A Practitioner will show us how its done with hard-hitting simple home truths, simply because he/she has been there, done that, many times. He will give us simple, practical distilled wisdom in a manner not served in the classics/text books, that one can very easily apply in the field. Any layman will also GET IT. As different from say a theoretical framework (Gyan).
So hereâs a brief rundown on my growth as an investing practitioner, as guided by my Mentors and fellow investors around me.
2008: Had read most of the investing classics.
2009: Started putting some money; 10-12 stocks concentrated, 8-10-15% initial allocations
2010: Early examples of decision-making success in Manjushree Technopak, BKT, Mayur Uniquoters
2011: Capital Allocation, Art of Valuation entrenched in decision-making. Astral, Ajanta Pharma investments
2012: Business Value Drivers, Economic Profit Added (EPA) entrenched. Copeland Valuation book (valuation bible); started Ranking each business in Portfolio; new business cannot join at 9th or 10th; has to dislodge at least 1 before; Allocations adjusted based on Ranking
2015: Started imagining/debating âNext Levelâ for any business we were invested in;
2016: Industry Tailwinds, Improving Competitive Position entrenched in decision-making; Concentrated 6-7 stocks, 10-15-20 % initial allocations
2017: Operating Leverage, âHopeâ vs âVisibilityâ entrenched in allocation decision-making
2020: Value Chain migration entrenched in allocation decision-making
2023: âValuation Stretchabilityâ glamour-quotient entrenched in allocations decision-making
2023-25: Getting to super concentrated naturally (somehow canât help it); 4-5 stocks initial 15-20% allocations;
A common thread right from 2010 till date has been that we could buy the same business (averaging up) for the initial 2-3-4 years each year as the businesses kept performing and we grew in conviction.
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More detailed rundown follows on how we grew as from amateurs to more seasoned investors in a nurturing VP Collaborative environment - learning from each other.
Post the Lehman crisis no one was interested in Indian Markets. We could research any business in great depths for 6 months and more, write and report on length, publish Management Q&As, and seeking help from investing seniors.mentors in guiding us on what would be a better investment and why. A common success mantra that emerged (we had observed and validated with seniors
Learning 1: Small differentiated business, RoE >30%, growing at 30%, available at 5-6 P/E
2012 was sort of a year of reckoning for most of us in VP - still amateurs, but very passionate and learning very fast. We could sense that there is a method in all the madness - what we were doing was working in our markets.
Interestingly within the year Manjushree Technopak was up 3x, BKT 2x; *
> Mayur had gone up 15x, Astral about 10x by early 2014
> Ajanta though only about 4x during same time frame
Meanwhile we had started VP Public Portfolio in Aug 2011 since we believed in holding ourselves Accountable (as distinct from âGyanisâ), and to be seen as providing Actionable Advise apart from being a Democratic place (all scuttlebutts, management interviews, research, and tools for FREE). A fierce debate was ON whether Mayur and Astral have run out of steam (time to find the next horse(s), and what about Ajanta Pharma which hadnt moived much, and prone to big swings ! I was on a completely different trip. Mayur Uni was everyones darling with those fantastic return numbers with good growth, but I was so convinced form inside that Astral was a better business than Mayur, and that Ajanta Pharma was actually the best of the three.
Learning 2: ***All things being equal (good growth, balanced debt, good cashflows),
if we find steady Improvement in Operating Margins - that MOVES the needle the most
Success Patterns, Art of Valuation, Business Value Drivers hugely engaging discussions happened. And we were firmly on the quest to ask better and understand better which is a better business and why?
By 2015 Ajanta Pharma was the fist business in the VP Portfolio to go up 50x. I felt sort of validated, all those laboured discussions on EPA (Economic Profit Added) and the significance of the business with higher Invested Capital back in 2012, did reach us somewhere, or did it?
I was calculating Operating Leverage in my Excels right from 2012.
But I had not learnt this one very big lesson in 6 years of active investing.
It was present in my investing toolkit, but surprisingly I was NOT actively using or focused on Operating Leverage while making important Capital Allocation decisions**
Learning 3: ***All things being equal (good growth, balanced debt, good cashflows),
Operating Leverage at play for next 2-3 years - that MOVES the needle humongously
1 Rupee in incremental Sales for the next year =>> 3 Rupees in EBITDA.
If you like a business that you find investible, if it also forecasts good to great Operating Leverage, BET HEAVY!
Not till I had that discussion with @Anant in 2016/17 as I was discussing my new found fetish with Operating Leverage courtesy a Mauboussin paper on the same (if the product mix doesnât change, than its so easy to forecast superlative earnings if you know a business reasonably well). He said yes Dada, mere liye to yahi khuda hai (he hadnât invested in Ajanta Pharma 2012, but did it with ferocity in 2014 if I remember correctly), I tripled my investments in Ajanta after spotting that, he said. You didnât, he asked disarmingly?; I said no @ayushmit and me increased our allocations maybe 50% more, just betting on the fact that margins were becoming better and better! blissfully ignorant of OpLev at play 
!
Learning 4: More MONEY makes humongously more MONEY
A friend and the first to visit Mayur Uni facility in Jaipur in 2010, invested 15L each in 2011 in Astral, Mayur, and one more business I forget. I had invested 1L each (thats all I had).
I couldnât have learnt a better lesson, early (even as I didnât have the wherewithal). Eventually by 2016 or so, as I was maturing as an investor I understood that the ODDS for the Risk/Reward equation investment in a single business, remains the SAME for even multiples of a Cr (in our kind of small to medium businesses given the depth of VP research work ethics) !!
We are getting closer to why I keep harping on the obvious! (not to newbies, they will love this discourse i know as exposure is less); but to hit it home with senior investors - that we ALL TAKE SHORTCUTS in our decision-making. Point is unless I put it down in a Template like this, it doesnât SIT in my head all the time, and I sometimes I donât articulate it at all - when I explain to someone less experienced than me - my approach to the Investing puzzle we are trying to solve.
Learning 5 : Margins Sustainability for next 2-3 or 5 years
Any decent investor with 2-3 years experience will think about this. But might probably NOT link it directly to the presence of Intellectual Property and/or Process Efficiency (as in Template above) in the business. The reason why a business/products is less likley to get commoditised.
Oh! the beauty or the ease with which we/our mind takes shortcuts - if only we are MAN enough to admit it! Now, I admitted to @spatel as I put it down in this template in the manner I did (under âwhat can go wrong and usually doesâ) hey, this linkage (we had put it down way back in 2012, probably in the Art of Valuation thread) isnât in my active mental Models. Sandy said exactly Dada, I always take Notes when we speak, but in our discussions say of last 2-3 years, I donât see you mentioning any of Intellectual Property vs Process Efficiency in our sustainability discussions.
There lies the CRUX!
If you are NOT articulating it/bringing it up in every dissection of a business you are at, the mind probably leads you into its shortcuts (read, ignore something important) while taking decisions, even as you might have done tremendous hard work on the business/industry.
The reason why probably there are scores who have burnt their hands and left to rue some decisions, as margins were extrapolated into the future and guilty of NOT watching the business like a HAWK (one WOULD, if one was AWARE that in all likelihood the said business will get commoditised in near future, and thus actively LOOK FOR proof of that). This is something that our genius friend @Anant (any wonders?) again does humongously well at.
POINT Anant makes is you DONâT need a PI or a Bajaj Finance to make humongous money (a subtle dig at my predominant style; mostly collaborators would tease me âDada yeh accha lag raha hai, par aapka type nhi haiâ 
). You can still bet the house on a business (w/o significant IP or process efficiency, which you know can likely get commoditised) with full awareness till such time as say the whole industry is doing well/tailwinds are present). Will let @Anant expound more on that style.
I do have a counter. If you do get a business like PI or a Bajaj Finance that you see doing everything very differently from the Industry and leading with IP and process efficiency as very big differentiators, I would much more easily bet the house on that. Once having done the real hard work of establishing presence of IP and Process Efficiency on top of all the other goodies, I would rather bet heavily here. No more looking over the shoulder, ever. Monitoring results once a year is enough. Thats the much smarter, easier feet-up-on-table route for me. Could hold PI Industries from 2011 till 2023 (12 years of complete bliss 
), Bajaj Finance from 2015. And best part, scores of Fund Managers with large Teams to educate you on the latest (make it a point to meet some of them/talk extensively once a year)
Trouble is you DONâT FIND these kind of businesses in their infancy often!
So you gotta find and include in the mix styles that sit pretty with others like @hitesh2710 @ayushmit, @Anant @rupeshtatiya @Rokrdude
Learning 6 : New Mantra: SPOTTING a Business in Transition is very rewarding
I reluctantly had to give in to other predominant styles in those early days of our collaboration, as I couldnât find anything after Mayur and Astral âŚfor almost 6 monthsâŚas I insisted on finding something similar or I donât invest. I remember @ayushmit gently coaxing me saying Donald a business may not look that great to you today, but can dramatically improve how they run the business/strategise for the future as they gain some scale in the niche 2-3 years down the line. Some of our biggest wins came from that single observation of Ayush.
Thanks to @ayushmit I could ride Atul Auto for the fastest 10x in 1.5 years (mid 2012 onwards Ithink); still remember Ayushâs excitement/almost jumping out of the car on spotting an Atul Auto in the South on our company visits). ride Canfin Homes courtesy @hitesh2710 again 10x within 12 months I think of the Modi wave catching up. Our brilliant Hitesh summed it up for us in one sentence - Donald, PSUs are NO MORE a dirty word. I agreed wholeheartedly and jumped promptly on the bandwagon (avoided so far due the same overhang) based on the solid work done by @spartan and Vinod MS. These guys probably enjoyed many many more such rides (maybe of lesser magnitudes) but these again are very very easy picks for them; hope is to get them to articulate their decision-making mental models/Template for the same on separate threads under this new category).
I was glad we coined a new term OPPORTUNISTIC BETS. One can find that in the VP Public Portfolio, described well. I said even among your many many easy grossly price-mismatched bets, tell me the ones that have the potential to migrate to our Core Picks like say a Mayur, Astral, Ajanta. That is where we can envisage that NOT only are they price-mismatched and are now doing very well, there is every chance that they will deliver on the potential to get to the âNext Levelâ for the business.
Learning 7: Imagining the Next Level for your favourite business
By 2014 as we went around meeting many of our businesses for the 3rd year running it occured to me that usually I was quite sure of what is the main thing I wanted to extract - if they confirm/deny my hypothesis of the next level (business/industry we understood reasonably well by then)
While it is a great way to probe how Management thinks about their future, It can be a very good indicator to sell off if they miss the avowed bus, or simply shift the goalposts
Mayur Uniquoter: Supplying to Ford & Chrysler, Merc and BMW should be tomorrow?
Confirmed in 2013, but admitted in 2015 they canât (Sales/Margins issue with Lear Corp. I sold off. They finally did it recently, but business hasnât scaled up yet?
Poly Medicure: US business should be your next big vertical?
Confirmed. But unfortunately the timing was wrong. US distribution got consolidates a year after.
and in 2016 they shifted the goal posts to Domestic Cathlabs, Blood Bags. Easy decision to get off
Kitex Garments: Shifted the Goalpost of becoming #1 globally in infantwear, from #3
Easy decision to get off.
PI Industries: It was the reverse; they knew exactly where they were going, and achieved them.
Easy decision to continue to stay put for 12 years, till probably âReversal to the Meanâ rule, caught up? Business that Defy Reversal to the Mean
By the way, one must read those legacy Management Q&As, they are a great collection of how to do our homework to get to extract the most out of a meeting with Management (normal analyst calls go for 45 mins to an hour, VP meets would go on for 2.5 hours easily; went 5 hours with Avanti Feeds, Ayush did it with Sandur Manganese - 5 hrs interview - what a gem of an interview that).
Learning 8: Canât ignore when REWARDS overwhelmingly tilt the ODDs: Avanti Feeds
@Ayushmit is fond of saying the most money is made where the Markets keep disbelieving. Results after results stunned us, Cash Flows went from 30 Cr to almost 300 Cr by 2017, but Avanti Feeds kept stagnating at 3-4 P/E for well over 2-3 years. Then to 6x to 10x in 4th or 5th year, finally peaking at 40PE in 2017. Egged on by our solid evidence on the ground scuttlebutts and interviews with all kinds of stakeholders {Avanti Field study 2016] and this core understanding of investor behaviour. Ayush/family recorded100x in Avanti Feeds
The POINT being made is NOT about the Returns so much. We made the heavy bets with eyes open. We watched every development like a hawk. There were so many things that could have gone wrong but didnât. The risks were big, but the rewards could be extraordinary if the variables HELD and Industry Tailwinds persisted, they all did. CVD and Duties held; Cyclones did come - and they wiped out neighbouring Orissa, left Andhra unscathed; diseases did occur every year, but easily contained; RM fluctuations were there but Avanti BRAND has taken hold so they could raise prices. In recent years, we know its no more same.
We MUST participate in Opportunistic Bets.
While being fully AWARE of WHAT can go WRONG, and watching it like a Hawk all through the journey. If we are lucky we can ride such a thrilling one for 5 years like we did in Avanti and had to sell off when peak margins-peak valuations were no longer sustainable in 2018. But a 2 year journey in Opportunistic Bets is a no brainer - especially as VP Collaboration makes it easy to track what is going wrong (provided we are fully AWARE).
Question is, Are we?
Learning 9: Canât ignore CHINESE BAMBOO evidence: HBL
@Anant is best placed to explain what he means by this. Beyond just âOptionalitiesâ!
I had mentioned we cant ignore an investment in HBL due âMultiple Optionalitiesâ while introducing HBL Stock Story penned so ably by @YachnaBhatia. As we all know Anant, Yachna and Hitesh are the ones to have maxed their investment in HBL!!
Learning 10: Forecasting Future Earnings (next 2-3 years) is easy if the Product MIx doesnât change, and we understand the business/industry well enough. A business owner understands his business so well that he can easily describe to us - to generate 1 rupee in incremental sales, how much of working capital (Working Capital Intensity), and how much of fixed capital (Fixed Capital intensity) will his business need. Assuming that the businesses Product Mix does NOT change - we as investors can easily compute/forecast that too if we understand the business well and can predict a reasonable growth rate (say 10-15% range, or 15-20% range). Mauboussinâs Expectations Investing book and Online Tutorial is here for those interested
Related Excels : Incremental Working Capital, Incremental Fixed Capital calculations.
Request also @spatel @Rokrdude @Anant @YachnaBhatia (who inspired me to pen down something I wanted to do for months), who probably have many aspects and many more examples to illustrate - how important it is to CLEARLY ARTICULATE your decision-making - so that we KNOW - now we are past mind-tricks and will consistently APPLY these in our decision-making.
If you have reached this far, thank you for bearing with me. Its kinda a ramble of sorts, but I didnât know any better way of putting it across in (hopefully) as simple hard-hitting way, than this.
By the way why isnât Shivalik Bimetal a perfect Contra bet now? That is what started off this bang-the-table kind of rambling from me 
.
