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
Valuation
- 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.
Cheers