’s one more significant problem public investors are going to face with such companies. The private equity has already bought them at infancy and have made 100x their money before dumping them onto public with no potential growth in sight. So with 60000 crores market cap, do you really believe Zomato can double without any profits? The analogy with Infosys or Amazon is wrong as they never raised money from private equity. Infosys was valued at 30 crores at its ipo in 1992 and now is worth over 4lakh crores.

So I’m not looking to order Zomato anytime soon, unless it’s from a restaurant I like! Rest, it’s your money!!

This comes a day after a sudden drop in Tata Motors shares, which saw a move from 358 to 310 in less than an hour, leaving most of us baffled for want of an explanation. Market participants traced this move to a press release from the company citing acute shortage of semiconductor chips, which is likely to hamper production for the upcoming quarter as well.

Let’s first see what does this all mean and why the title is apt for today’s blog. Whenever there is a sudden move on either sides, market experts/commentators on TV and Twitter want to justify this based on something, in order to explain to us investors as to why the market did what it did. Most of the time these explanations are meaningless at worst and an intellectualised ignorant commentary at best. Afterall, if the experts can’t tell you in 5 minutes as to why Tata Motors is worth 15000 crore less in one hour, what good are they doing to mankind. Hence, the first step is to not buy into these arguments.

Secondly, and I like to quote Samir Arora here, which is while making decisions in the event of such a sharp move, you’re best served with logic. If at 1PM, TaMo is trading at 358 and you’re happy to own it, will you be sad to own it at 310 at 2PM? Investing don’t work in this fashion. So the second step is to dig out the likely explanation as provided by market analysts and expose it to a bit of logic. The press release said there is an ongoing shortage of semiconductor chips, which is likely to worsen through the next quarter but will subside over the next one year. The company has possibly lost 30000 vehicles it could have produced.

If you just googled shortage of semiconductor chips, you’d have found that similar press releases have been issued by BMW, Mercedes, Volkswagen, and even Nissan and Suzuki. So in this scenario, the entire market has shrunk affecting all players equitably. Hence, it is not a company specific issue. Now if you believe that due to this shortage,you want to sell TaMo, you’d rather sell all auto stocks as all of them will be equally affected.

However, if you have read the press release carefully, it said there is a pending demand for over 110,000 vehicles with the company and due to availablity of inventory with dealers, they’re likely to report higher sales numbers going forward. And if you think you still want to sell, go ahead and dump your stock.

Doing your own research is essential to develop conviction in the story of stocks you own. Unless you’re sure of what you’re buying and for what reasons are you buying, you’ll forever be unsure of your holdings and make wrong investing decisions all the time. You can outsource research, but you can’t outsource conviction. Buying and holding a stock for three five seven years takes a lot of guts and if you’re so nervous buy a ten percent drop in a day, you’re best served by not owning any stocks.

Ask yourself logically, is it possible for a business to be worth Ten Thousand crores less in an hour and in case it is, and in case you’re already holding the stock, doesn’t it mean it’s an opportunity to add to what you already have? Or is it the first sign of an incipient stress which means you should get out fast.

We’re all too familiar with value traps, wherein a lot of people bought the dip, all the way to zero. DHFL, RCap, Jet Airways, Yes Bank are all fresh in our memories. Once you’ve burnt your hands in something like these, you’re very wary of buying anything on sale, again. This is why I said, unless you’ve done the hard work, developed conviction in a stock, you’ll never be able to differentiate between the two.

In order to ride a multibagger, you should be willing to hold through significant drops in stock prices. Amazon, Google, Reliance have all seen their prices correct 50-70% not once but on multiple occasions in their listing journeys. If you were the one to sell at the wrong point, you’d have missed the biggest wealth creators in the history. This is where non-financial research of a stock is important.

If you read the balance sheet, income and cash flow statements, you’ll only see in the rear-view mirror. Investing, however, is buying into the future. You should be able to visualise things three five years into the future and see if your stock fits the bill once India changes, economy grows, technologies change the way we live etc. If you can see and visualise a story that way, most of the times you’ll see it trading at cheap as the market is still not valuing it beyond the next three months. EPS estimates can only capture as much. They can never capture the tailwind a stock can have wherein it’s possible to grow 100% in a year for multiple years, if not decades.

PS: There’s a fantastic book- Richer, Wiser, Happier by William Green which has been published recently. I recommend it to all of you as it’s going to take you places you can’t even imagine that they exist. Especially, read chapter 6 on a couple of investors based in UK, Nick and Zack who hold over a couple of billions of dollars each in their individual accounts. Astonishingly, Nick owns only three stocks while Zack holds six. And they have rode Amazon for over 18 years, with all the price drops and everything in between. And what does that mean- Amazon has grown over 100 times in past 18 years, making both of these gentlemen billionaires.

This is the power of vision and courage. Rest is all gibberish.

This is pretty turbulent time for first time investors. Coming off from the massive correction of last year, most of them have made big returns in whatever they bought last summer. Making money in a Bear Market is easy, especially for someone who had the temperament to buy fear. However, if this is the first bull market of your life, you’d agree that to buy right is more important than anything else.

When you’re trying to make a name for yourself in the world of investing, and have a vision to make loads of money, all you need is one Bull Market at the beginning of your career where you can significantly improve your level of capital.

I can tell you from my experience, the feeling of getting that one big idea, that one stock which you’ve discovered and the market doesn’t yet price fully; the stock which you’ve put your money into and are getting excited about as the business improves, the feeling of being right two years from now when the stock doubles or triples is not something one can express or explain. It can only be experienced.

When you’re working hard to make it big, you do a lot of work in the dark. You read everything you can about the markets, investing, big investors, stocks, companies and try and frame your own processes and valuation models as to what do you believe is a good bet to make. It’s funny because doesn’t matter what you do or what you miss, a lot of luck is in play. You can be sure shot about everything and still the stock turns out to be a dud. Or you can simply get lucky and make a killing in the wierdest bet you’ve made.

So here’s what I believe one should do. You’ve to develop a method to control your investments and stick to them patiently. In the world of investing, process is all you can control, the outcome is beyond anybody’s grasp. So when you get disciplined about the way you’ll pick stocks, your failure rate will go down and you’ll make fewer mistakes. Charlie Munger famously says that all he tries to do is to avoid doing stupid things than to be smart.

You know if you positively compound your money even at low rates, in twenty years you’ll end up being very rich. The key is to avoid multiplying the whole thing by too many negatives or zeroes. That way, you money will only add up, not goes down every other year. This is a simple method which works wonders over long periods of time.

Developing an investment philosophy takes years in the making. The more you learn, the more you realise that you understand a lot less than you think you do. Also, it’s not one size fits all, universal laws of gravity which you can apply in isolation of everything else and it still would work. Investing is more of an art than science. Hence, a lot of ideas you’ve which will work depends on the sheer gut feeling you develop over time, but can’t put to words or explain without sounding confused.

When you’ve an idea you think is a big thing, a bulb goes up in your head. You know that it’s going to go up not twice but ten fifteen times and now you can’t find out why. You look up for research reports and there’s not much available. People in the market don’t think it’s a good bet but you somehow are convinced that it’s going to go up considerably. It’s all in your gut that you build positions. Something like this happened to me with BSE and ICICI Securities. I had positions when they weren’t the favorites, and the Market suddenly discovers them and they’re all over the place.

However, the market is a very bad judge of long term bets. Nobody could have foreseen if HUL will go up 10x in ten years if they had listened to the guys on tv but slow yet steady, it did go up 10x in the past ten odd years.

There’s an old video of Ramdeo Agarwal in which he explained how he bought Eicher and Nestle, at almost 25 times earning and still made ten times his money. There are some stocks which can grow their earnings faster than whatever the market believes they can, and generally at the beginning of this era, they’re trading pretty cheap to modest multiples. Nestle was available at 25-30 times earnings in 2009-10. No value guy touched it. However, if you can visualise correctly that the business will grow faster than expected, both the Price/Earnings and the Earnings will grow faster than the market and thus, the share price will go up 5x-10x in five six years.

So I believe some of these non lending financial companies can grow their profits much faster than the most liberal estimates of the market and since they’re due for P/E expansion, they can go up significantly.

Just do a small research for yourself. Google all stocks in financial sector, banks, nbfcs, brokers, AMCs etc. See what their profit margins are and the valuations they’re trading at. Now ask yourself one question. In five years, is it possible for these companies ( non lending financials) to grow their businesses two-three times, assuming more Indians come to the markets and invest at a higher rate then they currently do. In that case, at their profits margins, what is the most conservative estimates of their net profits be like. If that number is anywhere close to 2 or more, you’re looking at a three bagger atleast as once the growth kicks in, the company trading at 15 times earnings also gets treated better and trades at a higher multiple. That’s how you know what can happen if you sit tight on these companies.

If you don’t believe what I say, look at the share charts of some of the prominent asset management companies of the USA, like Blackrock, Blckstone, T Rowe Price etc and their earnings profile. They’ll look eerie similar to some of our companies. That’s a trick to check if your judgements are directionally right or not.

Whether or not you double in three four years only time will tell. Till then, all you can control is the process through which you invest. Also, the constant goosebumps is an added feature!

The times is a changing! In less than 18 months, markets have gone from lifetime highs to multi year lows and back to lifetime highs. Investor sentiment has also seen a rollercoaster ride from euphoric in January 2020 to despondency in March-April 2020 to back to square one today. One question which puzzles most of us today is that Markets have moved up a lot. Is it a good time to invest? I mean, it’s trading at lifetime highs, how high can it go?

If you believed that the markets can’t go up further after making fresh life highs and a correction is imminent, you’re likely to have missed most of the bull markets in the history of this world. Dow made a fresh record high in 1981 after 16 years and didn’t stop until the next 19 years when it topped out at almost 11000plus! Our Sensex topped out at 4500 after the Harshad Mehta bull run in 1990s and crossed this level only in early 2000s, and went on to hit 20000 by end of 2007. So are you sure it can’t go up any further?

I have another point to make. That the market is trading at lifetime highs is only reflective of what has happened in the past. However, this is not the highest this market will trade in my lifetime. You’ll see multiple higher highs over the next thirty years and looking back, not buying when Nifty was 16000 thinking the market is expensive will look like a joke, a very costly one rather.

We’re all making investments for the future. If I’m buying Reliance at 2200, I’m not buying it because it has done everything it could and will be liquidated soon, but because I believe there is a fair chance it’ll generate higher profits over the next five ten years and its share price will go up significantly from what it’s trading at today. Just because people on TV are shouting markets should fall now doesn’t make it a case for it to happen.

There are two reasons I believe why you should remain fully invested at this point. One, after 17-18 years, Indian markets and economy have bottomed out simultaneously in 2020. This looks like beginning of a long capex- cycle when our corporates will expand, with higher profits leading to higher stock prices and higher GDP leading to expansion of the pie. A bigger GDP will lead to further consumption and investments and thus, will lead to a virtuous cycle for atleast a few years.

Behaviourally speaking, people are still sceptic about this bull market, leading me to believe that there is no over heating, yet. Hence, a big crash isn’t imminent

If this is indeed the mother of all bull markets in India, and you sell out early waiting for a correction which doesn’t happen for the next three years, you’re likely to either hold out on cash for far too long or will reenter at much higher levels, losing out on the intermittent gains. The worst thing you can do in a bull market is to sell early and miss on the big gains. Sensex went up 5x in 4 years in 2003-07. If you were smart enough to sell out after the first double, you’d have seen the market double from there and lost all the gains which were yours to take.

Second, we are all in our twenties or early thirties. We have been in the market for under five years and still have good 20-25 years to go in our careers. As India grows, some of the companies now making 1000 crores in a year will make 5000 crores in a quarter and their share prices will go up 100-200x in our lifetimes. ICICI Securities has made 1000 crores profits last year( it’s highest ever) while Charles Schwab, a global giant broker in USA made over 10000 crores in a quarter! Imagine the kind of money these companies will make, if they survive all the way. ITC cigarette profits are close to 10000 crores annually while Philip Morris made 60000crores last year. The entire market will grow multiple times in the next ten twenty years, and thus will rise the stock prices.

I firmly believe that if you can ideate how India will be in 2025-2030 and beyond and which companies will be alive and growing then, buy them today as much as you can and sit tight on them. Don’t look at the price for next three years( easier said than done), so atleast make a commitment to not sell till end of 2025. Even if half of what I write here turns out to be true, you’d be rich beyond your wildest dreams. This is not your lifetime high, only for the guy who’s quitting today. Invest big on India, it always works!

If you’re trying to build a portfolio of ten-fifteen stocks from over two thousand listed stocks available in India, the art of saying no is essential. Investing is the art of saying no to a stock in as little time as possible. This allows you to spend your time researching the stocks which matter to your portfolio.

Whenever you come across a stock, either on TV/Twitter or through a colleague in office, you must quickly find atleast one reason within ten seconds to not buy it. That’s it. If you are clear within the first few seconds that you have atleast one reason to not buy it, don’t buy it even if it’s the most favourite stock of the season. The reasons can be anything from I hate the product to I don’t know what it does to I don’t want to be in that sector etc. This is a very strong tool which decreases the chance of making a mistake.

Let me illustrate some stocks and why I don’t buy them. My favourite is Bajaj Finance. I remember walking in a Levi’s store and seeing a Bajaj Finance emi option there to buy jeans. I was stunned. This company lends money to people who can’t buy a two thousand rupees jeans on cash and allow them to buy ten thousand rupees worth of clothes on credit in five EMI. This is height of subprime. Now let’s dig it further. Somebody who is buying jeans on EMI is certainly also buying another pair of shoes and the latest iPhone on EMI and is also spending a lot of time chilling in cafe’s he certainly can’t afford without this easy access to credit. So one fine day when his accumulated EMI will be larger than his net take-home salary and he can’t pay his multiple credit cards bill, even using Cred, he will have to make a default on payment. The amount of money lent to this kind of junk borrowers is pushing Bajaj Finance and it’s look-alike’s credit growth and thus share prices to moon.

However, I’m not sure how these people are still not defaulting fifteen months into lockdown like situation. Last year, the government walked in and prevented NPA recognition but the same is not available this year. So somewhere down the line, these companies are sitting on NPA time bombs, waiting to blow up. Hence, when the day of judgement is here, I’m sure all these fancy subprime lenders will bite the dust. This is so 2008 like to my comfort. Hence, even if Bajaj Finance goes to 1lakh a share, I don’t buy it.

Coming to the chemical names. These companies have caught Investor frenzy over the last one year or so on the basis of anti China syndrome. However, as a professionally qualified Chemical Engineer who never knew anyone in his college who wanted to work for any of these companies as chemical engineer, I don’t even look at these shares. For us, they are dud businesses kept artificially up due to a special liking by certain MF+PMS who have cornered the float and are driving up the prices to sell it to retail later. They are clear avoid to me.

Not liking to work for a company equals not wanting to buy it’s shares has made me not buy indian IT stocks as well. I have certainly missed out on a lot of good steady earnings play but as I said, all you have to buy is 10-15 companies and even after not holding a single pharma/IT/Chemical/NBFC/Private Banks, I’m still able to remain fully invested and make decent returns on my money and thus remain pretty content.

One recent frenzy is a prime example of how pseudo-quality can be dangerous. The Adani group stocks have rocketed to the stratosphere in the past twelve months and a lot of MF are now waking up to buy them at any price to shore up NAVs. However, the test of smell says a lot of junk is being sold as gold. Some of the companies especially Adani Green have business models with all major historic peers in Bankruptcy. Remember Suzlon? Now they’re operating in Renewable segments with promise of the land of honey and milk and 72 virgins in future with no present returns justifying the valuations. Any major private player who has ventured in power, especially renewable energy has gone bankrupt in India. RPower, Suzlon are prime examples. I see no reason why Adani Green will be able to recover all the money it’s supposed to be investing in its upcoming power plants. Also, the rise of this group rhymes a lot with ADAG group in 2006-08 when RCom became a part of Sensex within three months of listing and RInfra, RCapital, RPower all promised to conquer India. The guy was also the richest man in India,albeit briefly. History rhymes, a lot! Within five years of being a part of Nifty and Sensex, RCom, RInfra, RCapital and every other group company went bankrupt and the guy almost went to Jail for not paying money back.

Once you begin to say no to stocks quickly, you’ll have more time to study and think about the companies you wish to own or already have in your portfolio. You should be disciplined about the businesses you want to own. This let’s the noise die down and whenever you’re staring at a rising stock on Twitter, you know if it’s for real or just another shipwreck, waiting to happen.

We understand that over a period of twenty years, equity markets can give returns of 12-15% returns compounded annually, on an average. This is the accepted wisdom and is the starting point of stock market investments. However, luck is more powerful than most of us think. If you spend enough time in the markets, and are on the right side of atleast one good bull market, your life will change forever, in a way you can’t even imagine.

Most of the returns generated by stocks over long term are actually gained over a very short period of time. Stocks go up two-three times in a matter of days and spend a long time there in a range of +/- 10%. For example, Tata Motors went up 100% from 180 to 360 in about a month in January 2021 and hasn’t crossed it’s then high until today. So if you were not invested in TaMo for just a month, your returns would have been next to zero over a three year period. This explains another maxim- time in the market is more important than timing the market.

Why a Bull Market is so powerful a tool to make you rich can be best illustrated by some of the old videos available on YouTube featuring journeys of Rakesh Jhunjhunwala, Ramdeo Agrwal and other big shots who made a big killing in Harshad Mehta bull run which catapulted them to a significantly higher pedestals of investing capital and thus, into the big leagues.

I’m a firm believer in the fact that making low percentage returns on big capital are more important than making high percentage returns on small capital as the absolute returns on the former are much larger. The biggest impediment individual retail investors face vis a vis professional investors is stark difference in availability of capital. A guy investing five ten lakhs in a very good year and making twenty percent will forever be poor than a guy with five crore capital making ten percent,and that too by a margin.

Investing is not about beating an index. It’s about making enough capital to change your life. To be able to afford your life’s needs and aspirations and the ability to retire at 40 with enough to live a prosperous life is the real objective of investing. Unless you grow your capital over half a million dollars, you’ll forever be stuck in middle class, working five days a week, growing obese and bald over time, claiming bills from office to support your lifestyle, which relative to others is declining in value.

Rakesh Jhunjhunwala saw his capital went up from 2 crores in 1990 to 50 crores in 18 months while Ramdeo Agarwal went from basically nothing much to 30 crores in 4 years ending 1993. This is the real power of a bull market. It can change your life, once and for all. The rules of the game doesn’t change, but the game itself changes for you. A sustained growth period can shoot up your investing capital 5-10 times in a few years which will help you achieve the biggest dream we all have- financial independence.

All of us working professionals are financially secure. We have enough cash flows to sustain upper middle class lives, a house and a car,etc. However, we are renting our lives to our employers to get that paycheck. We aren’t financially independent. Being wealthy allows you to do what you want, when you want,with whom you want and for howsoever long you want. Successful investing is the journey from financial security to being wealthy, via financial independence. So unless you’re financially independent, you’ll not dream of wealth and thus never achieve it.

Being wealthy is not a zero sum game. It’s not like only one of ten or hundred people can be wealthy. In a growing market like India, you’ll see a lot more millionaires in next ten years than you have seen in the past ten years. The country will see it’s GDP going up from $3trillion to $5 trillion in ten years or less. This incremental wealth of $2 trillion will be reflected not only in real economy, but also in stocks. The scale of profits big companies will make in a few years will be outlandish. Stock prices of those companies can grow 10-50-100x and if you’re on the right side of this rising tide, the end results will be extremely rewarding.

India is at the cusp of a historic transformation. This is a growing bull market which, if my hunch is right, still in its infancy. The last major bull market took Sensex from 4000 to 20000. We’re at 52000. Even if we double from here in three years, we’ll see an India we can’t even imagine. The portfolios will grow not just twice but 3-5-10 times and that is the opportunity we’re staring at. Don’t listen to the perma-pessimists, the India bashers. They’ve foreign fundings, you don’t. You’ll need to grow your own capital. The big economists will keep beating us down and they’ll always never be rich. This is oppertunity of a lifetime. Don’t lose it. The time to invest is not tomorrow, but yesterday!