Its time to shift FOCUS to one of the most important pillars of VP Success - High-Quality Ideas Pipeline
Ayush Mittal is the unquestioned king of prolific idea generation. I have met 100’s of fellow investors, but yet to come across someone who works as hard, or as brilliantly at generating new ideas for us to take further.
If you are deflated for workable ideas (like most of the time I am), all I have to do is call up Ayush - at any stage of the market he will give you 5 ideas - that you will have to admit - may work - you can’t just junk his candidates!!
These guys are brilliant at this ART. They have worked really hard to reach where they are today. Now they are willingly laying it out for us - the trade secrets - of how we can also learn to generate a healthy pipeline of workable ideas!!
Wow! Great idea generating experience and that too at such a tender age of 28. Ayush is an example of a talented young guy who works really hard(in spite of his dad’s words).
We’ve always heard of the filtered ideas from Ayush, which go on to become multibaggers. This shows the amount of hard work put in behind the scenes in tracking so many companies very closely.
Ayush & Donald thanks for sharing your view on identifying new ideas and Ayush its commendable the kind of effort you are putting in to unearth hidden gems in small cap space
Ayush
Have few questions
On Lack of information - How do you build your knowledge on company once you have identified that small cap - Is it by scuttle buck, talking to management , reading ARs ? As I find this is most challenging for a small cap
On lack Liquidity being your friend - Taking any meaningful position at one go would increase liquidity and in turn price, So how you build decent allocation in your positions ?
Finally what were patterns that didn’t play out in GRP and Piccadily positions that you have exited
Yes - usually the annual reports are non-descriptive most of the times for the small cap companies and hence its not easy to know much about them and hence often there is mis-pricing. Usually the best way to get a feel about the companies is to study their last 5-10 years of numbers and then read the last 5-10 years of annual reports in reverse chronological order. By doing this you will be able to appreciate the small hints the company might be laying out about the journey of the company in its annual report. Many often it would be small pointers and you will have to connect the dots. Also, the website, google search etc yield good clues. And then once you have a hypothesis in mind you should try to validate it by speaking to people from the industry or meeting the company at the AGM.
Lack of liquidity is usually an advantage until one is having a very big pool of money. To counter the problem one has to be patient, try putting in limit orders and repeat the same for several days if the quantity to buy is big
GRP had all the good patterns we get excited by and I do believe that it has a fantastic management. But the last 3-4 years have been really bad and the company has had to face multiple problems. In Piccadily the segment results will point to some interesting data but the negative is perhaps the quality of management which I ignored earlier due to good numbers.
I think the promoters of Polymed are excellent. Yes, there have been problems like - huge forex issue earlier, then the expiration of tax benefits then the solar power issues. Yet the company has been a big winner.
We were able to hold on cause the core numbers of the company were always good - they usually had 18-20% operating margins which have now expanded to 25%+. And one could see their products in the market and get excellent feedback about the same.
Very impressive presentation. The presentation gave a good list of hints to catch a company in its infancy stages. I think your tip on studying as many companies as possible is very sound as it increases our breadth (in financial terms). Further, I like to invest in every promising idea albeit in small amounts. This deviates from the tenets of concentrated portfolio. However, there are advantages to holding large number of stocks provided you have the time. 1) Small position helps to track the stock and study further about it. This helps build conviction and keep increasing allocation as the company improves along your desired path. 2) It helps to tackle the issue of omission and 3) Diversified portfolio also helps to book out profits once you feel the stock is too overvalued, or if stock is lagging in performance criteria as a new idea is waiting round the corner to take its place.
Despite a diversified portfolio, my top 8-10 holdings constitute 60-65%.
Vikas
Hi ayush
If you can share some more points on your process
a. after you have found an idea and lets assume it has passed through your initial filters and scuttlebutt, how do you start the position ? is it 1-2 % or just a nominal position ?
b. As you gain comfort, do you keep raising the size of the position in the portfolio ? what would be the max ?
c. You mentioned you are moving to a concentrated portfolio ? can you share why ? how do you then combine the wide diversification with a concentrated portfolio
Awesome work ayush. So what are the other parameters you look at like roce,roe,cash,debt,pledging etc while judging a small cap company.
Whats your sell criteria on a stock(your art of selling either profit or booking loss)
I was reading your presentation and when I started it felt pretty similar to how I start looking for new ideas.
And then you blew my mind at Premco!
I most probably would have missed the five office/plants in Mumbai against 10cr mcap. I guess that’s what differentiates you guys from novices like us, the attention to details.
It is good to know that you got interested in Hester around June 2014.
I actually got interested in it when you had shared a tweet on the “growth media” acquisition.
It reminded me of the Kaveri Seeds germplasm (look for patterns from earlier winners ), and having piqued my curiosity forced me to start digging.
Very interesting insights from your portfolio mix.
To put it in the most simplest terms - you have a core section which is of Fisher/Munger type and a tail section which is of Schloss/Buffett(Partnership years).
I think another point which needs to be reiterated is that @ayushmit reads a huge number of annual reports.
His grasp of what a particular company writes in an annual report over the years is phenomenal. I don’t think I know anyone else with his level of knowledge & practically instant recall of multiple micro-mini-mid caps.
I am yet to come up with any stock idea which he cannot give a quick pros & cons in 5 mins. And some of these are real obscure companies !!! I just think he is blessed
a. Many often we get interested just on noticing something different and exciting and its not necessary that we have been able to do proper homework. In such cases usually the allocation starts with 0.5-1% and then as we work more and get conviction we try to scale up.
b. Yup, like mentioned above we try to raise allocation gradually as we get more insights and comfort .Max allocation is about 7-10%.
c. Till about 3-4 years back, we used to be more diversified as didn’t used to have too much of confidence. However, with the more homework that we are able to do now and thanks to such indepth discussions on VP we are trying to allocate. Also, the filter for picking new ideas have become more stringent.
We are able to combine both concentration and diversification - as the allocations have not been very high…so some cash keeps getting generated from time to time and we seed new ideas with that. Its something like planting new saplings to have trees in future
Many often you will not get all the good ratios to start with…caus if it would have been so then the stock wouldn’t have been cheap. So usually its that you get to see 2-3 good patterns and then as the co grows, other things also improve. Patterns can be too many.
Selling happens based on 2-3 points:
When the story is not developing like we were expecting it to be
Stock gets re-rated quite a lot but we don’t see the company/nos improving correspondingly (that is we feel there is a gap between perception and reality)
@crazymama that was an interesting announcement by Hester! Yes, there are very high entry barriers in the business of vaccines. And yes, this is the way we can draw parallels and pick interesting cos early.
@basumallick - Dada - chadaiye nahin Reading ARs is easy, the tougher part is understanding business model, asking good questions and separating wheat from chaff…and we have super guys on the forum specializing at this.
Thanks for sharing the idea with great sets of points .I have read the threads and your comments and clear with most of the point. But asking very basic question
Could you please throw some light on page 1 We picked the top 250 performers since the previous peak in 2008.
What criteria you used to screen this 250 company?
Hi @ayushmit …Firstly @Donald thanks for sharing the presentation. Good learning on how to spot a small cap company. Few questions from the presentation.
As u mentioned about spotting a company at inflection point. But what would be your average holding period in most of the companies before the business start showing up.
In small cap companies other than AR, what other parameters you look at like promoter holding, debt, sector. Do u invest in cyclical business ? I have marked some sector like chemicals lot of companies have great numbers but they remain cheap still & very few winner emerge.
If you have a checklist before you invest please share the same.
Suggest some blogs & few screener query parameters for filtering companies
), and having piqued my curiosity forced me to start digging.