VP CHINTAN BAITHAK GOA 2016: Experience Sharing

Accelerated Learning
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Apologies for the delay!

Excellent and very detailed transcription by Aman!
It was truly an enriching experience, and I am definitely gratified for the opportunity to participate despite my initial inhibitions of being a greenhorn and not yet deserving of a seat at the table of stalwarts!
Thanks to Donald for being patient and helping to realise the importance of a small-time guy like me :slight_smile:

Day 1: It was all about getting to know the people behind the online avatars. What stood out was the humility of the seniors and enthusiasm of fellow juniors. The introductory sessions from the new members in the first half showed the variety of investing styles and encapsulated the adage that “one size does not fit all”.
The second half, brought out the democracy within the community as we discussed various ways to improve the forum for members, and raise the quality even further. Everyone had a say, senior and junior members and we were able to come up with certain measures to achieve the stated aim.

Day 2:
Donald started the day with a big bang - “Self-Reinforcing Models”. The biggest takeaway for me from this presentation was to understand the “CAUSAL relationship between the MOVING parts”. This definitely makes me rethink how I go about understanding a business, not just with reference to a “self-reinforcing” virtuous circle, but with all companies.
The opportunity to present an idea and get quality feedback was invaluable and is probably once in a lifetime opportunity (especially if I do not make the cut next year as Donald has forewarned!). As with others, the question of Terminal Value for the business stumped me. But more importantly, the chance to discuss further on it in informal sessions with the Gurus such as over meals was just as insightful and a window into their thought processes.

Insights from Gurus:

  • Crossing the Chasm depends on the weakest vulnerabilities and how they can be overcome.
  • Finance Companies: Culture of PRUDENCE is paramount.
  • Opportunity size alone is not good enough. Company’s execution ability to capitalise on it is what counts in the end.
  • Investing Philosophies can be broken down into 2 types:
  • Mean Reversion: Graham and Dodd plays. Timing is crucial.
  • Momentum: NOT to be considered as a dirty word (due to connotation with Technicals). Think in terms of fundamental momentum. Rather than do 50x, do 6x by averaging UP.

  • Morality of a business: One should ask the question - “Will I buy this product/service as a customer?” If a business is not good for society, it is ultimately a BAD business. An important point in the context of longevity and disruption(more susceptible to substitution).

  • Position Sizing: No matter how confident u are about the company, one should always manage risk by ensuring no stock goes beyond a threshold (which differs individually)

  • Age as Context matters. What someone does when they are young would not do the same thing when they are older.

Day 3:
An excellent session by Abhishek and Anil on “Failure Patterns”, following on the session by Krishnaraj on Accounting Red Flags. It was also the day where the sessions were interlaced with debates which were sometimes hotly contested but it is through these debates that one gains the most knowledge as you see the gears and levers in the mind working as the seniors and Gurus put forth their arguments.
It also gave me the biggest chamka moment - “Disruption” an excellent session from Prof. Bakshi. This along with Donald’s “self-reinforcing” loops are the newest toys to be added to my toolkit. Now, when I look at a business, one of the first questions I am asking is - “how liable is it to be disrupted?”
@basumallick had shared a point about very few businesses have withstood the test of time - for millennia. One which I can recall right now is liquor.

Aveek’s session on SEBI was just as fun as it was insightful and gave clarity.
Hitesh Bhai’s sharing of his experience was a bonus especially for the new members who were not there last year.

Insights from Gurus:

  • Reciprocity Principle: KARMA is a *****. Take care of your ecosystem, which includes suppliers, dealers, distributors, customers.
  • Don’t mistake a LONG cycle of 8-10 years as a secular growth phase.

Day 4:
Ayush’s session was the highlight as he shared his experiences on the journey of some of his biggest winners - Shilpa, Avanti and Poly Medicure, and how he held them for many years.
Aman’s session on Emerging Themes and Trend-spotting was very good and his presentation was an excellent collection of the possible trends in the future.

From Prof. Bakshi:
Alternate Histories: a Helpful tool to evaluate decisions by management given a different set of conditions. It really makes you ask a different set of questions and think of alternate scenarios.

I have tried to post the points which have not already been highlighted earlier in the above posts. Overall the experience exceeded an already high level of expectations and I definitely received the “value” for my money. :grinning:

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There are studies conducted on ROE in US and the conclusion is majority of companies regress towards mean which is true cost of capital. That may be due to competition etc. There are rare few companies who maintain stable ROE for very long periods of time. The only consolation for us is that for higher ROE companies even though their ROEs regress towards mean they do not actually touch it. They remain above that line. Meaning their ROE stays more than cost of capital. They remain above average but lesser variation form the Mean. But one thing that comes out clearly is ROE is not stable parameter and it varies a lot for majority of companies. Of course there are always few exceptions.

One such study with graph is given in Stephen Penman’s Financial statement analysis and valuation book. The other book Accounting for value may also contain same study if I am not mistaken.

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Goa meet was a great experience for me. It was great to meet all the VP top contributors, learning from their investment skills, knowing their thought process behind their stock picks etc. I was amazed with the thought clarity, confidence of all the newcomers. They all have immense talent and cool temperament. I see a great future ahead for them.

The Gurus shared their immense knowledge of investing. Their comments for all the stock picks was of immaculate wisdom. Their energy was immense. They shared, talked right from 9am till 2am. Their enthusiasm/modesty to learn new skills was admirable & inspirational.

I had the priviledge to make three presentations. Special thanks to Donald to inspire me to make those presentations. I thank everyone to hear me over my lengthy/boring presentations.

Key takeaways :

Never take your stock for granted – shit happens.

Look at the long term visibility, how the company makes money, is it a win-win proposition for all.

Always pay heed to possibility of disruptions.

Significance of compounding and re-investment risks.

Develop your own investment style that suits your temperament.

Learnt the importance of Mean Reversion. Significant diversion from the mean will eventually tend to move back towards the mean(though there may be some exceptions).

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@Rokrdude: Thanks for such detailed write-up.

AR reading discussion - Look at 1 part only over the years
See where they mention profitability for first time, Shopper stop 23rd page 1st time

Could you please elaborate on this point.

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Vachhani bhai,

Can you please share the presentations you made inthe chintan meeting at Goa.
thanks in advance.

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@crazymama Sure does speak a lot, when one of the “Top Contributor” thinks that he is a greenhorn and a small-time-guy.
Respect brother!! I need to grow the same attitude in me.
BTW this thread is a Goldmine. Hope I can make the cut next time (although, I have miles to go before that).

P.S.: I remember @Donald saying somewhere that criteria for the next cut would be finalised and shared with all soon. :slight_smile:

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Excellent snapshot Naman .

BUY Decisions : Did any participants had contra view on this if so why … [quote=“Naman, post:11, topic:6484”]
Buying good quality companies at a high multiple could result in decent returns over a long period of time
[/quote] and

Sell Decision : Did any participants had contra view on this if so why

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Below are my takeaways from the meeting…alot has already been covered.

Research- Got to know that many seniors read annual reports of 10-15 years and top that up with annual reports of competitors to get a better hang of business dynamics. Know the baseline information. I recently started doing this and rewards are enormous. In fact, I have temporarily stopped reading books and focusing on annual reports, concalls, RHPs etc. Our edge as investors comes from knowing our companies better than other people.
When we invest in a company and it has become a big winner, we tend to become a bit lazy. In addition to natural behavior of keeping an eye on whether the business is deteriorating or sales are slowing, we should also keenly look for whether the business is becoming STRONGER.

A lot of companies find it difficult to scale up beyond a point even when all other factors are in its favor. Beyond a certain size of about , the organization needs to develop a culture without which large scale up is not possible

In case of quality companies, market tends to develop faith and.gives them time. These stocks undergo time correction. Eg gruh. Time correction takes many ppl out but mostly at wrong time. Keep a buy list ready of such companies at time of correction.
If u are sure of longevity and quality, don’t be too clever or you will miss 100 baggers. Companies with strong DNA can find ways to grow again. If a quality story is intact and it goes to 60x valuation, trim small amounts, not sell everything. There is also the reinvestment risk…one tends to compromise on quality when the urge to deploy capital is strong. Our minds cant grasp compounding 10 years down the line…we can understand 2-3 years. HDFC is such a story. Eg i would hold page at 50 times but would sell mayur at 35x.

Understand where is the valuation gap in an investment.

Cash is a position. It has an option value. Moments of madness come on both upside and downside. Need to have money on the downside. Secular madness is when everything is flying…you should recognize this and sell 50% to get cash. When u deploy that cash at bottom u can get marvelous results. Easier said than done.

Be careful of fast growing, highly leveraged company. Highly leveraged financial company has an inherent risk. We should get paid for this extra risk. We could have borrowed money at your portfolio level and invested in unleveraged companies. Financial companies earn 20% RoE on on high leverage. There is opacity on loans, accounting practice.
Finance businesses run on culture of prudence. If you don’t like the culture of financial company, just run away :smile:

Balance sheet analysis- This is a weak area for me. I normally take a cursory look at balance sheets and then shut off. I mostly rely on fellow investors for this. During the meeting, many examples of red flags in a number of companies were discussed. This gave a good understanding of how to spot potential issues. Its not always bad if a promoter is taking a high salary. In fact, we should be happy that they are choosing a legal way to pay themselves and paying full tax on it :wink:

Study on failure patterns. Negative lollapalooza.

  • Capital intensive+ undifferentiated product…airline, retail
  • Operating leverage+ financial leverage+ cyclical…steel, mining
  • Leverage+ acquisition…s kumar, syntex
  • Low entry barrier+ rapid technology change+ large number of rivals…mobile handsets, led bulbs
  • Nature+ leverage…US shale oil, horse head corp
  • Concentration in any part of value change eg customers…RS software
  • Customers facing cyclicality in end market(oil)+ price of end product fluctuate+ depends on capex of end customer…Eg aban offshore
  • Customer fashion, fad… Ayurved, fast food
  • Good enough product+ large scale+influential middleman+ no genuine benefits to customers from alternative products…plywood. Astral started giving low margins. Middleman can also be a franchisee. Page is getting in trouble due to discontent of franchisee (geographical saturation…new stores eating old stores) but there is a brand pull.
  • Failure to scale up…in india its very difficult to go beyond 500pbt. Lovable, mt educare, kewal kiran. Growth mindset is very important. Some guys are contended at some stage and don’t want trouble of setting up plants, unions.
  • Competition from low cost countries.
  • Mistaking cyclical and secular growth…specially when the cycle is very long. Eg GRP, shriram commercial vehicle finance.
  • Win lose model for ecosystem…valeant pharma, industrial pollution
  • Continuously raise capital+ govt interference+ liquidity chasing system…micro finance, e commence.
  • Companies who sell at ridiculous prices…managers get carried away and try to show numbers to keep it up.

Will the business stand the test of disruption?

Most important for me was that I was in a group of super smart people, each one learning from others. I am very motivated after the meeting to dig deeper :slight_smile:

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Hi,

Sorry for being late for sharing my experience. I was also a part of the first meet last year but this year the overall learning experience was much more primarily due to presence of Prof. Bakshi and Vinay Parikh as well as the incremental knowledge and wisdom most of the seniors as well as juniors have gained over the past one year. I was also blown away by the energy and knowledge the newbies brought to the table (some of them like Dheeraj are actually seniors). Apart from the regular classroom lectures, as Vishnu said we gained a lot of knowledge at the sidelines during breakfast/lunch/dinner. Some of my key learnings are given below (most of it might be a repeat of what other participants have shared about their learnings):

  • Valuations play a very important role in investing: Many of us including me on account of stupendous returns generated over the past few years have become aggressive in terms of valuations we pay while acquiring shares of the companies. The gurus and some senior investors were of the opinion that if you are paying aggressive valuations (say something more than 15 - 20X P/E, more than 2X P/B for financial companies), you should be very sure of the long term sustainability of growth at least over the next 3 -5 years. I think many of us are yet to see a bear phase and hence have become very aggressive. Also, one statement I really liked was - ‘Preservation of capital is more important than return on capital’. Loss of capital apart from denting one’s capital also impacts the confidence of the investors. Furthermore, I also liked the statement that one should be careful in paying valuations more than the long term average valuations of the stock.

  • One should be extremely careful while investing in credit sector: Many of us are invested in private sector banks/NBFCs like HFCs, MFI etc and have generated decent returns. It was surprising that both the gurus were pretty wary of the sector as a whole. We should be careful of rapidly growing levered financial business. Many of these companies have asset liability mismatches (thanks to a good friend for highlighting this issue) when they are raising short term money through CPs/CDs to fund their long term assets and the things can turn on their head when short term interest rates are lower than long term interest rates (inverted yield curve which has happened in India as recently as 2011 - 2012 period). Actually, many of these companies are in a crude way speculating on interest rates. While investing in such companies one should properly assess the corporate culture of these companies and their underwriting practices.

  • Understanding the management thought process and business model is very important in investing: I think apart from the business model, management plays a very important role in determining the long term growth of a company. Some of the key attributes that management should have are:
    Pain today, gain tomorrow: Sacrificing the short term profits for long term sustainable gains. For eg companies in sector like pharma spending on R&D for future growth, cos entering new regions/products sacrifice margins during initial period, investing during slowdown, projects having long payback periods like Insurance etc.
    Win, win situation for all the stakeholders: For long term growth, it is very important that all the stakeholders including suppliers, customers and employees are happy and get their share of profits. We have seen that some of the companies squeeze their suppliers to get more profits and credit periods, paying lower wages than industry standards, don’t pay much attention to customer service etc for their own benefits. In the long term, the strategy may backfire and cause a strain in the relationship between the company and these stakeholders and impact the company negatively.
    Management has a mix of aggression and conservatism: For a long term investor, growth in the business plays a very important role in determining the returns. Look for management which have a mix of aggression and conservatism. The management should not be overly cautious and not invest in expansion/growth projects when they get an opportunity. The management should have a growth mindset and ability to scale up. However, it becomes very important that management shouldn’t give any importance to the risks like
    Some of the business models which one should be careful while investing in them:
    **Continuously raising capital + High govt. interference + Liquidity chasing these sectors

  • Concentration in any part of the company’s value chain

  • Customers facing cyclicality in the end market and depending on capex cycle

  • Highly Volatile prices of raw material and undifferentiated products

  • Customers shifting preferences

  • Influential middleman + no genuine differentiation between the competing products

Cash is also a position: I have hardly been in cash over the past three years of my investment journey. I have always been able to find one or the other stocks to invest. The gurus and few of the seniors and friends have ability to sit on cash and patiently wait for right opportunities. This is especially important in times like these when valuations have reached a frothy level. This has stuck me and I have also become a believer that one should hold at least certain % of cash in one’s portfolio.

Reduce churning in the portfolio: Even Warren Buffett gets his stock call right for just 60% of the times. I think many of us believe that we have to find the next big stock. In this process, we let go some of our successful investments. Good management will always find ways to grow. There will be times when the valuations will become a bit expensive. But if one has faith in company’s ability, it makes sense to stick to such companies over long time. This stuck me big time since I do churn a lot in my portfolio and the probability of finding a good company reduces everytime I move to the next stock.

Shit happens!: Many of us believe in concentrated portfolios and we should have control on the position sizing since despite knowing the company and management in detail, there can always be some ‘Unknown Unknowns’. Many a times we will have some of the stock outperforming other stocks in the portfolio and their allocation becomes pretty high in the overall portfolio (for me it’s more than 20-25%). It makes sense to cut some of the position in the stock when it weightage in the portfolio becomes very high. Also, one should remember that if the stock prices have increased considerably, it has moved closer to/more than its intrinsic value. Furthermore, there will always be some risk which will crop up in the business even if we would have studied the business in detail.

Some of the other things I learnt during the conference were:

  • Technology improves efficiency: I was very surprised to see Prof Bakshi using some of the latest tools and gadgets. I personally was a bit reluctant to use technology despite having friends like @crazymama who is way ahead of most of us. I have personally started using Evernote and it has improved my efficiency and helps in saving time (becomes extremely important for me since I am not a full time investor).
  • Read books on industry: I think @rohitbalakrish_ had mentioned this and it stuck with me. I used to follow the industry by going through the ARs of the company, its competitors, reading articles and getting feedback from industry insiders. However, I never realised that there are dedicated books to industries and one can get a lot of information from it.
  • Write a short note/thesis when you sell a stock: I never used to do this but I think it helps in keeping record of the reasons why one sold a stock.
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Hi @ankitgupta

Can you name a few books?

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Hi Guyz,

Sorry for being too late.
Goa meet was something amazing that happened to me in early years of my career. I would like to share my experience and mistakes to everyone here -

1). I admit I was arrogant/blunt in my presentation. I was so deeply attached with the stock. I should say, I was totally drunk. Realizing my mistake, I had a talk with Ayush and Ankit. It was a real tough time for me. The first thing I did the next day was approaching Prof. Bakshi and Mr. VInay separately and tell sorry for the yesterday’s mistake. It was so nice of them to me to say that its ok, we did not feel bad…we liked your passion…do not be concerned about such small matters…you will learn it gradually. I will remember this mistake for my life and would take care not to repeat it again. I will remember prof. Bakshi saying - “One has to be humble in stock markets, or else the stock markets will make you humble one day”.

2). This meet was the first one of its kind for me. From 9 am in the morning till 1-2 am in the night, it was simply amazing, learning new things and interacting with the members. The only common topic we all had was stocks !! It was constant inflow of concepts and information for 5 days. The learning on risk assessment was simply awesome. I am a CA and I knew those things but I realized that day, what all I used to overlook while conducting my research.

3). Discussions on disruptive tech, terminal value, mortality rate of business (very important for me, I chose Pincon Spirits):stuck_out_tongue:, dissection of ROE through Du pont and understanding the difference between a gas station business and a V-mart business (even though both have thin margins) was something extra-ordinary. I still remember Prof. Bakshi constantly saying - “shit happens”:fearful:.

4). It was a wonderful learning when Prof. Bakshi went through the AR of V-guard. It is very important to understand the words (what they mean to say) rather than just reading it out. Interpretation of what management tries to convey is very important.

Next, I would start learning from the jewels I already have here in Gujarat - Hitesh Bhai, Dhwanil and Ankit. I have to incorporate all the learnings in my research to make it more mature. I have already started doing it under Dhwanil’s shadow :wink:.

Thanks a lot VP for giving me this wonderful opportunity. I will learn, I will act, I will bounce back with more passion and maturity.

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Abhishek, if possible, could you elaborate a bit on this? Would help to keep us humble in case some of us might be doing the same mistake without realizing it.

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@abhishek90
Thanks for the candid feedback. It’s a great quality to be able to own up to what we don’t know in public. At VP we don’t call these as mistakes, its simply an admission of what I don’t know today; if I can be open about it, it means surely I will learn tomorrow!!

That is the time-tested way, most of us at VP have grown over the years. When we write/talk about a favourite idea of ours, we share the homework we have done - and ask others to show us “what we are missing”, what are the gaps in my understanding/assessment, why isn’t it the best risk/reward investment candidate,right now.

We saw that spark in you - of being 100% sincere in your quest - of having your own process of putting all information/data on the table, of not backing down on your conviction just because an authority figure points to a counter-view to your thesis, but standing your ground and arguing it out, till something resonated in you.

VP Folks - Abhishek supplied the much needed high-energy-high-voltage spark on Day 2. That is why - Abhishek Shah got a rare and completely spontaneous Standing Ovation - from all of us after his presentation on PIncon Spirits - we just loved that raw display of spark/passion/sincere quest for the Truth/confidence in one’s homework - all it needs a little bit of direction/refinement - which we are sure you received in plenty.

Seeing an youngster like him in full-flow action gladdened our hearts like anything. All of us saw a bit of ourselves in young Abhishek - the hard work & raw passion, the confidence, the sincere quest. We old-timers are pretty sure now - the VP movement is in safe-hands, the process culture and the genuine-quest ethos are all alive and kicking.

We just need to keep raising the bar, every year. Virtuous circles are at play!!
Hope next year, we can spot and introduce couple more high-voltage youngsters like you.

And thank you again Abhishek, for being there at VP Chintan Baithak 2016. Your contribution along with all others, made it really memorable!!

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Hi Surender,

Thanks for writing.

It was day 2 and we had presentation time. Each one of us had to present one favourite stock we felt we could blindly buy when that stock is down 15-20% on non fundamental grounds. We could also present a stock where in we feel that there is certain hidden potential, to which general market/analysts simply overlook. Donald calls this as connecting the dots. We had to present 4-5 points on that stock which would make the audience jump and say ohh man I did not see this, this seems great. So I tried focussing on the later part of connecting the dots. I took Pincon Spirits!!

So, this is a liquor stock and we know the sector faces a lot of controversies. I was bombarded with counter questions even before I could finish my presentation.:stuck_out_tongue: But I was expecting it and had done my homework to make sure my thesis is not thrashed in the dustbin. But, I should accept that I was much attached with the stock. The way I answered to the questions raised to me was not good. I was blunt/arrogant (especially when a youngster like me with no much knowledge responding in such a way to someone like Prof. Bakshi). My answers were backed by facts, no doubt to that, but the way of response was not correct.

There was one chapter which was taught to me all the way during my schooling, college days and when I was pursuing my masters. That was probability. We do research, where we try to forecast things. This is where one should not forget that our entire thesis is based on the theory of probability.

So whoever challenges our thesis, may it be someone who has no relations with the stock markets, our job is to take the info, process it and decide if that makes sense. If yes; thank him. If no, stay humble.

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Dear all ,

It would be really great if your can share your presentations of favorite idea in this forum . Looking forward to see the awesome work by you guys

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If possible, please share the presentations which will be helpful to us.

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Hi Gaurav,

Although none of the books were mentioned during the discussion, few books on various sectors (many of them are biographies) tweeted by Rajeev Thakkar and Prof Bakshi - https://twitter.com/RajeevThakkar/status/763231935023939584

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Is it possible for all the presenters to share their slides somewhere ? may be dropbox ? This will give insights to beginners like me on how to research a company. Thanks.

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I also request Don, Vachhani and Hitesh sir to post presentation in drop box/google drive and share link for everybody’s use who could not attend the meet

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I am wondering if you were identified a list of companies for deep analysis during this meet-up, if yes, can you please share the presentation. Thanks!