One position which led to permanent loss of capital was Madras Fertilizers. This happened around 2011-12. At that time, I was not completely focused on good quality businesses.I used to look at turnarounds, special situations and all other stuff where I perceived value. Madras Fertilizers was going through a debt restructuring process. I was quite optimistic that the business will soon turn around and value would emerge. I did not pay enough attention to the quality of business.
With time, the debt restructuring process got stretched, the business continued to hemorrhage and the price corrected by about 50% from my purchase price. Around the same time, I read about the business of Cera Sanitaryware Limited and concluded that it’s a good quality business.Even though the price of Cera’s stock had appreciated by 100% from the time I first started reading about the company, buying the stock of Cera seemed an easy decision.
I switched all of Madras Fertilizers’ position to Cera. Since then, Madras Fertilizers stock continues to trade at the same price (no change in 5 years) while Cera’s stock has appreciated by 6 times.
I learnt 2 things from this:
I can’t be good at a lot of things. I need to be completely focused on one area to become good at it. I was not getting good at anything by trying to do everything. So, I thought hard about it and decided to focus only on good quality businesses.
In order to make prudent decisions, my mind should be detached from actions that I took in the past and should focus on the present. That gave me the courage to let go of Madras Fertilizers and buy Cera Sanitaryware even though Madras Fertilizers was down 50% from my purchase price and Cera had gone up 100% from the time I started working on the company.
Sir John Maynard Keynes would have been pleased if he read this because I changed my mind when the facts changed.
Keynes – “When the facts change, I change my mind. What do you do, Sir?”