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basant
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Quote basant Replybullet Topic: My talk at the ICFAI Business School Hyderabad
    Posted: 27/Aug/2013 at 6:08am
I was invited by the Indian Business School ICFAI Hyderabad to deliver a talk on the Indian Equity markets. The organizers initially wanted me to talk on the economy and then relate the stock market to the economy. However one problem I face with this kind of a pre-selected agenda is that it does not let me understand the mood of the crowd. Sometimes when you are addressing young people the talk has to keep shifting depending on the smiles and the yawns that your last one minute of thought receives. Hence i decided to let the topic remain a little open ended and kept it focused on Capitalizing from the Bear market.

I had not been to Hyderabad before so one interest of looking at this visit was to combine it with a one on one with the members of Basant's Corner (BC). This interaction helps me in two ways, first it gives me a sense of understanding the style and approach of my investors and secondly it assist me in evaluating as to what are the things that i personally need to address while answering queries so as to make BC a better investment forum than what it actually is. The quest for improvement is an essential part of any work and we keep doing that all the time and what better way to do it from subscriber feedback.

I reached Hyderabad on the morning of August 23, where I was received by an old TED enthusiast, RahulB. Rahul is an old hand at investing who talks less and thinks more. For the next two days there was no office for Rahul as he had skipped work to assist me in my endeavor to make the Hyderabad trip a little more interesting than I had actually thought.

We were at Rahul's place in about an hour and were joined by a few more BC enthusiasts. One was a senior executive at a Big pharma company while the others were from the software field. One of the members who had come in to meet us traveled all the way from Gulbarga and is a professor at surgery in a medical college there.

Surgery and investing are related. A bad investment needs a quick surgery so maybe that is the reason why our surgeon friend who has a fairly diversified portfolio of stocks from the BC list has managed to do well with very little volatility in a time when the entire market has gone down on its head.

Lunch was at Chutneys in Orbit Mall at Hitech City and the topic of stocks and shares dominated all the proceedings except when someone had to take an urgent mobile call or answer nature's call!

We reached the ICFAI venue an hour and fifteen minutes before schedule. People who have no other work are actually on time or before that and we were no different. The Finstreet Club which these young MBA aspirants run had really worked hard in marketing the entire event across the campus. Small cut outs of Jesse Livermore, Rakesh Jhunjhunwala and myself were put up across pillars and walls indicating either an investment philosophy or the performance of an earlier recommended stock pick.

The Finstreet guys run a mutual fund where members are asked to deposit Rs 5000 each and than investment decisions are taken only if all the fund Managers are convinced of the idea. Their top holding consisted of SBI, Hero Moto etc all investment decisions are made with the help of their mentor who has been doing a good job exposing these young investors to the realities of the investing world.

We discussed investing with the young Finstreet members for an hour by exchanging views and thoughts as other members from BC also contributed to the debate in their own ways. In between the discussion jumped to placements and fees but shifted back to sticky topic of investing very quickly.

After the initial welcome the talk finally started at about 6.30. My opening suggestion to the young audience was not to look upon stocks and shares as shocks and stares though that is what they have become in recent times depending on what stocks a person has invested in! Stock market is a place where investors who invest with broad diversified portfolios will make returns only in bunches. So if the Dow hit 42 in 1929 after falling from its peak of 386 in 1929 it took 22 years for the Dow to reclaim old highs. The Dow which moved up from the mid 50's to the late 60's went into another hibernation as the index went nowhere from 1967 to 1982. From 1000 in 1982 the Dow moved up to 10,000 by 2000 and has since been struggling. Our own sensex went nowhere from 1992 to 2003 and than after the fierce bull run of 2003-08 the sensex has remained flat ever since.

However in the Indian context people could have made thousands of times return buying IT & Media stocks in the 90's and while returns were made in the 2003-08 bull run investors could made ten twenty and thirty times in the post 2008 period just by picking the stocks from sectors that were doing well and were in flavor.

A small discussion ensued on identifying the sector in flavor and two key takeaways from the same were a) Almost all companies in the sector will be growing at rates of growth of above 30% and b) Leading sector stocks will be consistently hitting new highs. Of course a bull market needs cheap credit, lots of leverage and abundant liquidity.

This was followed by a brief coverage of what brings a bull market which is always started by a new thing whether it was airplanes, cars, Tv and radios in the 1920's or Japan as a economic power in 1989 or internet in 2000. In the Indian case it was de-licensing and the new liberalization policy of 1991 or the IT boom of the late 90's, construction and real estate boom of the mid 2000's when companies were coming out as a part of the organized space. We discussed the big bull markets starting from the Tulip mania of the 17th century, South Sea Bubble, UK Rail boom in the 1850's, US stock market boom prior to the Great depression in 1929, NASDAQ Bubble etc.

The next thought was how to use everyday experience into buying stocks the concept that we have so successfully followed at TED. the Buy what you see formula. This was followed by a talk on assessing business models and entry barriers, factors to consider while assessing a business and the benefits of holding a stock that is acting right.

The audience was also exposed to the issue of how avoiding the big mistakes was an integral part of making a lot of money. It is better to let go of an opportunity than to risk losing permanent capital, experiences were shared along with the findings of Jermey Seigal where he has said that over the last fifty years the maximum wealth producing sectors in the US have been Pharmaceuticals, Consumer and Financial Services.

There were discussions on identifying stocks with the factors to consider while looking at such stocks though in a bull market these factors don't matter and what matters is whether the stock is in demand or not. We also talked on the factors that affect the PE ratio of a stock and times when looking at the PE ratio in isolation isn't necessarily the best thing to do.

Discussions on when to buy cyclical and when not to, how to identify profitable investments irrespective of the Sensex and on remaining invested with the trend also followed.

Obviously there was a reference to the magic of compounding and the perils of looking at investments on an absolute perspective because investments should be looked at with an opportunity cost. If a person is buying shares than the opportunity cost of making the investment is the interest on Bank FD that he has foregone. In stocks he has to compute one stock as an opportunity to another as capital is always finite.

Opportunity cost affects us in all the decisions that we take while looking for a job or even while choosing a spouse. If Ramesh marries Rita and not Gita than the opportunity foregone for marrying Rita is Gita! However this opportunity cost business in marital relations should stop after a deal (knot) has been struck (tied)!

Something to think about!

A thought on identifying companies and how they reach saturation point either in terms of business or in terms of competition was also shared so that investors can keep a tab on how their high growth companies are slowly losing the growth momentum.

The note ended on a brief talk on when to sell though the stress was on buying companies which needed less of decision making and more of monitoring (secular growth companies).

There were a lot of questions from the young audience who seemed to be quite involved. Questions ranged from Gujarat Ambuja, Sail, RCom to KFA where one investor wanted to know why KFA could not be bought for at below Rs 4.

My answer on the KFA query was "KFA is into debt has planes on lease which are being taken back and what assets does it have except its Air Hostesses"!

Another quick advise was to buy companies that trade at price to face value of 100 times. The portfolio will automatically have names like ITC, HUL, Nestle, HDFC twins, L&T, Sun Pharma, Cipla, Lupin, Titan etc. The idea is to bet on the basis of past operating history.

Investing could never have been more easier!

Post the discussion the Finstreet club guys who work really hard came up with their research reports where we debated as to how we could make the same better. The young men really listed to the advice with a lot of curiosity and attention.

I asked them to run their Mutual fund by buying companies with a market cap of less than Rs 10,000 crores only as buying SBI and ITC.does not need any elaborate research and will do little to improve skill sets.

The meet ended with the excellent dinner that the Finstreet guys & their Mentor (Mr. Jain) had hosted for us and while a couple of our BC members had to leave the others stayed back till the very end. I was presented with a memento of a raging Bull with my photo inscribed at the base. A Bull is symbolic of positivity in a market where we are engulfed with negative thoughts all the time.

Next day we met Subu and also a few more BC members. One of them had invited us for lunch and as we walked in we were joined by his friend who holds a good position in a foreign bank. This Banker seemed quite unimpressed by long term investing and said that he just trades the market. When we wanted to know if he actually makes or loses money trading he declared that he knows he would lose but still he has kept a certain amount fixed for trading and when he loses that money he does not feel the pinch because he is sure that he would lose it and does the entire exercise just for 'fun'.

I of course did not find it funny but repeated discussions led to the same answer. Maybe its a source of entertainment for him and he enjoys it just to rewind just as others enjoy going on a vacation.

One of our BC members is an ex Isckon devotee and it was also interesting to hear people from as wide as spectrum as that.

Rahul and myself then moved to the Golconda fort as we had some time for the flight. Here we were joined by Subu again. My interest in history dwindled after we climbed 70% of the distance at which point we found some rocks and boulders to restart the discussion on stocks. Subu was explaining his strategy on Wockhardt while Rahul who is extremely knowledgeable seemed to be in listen mode.

Overall the two days at Hyderabad went off very well and my special thanks to Rahul for being such a generous host and making me feel as comfortable as I would be at home.


Edited by basant - 27/Aug/2013 at 6:21am
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
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prabhakarkudva
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Quote prabhakarkudva Replybullet Posted: 27/Aug/2013 at 10:37am
"KFA is into debt has planes on lease which are being taken back and what assets does it have except its Air Hostesses"!

This had me cracked up the whole morning.
Take your chances and keep them in a box until a quieter time.
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Quote FutureBull Replybullet Posted: 27/Aug/2013 at 11:05am
Ha ha ha good one!, I heard even air hostesses have deserted father-son duo after AirAsia entered the scene.
‘The market always does what it’s supposed to — BUT NEVER WHEN’.
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Quote LearningToFly Replybullet Posted: 28/Aug/2013 at 12:17pm
Nice read Basant Jee. Thank you for sharing.
Success... at all cost.
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Buffet Glb
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Quote Buffet Glb Replybullet Posted: 28/Aug/2013 at 10:25pm

Shri Basantji has very succinctly put across the main theme of his talk at ICFAI, Hyderabad. Actually, there is nothing more to add, however, since some BC members say, 'ye dil mange more' and Basant permits someone there to add, here is a random jotting of points (not necessarily in sequence or idea). Basantji can edit/delete anything that doesn’t fall in tune with the message.

All this time, I was reading equitydesk and Basant’s corner to think & follow what Basantji does. This was my first interaction and this was made possible by Basantji by means of obtaining clearance to have guests.  

  • Fund Manager’s job is a lonely profession.
  • Equities don’t always outperform other asset classes. However, carefully chosen stocks do outperform other assets classes over a reasonable long period.
  • Returns in equities are always in bunches and losses too occur in bunches. Some stocks will make you money; all stocks will never make money. At the end, what matters is the bottomline.  
  • While discussing what brings a bull market, a cue was given to look at what has happened in US. Normally, that gets replicated in India few years down the lane. There was a mention of Walmart’s success story being imitated in Pantaloon. That was one of the reasons to pick up Pantaloon when the retailing was opening up in India. Something, he called as ‘Copy-Paste’ endeavour. Make money when market gives you an opportunity.
  • While discussing how to avoid making big mistakes, he commented on sectors that take away money from investors – Capex Intensive ones & cyclical. While in such sectors, the investors needs to get two decisions right – the entry and exit. However, with secular growth companies, investors can afford getting one act correct i.e. entry.    
  • While talking on different types of Moats, he reiterated brand, patent, networking effect (Vodafone connection in family) NSE –Broking community – HDFC Bank network; first mover advantage E.g. Face book Vs Google Plus; need for huge capital investment
  •  Opportunity cost: Everything in life has opportunity cost as a deciding factor. The Spouse analogy quoted by Basantji drew spontaneous applause like the Air Hostess one! Another one liner was in the context of ‘Buy what you see’. Instead of 3 inner wears, if one would have bought one share of Page Industries earlier, they would have been able to buy inner wears for lifetime!
  • During the Q & A session, regarding PSU industries having the moat, he said, ‘PSU’s have a welfare outlook, while commerce teachers you to look at numbers, the profitability as the baseline’.

Overall, Basantji was a popular energetic speaker, willing to share information with students without sticking to any structured rigid format. Bringing practical market experience to the lecture hall and the classic one liners seemed to make great difference. All these made him engage every person in the audience impactfully.

"The best assets you can have during inflation are your abilities." - Warren Buffett
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Quote bandlab1 Replybullet Posted: 28/Aug/2013 at 10:58pm
dear basant sir,
 
thank you so much for spending sometime with us, i was fortunate to be one of those who met basant sir on 2nd day morning along with subu. those 3 hours and couple of hours in page agm .... i wont forget in my life.  btw, this has also given me opportunity to meet subu and rahul
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Quote subu76 Replybullet Posted: 28/Aug/2013 at 11:43pm
My feeling is also on similar lines. I loved the opportunity to interact with Rahul and Bala
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basant
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Quote basant Replybullet Posted: 28/Aug/2013 at 10:07am
Thank you.

Originally posted by Buffet Glb

Shri Basantji has very succinctly put across the main theme of his talk at ICFAI, Hyderabad. Actually, there is nothing more to add, however, since some BC members say, 'ye dil mange more' and Basant permits someone there to add, here is a random jotting of points (not necessarily in sequence or idea). Basantji can edit/delete anything that doesn’t fall in tune with the message.

All this time, I was reading equitydesk and Basant’s corner to think & follow what Basantji does. This was my first interaction and this was made possible by Basantji by means of obtaining clearance to have guests.  

  • Fund Manager’s job is a lonely profession.
  • Equities don’t always outperform other asset classes. However, carefully chosen stocks do outperform other assets classes over a reasonable long period.
  • Returns in equities are always in bunches and losses too occur in bunches. Some stocks will make you money; all stocks will never make money. At the end, what matters is the bottomline.  
  • While discussing what brings a bull market, a cue was given to look at what has happened in US. Normally, that gets replicated in India few years down the lane. There was a mention of Walmart’s success story being imitated in Pantaloon. That was one of the reasons to pick up Pantaloon when the retailing was opening up in India. Something, he called as ‘Copy-Paste’ endeavour. Make money when market gives you an opportunity.
  • While discussing how to avoid making big mistakes, he commented on sectors that take away money from investors – Capex Intensive ones & cyclical. While in such sectors, the investors needs to get two decisions right – the entry and exit. However, with secular growth companies, investors can afford getting one act correct i.e. entry.    
  • While talking on different types of Moats, he reiterated brand, patent, networking effect (Vodafone connection in family) NSE –Broking community – HDFC Bank network; first mover advantage E.g. Face book Vs Google Plus; need for huge capital investment
  •  Opportunity cost: Everything in life has opportunity cost as a deciding factor. The Spouse analogy quoted by Basantji drew spontaneous applause like the Air Hostess one! Another one liner was in the context of ‘Buy what you see’. Instead of 3 inner wears, if one would have bought one share of Page Industries earlier, they would have been able to buy inner wears for lifetime!
  • During the Q & A session, regarding PSU industries having the moat, he said, ‘PSU’s have a welfare outlook, while commerce teaches you to look at numbers, the profitability as the baseline’.

Overall, Basantji was a popular energetic speaker, willing to share information with students without sticking to any structured rigid format. Bringing practical market experience to the lecture hall and the classic one liners seemed to make great difference. All these made him engage every person in the audience impactfully.

'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
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