VP CHINTAN BAITHAK GOA 2016: Experience Sharing

2016 TopContributors, will add their NOTES from 2016 Annual meet, here. Please allow for some time for this to get populated, as the AGM season is on us, and not all are disciplined enough to immediately convert their “mereko kya chamka” (what were my WoW! Realisations) type realisations, to paper/print. Some are, and you will be surprised by that too.

Just a request, make sure of adding value when you take forward something from these expereince sharing. Think twice is this a genuine quest for me, am I taking teh discussion forward, what is the value-add I am bringing to the discussion.

Don’t hold yourself back either - “aapko agar kucch chamka - from hamen jo chamka” experience sharing Notes, do acknowledge the guys (n gals, next year we need to give a chance to that category too - to balance things up). But think twice, again.



Where can we find the other presentations?


I will share my key takeaways (jo mujhe chamka!) from Goa meet. First of all, it was an invaluable experience to spend few days with Vinay and Prof.Bakshi and discuss with them our questions/doubts/dilema and learning from their vast experience, reading and knowledge. Both Prof. Bakshi and Vinay Parikh were kind enough to share their wisdom/knowledge/observations without holding back anything. Super experience and great learning.

Key takeaways

  • Assessing the longevity of the business/business model is extremely crucial because when we assign a fair multiple (not 25-30 but even 15-20 times), a large part of the value is assigned through terminal value. So, if we are not able to assess the longevity of the business for 10-15-20 years, how can we assign the terminal value? And if we can not assign the terminal value, how can we justify paying 15-20 times earnings (leave aside 50-60 times earning)on DCF basis. It was like a very simple concept, tearing through the heart of my investment process. I was probably not paying enough attention to this very important question and probably assuming that the business will survive for long time. I felt both Prof.Bakshi and Vinay always analyzed this aspect very critically. So what has changed for me? I now have tweaked my process, when I am looking at high quality businesses and paying a decent value, I intend to start with assessment of whether the business can survive for next 10-15-20 years. Everything else comes thereafter!

  • That leads me to my next “chamko moment”- of how disruptions can kill businesses and industry altogether. Fascinating presentation by Prof.Bakshi of how Tesla is changing the whole dynamics of automobile sector. It is one such disruption that can change the face of the industry completely. Number of moving parts in a car getting reduced from 2000 to 18! Almost 90% of auto ancillary will face extinction threat…a super insight! Again, Auto ancillary was just one example, there are many such diruptions brewing. So, if we are paying up and hence need longevity…we must assess the impact of disruptions (business model/technology/changing needs & preferences) on our business as some disruptions are too powerful to change the whole landscape. Again, I never looked at this aspect critically while writing my investment thesis! I am convinced, it is a must have in our checklist/investment thesis

  • Third important realization for me was from Vinay. He is extremely focused on process. So, when we talk to him about any business, the first question that he asks himself is do I understand the business enough to value it? (leaving aside how much value to give). Here is some one who has spent many years in markets, has delved upon all kind of businesses (and believe me, though he is very selective about companies that he invests is, he does track and analyze lot of businesses), is still rejecting many ideas just because he thinks he does not have handle on how to value a business. And, here I am naive enough to feel that I can value any/every business available in the market! So, now the first question that I need to ask is “Can I value the business given the understanding of the business that I have?”…Probably in some businesses, there are too many moving parts…variables that it is very difficult to value a business based on earning power (because it is so difficult to predict earnings…let’s say for me, it has always been a challenge to value an IT business…because it works on deal to deal basis…and as an investor I have very limited visibility to predict earning stream), so it is OK to say I do not understand business enough to value it…and suddenly I remember circle of competence! :relaxed: However, takeaway for me was that it is important to have process around valuation too…like we have around business analysis. I think, I need to work here on to come out with decent framework for following a process on how to value a business. May be there is no single framework possible…but I intend to attempt

- Significance of reinvestment risks: Again, we all know about reinvestment risks…but at least I have not given enough thought to it as to how it changes odds of success for an investor. how nasty it can get if we have high portfolio churn? I think, Vinay by simply putting numbers, illustrated that if average holding period is 3 years…and if you are as good as Mr. Buffett (i.e getting 60% of your decisions right, which itself is a big assumption), then you have to make 10 decisions over a period of 30 years for one portfolio position. So, the probability of getting all 10 decisions right is close to 0 (0.6 ^10)…and a single mistake has the potential to wipe out the capital created thus far! As against that, if you can buy a business and keep it for 30 years (i.e the quality of business is so high that business has longevity/growth)…reinvestment risk reduces considerably…increasing one’s odds for success. A very strong argument…for buying high quality businesses that can be around for long and grow too!

- The highest benefit of compounding in absolute terms is always back ended- If we intend to compound money…we will get highest benefit in absolute terms in later years. So, we may not feel the real effect of compounding in early years (i.e 25 lakh becoming 50 lakh in 4 years (18% CAGR)…)but if we persist with this for long time let’s say 32 years in year 24-28 the value added is 1.6 Crore because of compounding and in year 28-32 the value added is 3.2 Crore.

And above all, the biggest realization was outside the sphere of Investing. Humility and commitment was the hall mark of Vinay and Prof. Bakshi. Inspite of all the experience and wisdom that they have gained, they were humble enough to answer/respond to our silliest question and doubt. Not only that, so high was their energy level, that despite highly intense day long sessions, both Vinay and Prof. Bakshi were all geared up to have openhouse session post dinner till 2:00 a.m. answering myriad of our queries and having intense discussions around some topics. Such high was the energy level with both that at times, many of us felt completely drained out, but they seemed full of energy and commitment till we called it a day!:slight_smile:

I am sure, there are many more insights that others have to share…and I intend to gain from those too…as I am sure I might have missed something…due to sheer intensity of the conversations/sessions/discussions at VP meet.


Excellent points @desaidhwanil, thanks for sharing.

I always tend to undervalue the first point above - the longevity of business. But all the successful investors always make this point over and over again and I never fail to undervalue it.

Warren Buffet says if a business would be around here after 10-15 years, it’s probably good business to invest in.

Charlie Munger says - if a choice comes down between an attractive business (AB) and an attractive security (AS), we always prefer to own AB.

Same theme from Prof. Bakshi and Mr. Parekh.

As a start of imbibing process, I have just added a new line of AB vs. AS in my checklist. And I intend to do this check for every stock selection.

Thanks for sharing and inducing above action.



That’s a very important observation. Most people know electric cars are creating pressure on traditional car making companies but not many come to the conclusion that when electric cars takeover traditional cars, many auto parts will be obsolete.
Also… I think auto ancillaries related to commercial vehicles are here to stay.

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Every once in a while, I wander off to the sidelines where the grass looks greener and cheaper. This post made me realize that I am off the quality investment highway right now.

Truly a WOW moment for me!

Thanks for sharing and providing a kick in the butt.

On another note, it may be worth making a list of auto ancillaries that will survive the Tesla disruption. One that immediately comes to mind is Tyres.

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I think we all pass through such phases, especially when we see our friends/colleagues making tons of money by other approaches. Hence, there is a need for such pointers/reminders from experienced practitioners, from time to time, to keep ourselves focused down the quality path.

Even Prof. Bakshi and Vinay both had the same observation about tyre being one part which will not face the wrath of disruption!


The ValuePickr Chintan Baithak at Goa 2016 was one more fantastic event. Building up on last year, we took up a few independant themes for each day. First day was more devoted to introductions of the new invitees and lookback at the basics - inculcating VP process. Day 2 was spent on discussing top picks from all participants and discussion on the self-reinforcing business model. Day 3 was spent on business models, risks and corporate governance. Day 4 was a curtailed session but one in which we looked at trends in industry for the future. Interspersed during each day were comments and discussions from the two guest participants - Prof Bakshi and Vinay Parikh.

A few things that were discussed:

  • Always ask yourself how does the company make money. Avoid companies that are not win-win for all stakeholders
  • Look for companies which have a long term track record of prudent capital allocation
  • You can average up in companies that have “fundamental momentum”
  • Try to learn about similar business from other industries
  • It is important to focus on reading - read annual reports when they are available, books, magazines, journals, industry reports at other times.
  • Spend some time to read something not directly related to investments everyday to broaded your horizon and increase your ability to connect various dots

I thoroughly enjoyed the 4 days mainly because it was about the topic I am most passionate about and in the company of friends. I was amazed by the zeal of Prof Bakshi and Vinay Parikh. They spent the entire day with us right from 9am to 1:30-2:00am!!!

Thanks to all the participants who made this one more memorable experience.


Although it is not in the forum’s agenda to discuss stocks, it will be very useful and a great learning experience for some one like me If guys present at Goa gives their top picks just like legends gave in sohn India conference.

Hope you will guide us.


5 posts were split to a new topic: Disruption: Auto Ancilliary

It was a superb experience to be a part of such an interesting group of people - who have such varied investment styles, and each one a successful investor, but one common trait amongst all was being very humble and modest. Everyone took time to share experience, address queries without any qualms and made the 4 days in Goa very memorable and enriching.

This was my first VP meet, and I want to share my Chamko realization. Research, analytical skills, scuttlebutt, valuation etc play a big role in becoming a successful investor but my biggest takeaway is the need to develop and follow an investment process in a disciplined manner. A process for buying, a process for capital allocation, a process for tracking your companies, a process for selling etc.

A lot of what I have captured below are things I know very well, but have barely followed in a congruent and consistent manner. The 4 days brought out very clearly my need to follow a disciplined investment process!

Buy decision -
— Follow a process - research thoroughly, scuttlebutt, management, checklist, write up on investment thesis, right price to buy, % to allocate
— Build conviction in your companies by doing a lot of hard work, so that you have the ability to allocate well, and buy more as the fundamentals improve
— Look for Longevity + Compounding growth = multibagger returns
— Buying good quality companies at a high multiple could result in decent returns over a long period of time
— Keep a buy list for market corrections
— Look at your portfolio for reinvestment opportunities. It is always a good practice to average up as the business fundamentals continue to improve

Sell decision -
— In case you do not expect your company’s earnings to atleast double in the next 3 years, it may be a good idea to sell
— If your business has reached a fair value (as per your assessment), it may be a right time to sell
— Keep track of your businesses on a quarterly or 6 monthly basis (fundamentals and valuation)
— There is a significant reinvestment risk if you churn your portfolio a lot, so better to buy companies for long term and sit tight

Capital Allocation -
— High conviction + undervaluation - max allocation
— Never assume you know everything about a business, and allow that Company to become so dominant in your portfolio (> 15% - 20% allocation) that if a black swan event happens, it could wipe out a significant portion of your net worth (SHIT HAPPENS, never assume that you know it all)
— One could follow a parking strategy (put in steady compounders like HDFC twins etc) for excess cash to take advantage of sharp market declines and also maintain returns in case market continues to rise

Read, read and read
— Once you have read the basic investment books, spend more time reading annual reports
— Always read annual reports of competitors, other players in the industry to get a better understanding of your portfolio companies
---- Books are a great source to build multidisciplinary knowledge, so keep reading across domains, and not only investing
— Reading a book on a business that you are investing in could make you a much better investor, for eg, if you are investing in Retail read books on Walmart, Tesco etc. written by their founders or others

Reading an annual report

  • Read the Management Discussion & Analysis for 10 years and see if the financial performance has
  • Review if the strategic plans have transformed into action by the management
  • Review if the management is bold enough to accept issues in business decisions made
  • Go through notes to accounts in detail to understand business better


  • Lots of discussion on valuation, but one thing that struck me was the concept of terminal value, which made me think about the longevity of any business that I have invested in; applying it to my portfolio makes a good filter to understand businesses that I need to track more regularly
  • Higher the multiple you are paying for a business, more value you are attaching to the terminal value
  • Be careful of paying up for high operating leverage businesses, when the business goes through a bad phase, it hits you harder
  • Important to assess downside risk when you are paying up for a business

There were a lot of other discussions that made me think about my investment process, and I had a lot of aha moments! Thank you everyone for making the experience so enriching and that would help me become a better investor.



Extremely good write up naman. Summarized very well for new comers like us. One type of a check list. Will help us very much.

Thanks for the notes on Vhintan Biathak. Helpful. Although I got confused by your Reinvestment risk paragraph. I have following counter arguments about it…

  1. It is not formulaic as it is presented. At any moment you will have more than 10 stocks in portfolio. Sometimes even lot more. Also Stock tenure will vary a lot.
  2. Assuming 10 stocks at any given time and average 3 years you are talking about 100 stocks over 30 years. In reality it will be lot more than that for most of us.
  3. If your hit ratio is 60% then 60 will work out and 40 may not. How much you will lose on losers will vary a lot. If you do not track actively then you will end up losing even 70-80% because you just waited with hope. But on an average you will lose lot less if you select undervalued stocks with good Reward to risk ratio. In any case your winners are supposed to compensate for all such losses. That is why diversification is for.
  4. Buffet who touts holding forever, did lot of churning in Buffett partnership years when he was small and hungry investor. And his returns were off the chart in those years. I think there is an important lesson for all small (but highly skilled) investors. Your advantage is agility over some one managing 1000+ crores.
  5. It is theoretically correct to buy and hold great stock for 30 years. I have no quarrel with it. but In practice it is very difficult. Average Moat years are getting reduced for most sectors and companies due to tech disruption and forces like globalization. I would find it difficult to believe that many people have skills to identify many great Moat companies that they can keep for 30 years. Even 10 look difficult. And then if you can identify such companies then why average tenure of 3 years. That figure becomes oxymoron.
  6. If small investors find such gems then they should keep it as long as business is great. But by and large the sensible option may be to follow Graham, Greenblatt and Buffett (partnership days) method of buying undervalued bargains and sell them when become overvalued for overwhelming majority of your stocks barring few great gems you discover by chance.

Anyway I agree all this depends on individual temperament and method. I am putting my arguments for the sake of extending the discussion and to present counter view point. We all agree that the Healthy debate is the purpose of this forum. So hope folks will take my arguments with right spirit. :slight_smile:



First of all, I am sure many of us have realized that there is no holy grail of investing! There are multiple approaches to make your investment work for you…and hence it is perfectly fine to disagree with some of the tenets practiced by others. I sincerely believe that one has to stick with an approach/philosophy that works for him/her and keep on refining his/her approach as one keeps on learning from his/her mistakes.

On the specific points- I have over a time come to realize from my mistakes/success- that it pays off to stay with high quality businesses and ride with them- rather than to ALWAYS on look out for next big opportunities. So, why I find the argument of significance of reinvestment risk very valid (leaving aside the numbers part…which in any case was not the central point of my learning)?

  1. the more time I spend in market,more I appreciate the importance of base rate concept. So, I tend to think in terms of base rate of success while making any investment decision. Though, I do not have any handle on exact numbers, from whatever I have read of various investor legends…I have a hunch that 60% success is a base rate of success even for the great practitioners. So, for me it is a more than a reasonable assumption to make, that if I were as skilled as those great investors, I will probably get only 60% of my decisions right over my investing period.

  2. This leads me to think the second question- what should I do when I get my investment decision right? What has worked me so far, is to stay with the right investment decision (i.e high quality business bought at discount to IV) - as it may under perform the market/portfolio in the short term- over 3-5 years it works out much better over the selling out and reinvesting it in another opportunity. CERA/Amara Raja/Piramal are some of the examples. But apart from this empirical evidence (which I frankly believe is based on too few observations and relatively shorter time frame)- another construct that pushes me to lean towards this thinking is the famous study done…where based on few decades of data.It was demonstrated unambiguously that good/great businesses stay good/great over period of time (only those who survive, of course!) while mediocre businesses stay mediocre over long period of time. Only a very small proportion of mediocre businesses move to good/great category over a period of time.(.I don’t have the link to post to this study…but will try to do so). Thus, if one is partnering in a high quality business and the underlying hypothesis of quality/growth is intact, it may be worthwhile to stay with the business than to look for better opportunities every now and then where you may be selling out a great business and getting into mediocre one!

In terms of Warren Buffett doing lot of churn during his partnership days, I look it in the context of following

  • Market during partnership time frame 1956-1970- was largely a bear/sideways market where one had umpteen opportunities of undervaluation and hence he was probably capitalizing on the no-brainers spread across the market. At least in today’s market, we seem to be in different phase

  • Even though he made money through the earlier approach, he has also evolved as an investor…and has categorically said post his partnership days that he prefers the approach of buying good businesses at fair price over the cigarbutt/undervaluation approach. So, shall we follow the WB approach of partnership days or shall we follow his preferred approach after his evolution as investor…and after having exposure to “buying great businesses at fair price and holding them for long”? Also whether his shift in investment approach based on the “size of investment corpus” or not is very difficult to judge.

Probably, both approaches can co-exist and there are many examples of great investors outperforming the market consistently over long period of time through continuously finding undervalued opportunities and existing once the price-value gap is closed (Walter Schloss is one such investor that come to my mind) and finding the next one. So, there is merit in that approach too, if one thinks that is one’s investment style and is working out well.

However, what I feel can create serious risk is to take a hybrid approach where one is willing to pay a reasonably fair price (i,e, thinking that one is buying quality) and then keep high portfolio churns (which assumes that there are many great businesses out there and one can make the right investment decision more than the base rate of great investors).


Thanks for reminding this important point. Here is an excerpt from the Copeland book if that’s the source you meant.

Does every company generating returns greater than 20 percent eventually migrate to 15 percent, or do some companies actually generate higher returns? Conversely, do some top performers become poor performers? To address this question, we measured the probability that a company will migrate from one ROIC grouping to another in 10 years. The results are presented in Exhibit 4.10. Transition probabilities read from left to right, and the rows must sum to 100 percent. Thus, for instance, a company whose ROIC was less than 10 percent in 1995 had a 57 percent chance of earning less than 10 percent in 2005.

Both high and low performers demonstrate significant stability in their performance. Companies with high or low ROICs are most likely to stay in the same grouping (a 57 percent probability for those with ROIC below 10 percent, and a 67 percent probability for those with ROIC above 20 percent). Even among companies whose ROIC was between 10 and 20 percent, the greatest probability (40 percent) was for remaining in the same grouping 10 years later.

These results show that high-ROIC companies tend to maintain their high returns on invested capital and low-ROIC companies tend to retain their low returns. We have studied earlier time periods as well and found similar results, except that even fewer of the lower-return companies moved up into a higher group. The 1995–2005 period may be unusual in that the median company significantly increased its return on invested capital, as we discussed at the beginning of this section.


… if a company finds a formula or strategy that earns an attractive ROIC, there is a good chance it can sustain that attractive return over time and through changing economic, industry, and company conditions—especially in the case of industries that enjoy relatively long product life cycles. Unfortunately, the converse is also true: If a company earns a low ROIC, that is likely to persist as well…

Source: Valuation: Measuring and Managing the Value of Companies (fantastic book)



Yes, this is precisely the study I was referring to. Thanks for providing the reference.

As I was among the newbies who were given the opportunity to attend the meet, many of the takeaways for me were from the informal talks with fellow investors which included many life lessons as well. Although I have tried my best to present the talks as it is but there might still be some error on my part in terms understanding of the points and also some points may appear contradictory to each other which are but natural due to different investment philosophies. Lastly I have used in some cases the names of some stocks; these should not be treated as recommendations and used only as learning purpose.

Day wise learning from the meet for me are as follows:-

Day 1 Lessons

  1. Ever year 3-4 times opportunity will come where the stock you like is 30-40% from its highs. Do you work beforehand so that you can pull the trigger when the opportunity rise.

  2. Problem with high valuation great quality stock is not capital loss but that the time correction which takes most people out of stock

  3. There is no limit to which you can do competitor analysis to understand your company better. There are hints in US companies Annual report as well like Michelin had mentioned Balkrishna industries in one of its Annual reports inspite of latter being not even 0.1% in turnover as compared to former.

  4. One off corporate governance issue will be there in many cases like KRBL windmill which was actually to get tax benefits- try to understand the reason for the action (don’t think you know more than the promoters). Many miss opportunities Missed opportunity because it was not squeaky clean as given in textbooks

  5. Don’t blindly believe what is written in Annual Report. One of the fellow investor saw 88%Growth guidance in Annual Report of Somi Conveyor. Research was not complete and saw company going up 35-40% jumped in before finishing Research. Company now down 20-30% from buy price

  6. 2013 Bajaj Finance Everything was good except valuation was too cheap was trying to understand the reason for same, met head of a big NBFC who told how difficult to make money in consumer business, got influenced by authority bias never tried to dig further. Now it is at 10X valuation

  7. Importance of name of the company and its history.

  8. Pledging not always but if pledging si done to known private sector Banks while need to more careful in case of pledging to NBFC’s. Banks normally better as their due diligence is much better but international banks and/or cooperate banks again are not so diligent.

  9. Even cash flows can be fudged first take a call on management then numbers

  10. When you find companies at too low valuations always ask why company at low valuations

  11. Mutual Fund buying selling can be ignored, PE buying selling important

  12. Scalability can be seen from 3 angles:-
    a. Runaway long enough
    b. Can your company capitalize on scalable part
    c. Ability to generate capital to sustain/scale growth

  13. Physical commodity consumed and commodity traded to GDP very low in India
    MCX 80% market share inspite of 6 other exchanges, similar trend seen in other countries where the 1 player occupies major portion even when competition comes in

  14. Don’t try to be too clever of trying to jump in and out of position. Reason for getting out should be margin pressure, increased competition. Mind can’t grasp logarithmic growth. Everyone tries to price 2-3 years earning, no one can price 5-10 years. Ok with 15-20% growth for some years till valuation cools down. Good Companies find new ways to grow its in their DNA

  15. Different criteria for exiting due to overvaluation depending on Quality of business. Good but not exceptional business like Mayur will be much more stringent with stretched valuations

  16. 10x10 model of Investing 10% in 10 positions No need to be too clever. Incase one of the positions become too big, instead of cutting from say 30% to 15% rather cut 10% from each stock for new position

Day 2 Lessons

  1. You brought a stock at x for some reason now it is 3x still 95% people have the same reason for holding it

  2. Mean reversion is not an exception but a rule

  3. Look for Tangible evidence more parameters we can identify, more clearly we will be able to see essence of causal relationship between moving parts how they reinforce to make the business stronger

  4. If you cant do scuttlebutt of each product of company Try to see an analog in other countries

  5. EV/ Replacement cost is a good matrix for evaluation commodity companies

  6. When management starts focusing too much on market share, it can be a big risk

  7. How does the business make money? Will you yourself or would you suggest/want your family to take products of business like loan for discretionary spending like Refrigerator, See if as PM of a country would you want to promote such business? How can something be long term sustainable if its not good for the society? (As always exceptions are there - Cigarettes and Liquor)

  8. Energy related companies dealing with variables which are hard to predict

  9. Companies Entering new business - Doing new things like start up need to be aware of base rate effect

  10. Think interms of incentives of Top management Why are they staying?

  11. Problem with retail in India is high rental yields along with the fact that India is more of 29 nations. Rental figure treat them as fixed cost, High mortality rate in sector+ Financial leverage dangerous combination

  12. Most important thing incase of leveraged business is culture - If cant judge it / or not good stay away

  13. While looking at turnaround candidates look at these 3 matrix:-
    a. Incentive of head person most imp
    b. Power/ability to remove people
    c. Increase in own stake

  14. Talking about high wallet share is normally good until too high share leads to exploitation of vendors/suppliers

  15. Use of advertising -
    a. To tell about products - info
    b. Push based make a fool of the public

  16. On portfolio risks- Creative part of mind finding newer ideas/patterns taking risk , Portfolio risk manager has the flip switch to control excitement of creative part

  17. Problem with business having low margins but very high turnover
    IBP Company was pure play distribution company which was later merged with Indian oil had 2% margin but 30x turnover very high ROE’s OIL Price went up Indian politicians wanted to be populist margin changed to -.1%*30 led company to BFIR. If you can make sure margin can’t become 0 or –ve, moat will sustain

  18. Be aware of negative bias of online portals like glassdoor review mostly only unhappy people write. Kantian fairness tendency - always some people will be negatively affected

  19. 2008 like crisis
    a. Financially you may be fine
    b. Emotionally Stress and health after effects
    99% stocks were 40% down considering rupee depreciation Weak hands(who could not handle the stress) to strong people (promoters)

  20. Always remember the 3 basic principles:-
    a. Every stock is a business
    b. Market irrational
    c. Margin of safety

  21. Failed investment even if its advertisement should be impaired Colgate vs Patanjali
    Before Patanjali advertising was an investment for the likes of Colgate after Patanjali just to maintain market share advertisement is necessary
    In normal scenarios advertisement expense normally considered as 3 year investment- Pharma can be considered even much higher]

  22. It took time to reach negative working capital, nowdays due to VC money right from Day 1 many business WC negative cycle Even some companies bypass VC with help of Crowd sourcing

  23. Never underestimate a man who overestimates himself. Let Lollapalooza play out

  24. Cement industries - Specific region like Amravati region demand cement can’t be transported over long distance to advantage to local players can maintain pricing
    Cement is not a pure commodity as world markets don’t determine prices

  25. Because of disruption more demand for Quality testing

  26. Justice course Harvard moral questions - https://www.youtube.com/watch?v=kBdfcR-8hEY

  27. Some companies following franchise based model have made big inventory buying compulsory for the franchises. Borrowed future period sales, franchise not happy. Sometimes the brand pull is strong enough to overcome unhappy franchise. Track Incremental working capital and Inventory/market cap

Day 3 Lessons

  1. Financial A/C vs Cost A/C Latter more difficult to fudge like Power+Fuel consumption (so sales growth should normally be correlated)

  2. While looking at exceptional business look whether due to luck or actual process points same thing

  3. Avoid problems near the fence to solve Wisdom is prevention Clever solve problem, wise avoids

  4. What pond to jump into more important than whether you can swim

  5. The next Apple book- Buy stocks hitting all time high

  6. Biggest risk is maintaining courage and then not having cash

  7. 4 types of relationship unless it is WIN-WIN for both you and supplier/customers, competition come and take advantage
    Some companies even did business with supplier in 2008-09 inspite of no demand for end products to ensure suppliers survival
    Just because you are outsourcing doesn’t mean you shortchange others- Every cost will come back to you in different form
    Maruti 2 types of compensation when employees died in factory - different compensation for permanent and temporary employees

  8. Reducing working capital is not always good can jeopardize future relationship/ operations

  9. What happens to company when stock price is too high – The need to show profits in order to maintain high prices , squeeze the suppliers

  10. Patterns + Probability + Hunches to work on. Don’t get fixated on Survivorship bias. Unlike in other fields we can’t d controlled experiment in investing

  11. 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
    Take out some parts of annual report like MD&A, Financial statements and notes

  12. Pain today, gain tomorrow but with staying power and own money Flipkart wrong way ,Amazon Lessons learnt in China don’t want to repeat mistake
    Willingness to do experiment where many will fail but still need to do experiment If everything fails still main business stays, 2/10 works pay off very high
    Good mix of aggressive + conservative

  13. Best way to protect from competition is make it unviable for competition Low margin * high asset turnover

  14. Psychology side of Disruption can’t rely on management as they are always in denial

  15. Dirty Surplus A/C Analysts people don’t look at Reserves and Surplus Bypass P&L to directly to Reserves and surplus

  16. Tim Sebastian of BBC used to interview number of people so when someone interviewed him his biggest learning is people look straight into eyes and still lie

  17. 3 Levels of cheating
    a. Topmost is Forgery
    b. Fraud/ Cheating - Willfully deceive
    c. Willful misinterpretation No lying but avoidance of truth

  18. Auditor credibility very important - Prime Academy database focus on quality/ ranking of auditors

  19. Some ways to shortchange minority shareholders - Look at excise duty paid, Sell scrap off balance sheet, High CWIP, Provisions for bad debt, Loans advances and related party transaction ,Raise false invoice and accept return/ provide rebate, Finance cost too less compared to debt taken, semi finished goods to Finished goods ratio increasing to 35-40% from earlier 20-25% , transaction designed to hide operational lease as financial lease so that it can be capitalized, Subsidiary in Mauritius with2 shareholders doesn’t required audited results while Indian auditors don’t take responsibility of Outside subsidiaries , contingent liabilities very important

  20. 3 types of promoters:-
    a. Who will take all money
    b. Don’t require laws to be honest
    c. Somewhere in mid (depends on laws)

Day 4 Lessons

  1. Paying high double digit PE means PE means more to terminal value, Low PE means striping of uncertainty, Don’t know the future and ready to pay 20x is a dangerous territory to be in

  2. PE is nothing but abridged DCF

  3. Reinvestment risk is underrated ready to have few years of lower rice CAGR because of valuation run up instead of switching back and forth

  4. If there is a large capex think as the promoter of possible reasons
    Work on tentative hypothesis Look for dis confirming evidence more powerful than confirm - N taleb; Look for further evidence, Build narrative based on clues

  5. Full disclosure of management salary not always as good as it seems it creates ENVY according to buffett

  6. Deal breakers:-
    a. Unpredictable and can’t see if product will last 10 years or not
    b. Is it a scalable business or not
    c. Net negative for Humanity
    d. PE multiple more than 50x not buy

I respect your patience if you reached here. I was physically as well as mentally drained after the 4 days marathon. Hopefully, the long post makes up for the inadvertent delay



Super synopsis of the points discussed in 4 days. Thanks for taking pain of collating and sharing.


There were two key learnings for me:

a) A different perspective of looking at financials: Incase you are owning a financials stock (say a bank) your portfolio is anyway levered. Assuming that at a portfolio level you have 20% exposure to financials which themselves are generally at D/E your portfolio is levered by .2*D/E. Although Prof. Bakshi did speak about this in one of his lectures but it wasn’t a part of my mental picture. Further exploring on this from a risk perspective made me to look into a new risk aspect in banking balance sheet which is to look into their lending to the financial sector. Any kind of financial lending makes the leveraged holding in my portfolio more levered and hence riskier. Given everything same a bank that has more exposure to MFI, NBFC, HFC etc. is clearly higher risk. In my opinion anybody who is looking to use leverage (or not) should carefully examine his portfolio from this perspective.

b) Cash is not trash it has an option value: I have a very big difficulty in holding on to cash since it involves opportunity cost. Cash forces me to buy into low quality companies which I have later regretted. This single line in my mind will always force me to look into the optionality part of cash instead of remaining focused on the opportunity cost side.

There are more and Aman has captured them very well. These are the two key things that have stood out for me.


Most of my key take always are well articulated by Dhwani, Hitesh and Aman. Anyway, these are some of key take always for me. Most of them may be known and some of them shared by Prof Bakshi on his blogs etc.

  1. Regarding terminal value after 10 years concept: Actually this question was repeatedly asked by Vinay Parikh for days during any new stock idea discussion. Basically what this forces me to think is will this business/industry even exist after 10 years. Energy,oil and gas, auto ancillaries (due to solar) are some of industries which may have dramatic impact due to technological disruption. Earlier my thought process was more towards taking 3-4 year view. Thinking about business longivity (10 years) while evaluating any new business is a key take away for me. Market will pay up for these businesses eventually.

  2. When to sell: This can be done based on three factors and Professor suggested the following order
    a. When a business undergoes any change in competitive scenario
    b. Management takes any minor mis-steps/mistakes
    c. Overvaluation
    That is when a business undergoes any change in dynamics either due to competitive scenairio changing or regulatory aspects changing, sell decision can be thought of immediately. However in the case is of b and c, particularly overvaluation, we can give more time before sell call. Even some minor things like high salary taken by management can be ignored after looking at bigger picture( like the overall value created).

  3. Owner earnings vs reported earnings: Management spends a part of earnings on “moat enhancement” for ex: enter new geographies, new products, R&D expense. For example: when a company enters new geography, it may have less margins in initial stages or even losses in that segment.This make the current reported earnings depressed and the stock price look expensive which causes us not to buy/evaluate.

  4. Characteristics of great management
    1. Willingness to take pain today for gain tommorrow. ( aligned to point 3)/ protect moat
    2. Willingness to take chances (even small bets)
    3. Even go for low margins: makes it uninteresting for competitors