FAQ

After going through the investor presentation, you may have some questions. The following are questions I would ask, if our roles were reversed.


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Also, you can download the FAQ in PDF here.


I invest in businesses which are fundamentally strong and have some unique differentiators. Any company which has a rock-solid business, has an ethical management and is available at a margin of safety works for me. The cap doesn’t matter-it can wear any.
As long as the business continues to create value and the price is not very high compared to the intrinsic value, I would like to stay invested. Usually that period can be around 5-7 years. It can be less or more depending on the value creation process and the price.
Sure.
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:

(1) Focus
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.

(2) Detachment
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?”
Of the 4 things in investing – Capital, Trust, Patience and Ideas – first 3 are provided by the clients. The job of an investment advisor is to identify prudent ideas. So, in my view, clients have a much larger role to play in the investment process.
No. They lie outside my circle of competence..
Yes, I avoid businesses which are susceptible to sudden and quick changes. I also avoid businesses which have too much of regulation on raw material / prices etc.

I also avoid businesses where there is too much hope and little track record. I look for businesses which have a demonstrated track record of earnings.
I am open to investing in IPOs. The principles remain the same:
(1) Business within my circle of competence
(2) Competent and ethical management
(3) Margin of safety between intrinsic value and price.

If a business offered in an IPO satisfies this criterion, I will surely invest in it.
Difficult to put any time frame, but subjectively the churn in portfolio is quite less.
4 scenarios (in that order):

(1) If I realize I have made a mistake

(2) If the business weakens

(3) If I find a relatively much better opportunity

(4) If the valuations go out of the park
I provide a note on the idea when I initiate it. Thereafter, I provide an annual update on each idea. Sometimes, I write notes on specific events..
As per SEBI Investment Advisor Guidelines, the required documents are:
(1) KYC [Know Your Customer] documents
(2) Risk Assessment Questionnaire.
(3) Client agreement