In the latest episode, he sat down with Kuntal Shah, Partner of SageOne Investments, and asked him about his investment processes and how he controls emotions of greed and fear.
Excerpts from the conversation. The transcript will be updated lower.
Q: Did you follow the all-in strategy in your early days and what were the top stock ideas that kicked off your career in the market?
A: We invested in a holding company of the largest telecom company in India, Bharti Telecom, which got delisted. We didn’t tender our shares where the enterprise value was close to around USD 25 million. We waited for 17 years and saw the business move to a market cap of USD 20 billion.
Q: I see a man moving from all-in philosophy to one who is process driven who is looking at value, margin of safety. Is that what is happening to you?
A: I think so, as my evolution happened, I have moved from financial independence to wealth creation to wealth compounding mode. This has brought tremendous change in the way I approached the portfolio construction and the process beneath it.
Q: You run a retail advisory services. Tell me about that.
A: Last few years, we have been advising select few friends and families on an advisory basis but now we have applied for portfolio management license, which we expect to get in a couple of weeks. Also we have started advising an offshore fund out of Singapore.
Q: They say you learn a lot more from your mistakes than your successes and investing is quite humbling. We all make a lot of mistakes. What have been your mistakes and what have you learnt from them?
A: It is a very appropriate question. We are sitting at a library which is partner of Russell Napier’s libraryofmistake.com. So, since the biblical era where we are used to seven deadly sins of humanity, we have evolved. There are three important psychological investment which I have tried to address and they are greed, fear and cowardice.
Q: Greed and fear are the most obvious ones. The markets always swing between greed and fear, how do you avoid them then?
A: The strategy I have which works for me is the foot in the door strategy, which allows me to take some profit off the table during the frothy market condition and forces me to invest the same capital in the following bust. This allows me to average up or down without having a commitment bias or anchoring to a price or having a feeling of left out.
Q: So, that is your process now?
A: That is a process. Secondly, cowardice is another big aspect where people get frozen at the time of extreme dislocation. The process is the firepower, which gives you cash and courage during the time of extreme dislocation because the process forces you to take the money when the valuations are not in your favour and forces you to invest when the valuation is under favour. So, you land up having both at the same time when you need them.
Q: But have you actually experienced that through a bull market and bear market cycle. Are these things easy to do, buy when there is blood on the street?
A: The foot in the door will get it right, you may not be able to call the top or the bottom of the market but you intuitively try to average up and average down. That works well for the compounding and risk mitigation.
Q: You talked about mistakes in your life, fear, greed, cowardice. Lot of investing is also about learning, learning from the gurus. Who have been some of the stronger influences with you?
A: Due to technological revolution, I have access to works of eminent investors from the past and of people in offshore geographies. Also I have been lucky enough to get introduced to some of the lions in investment in India like Nemish Shah and Vallabh Bhanshali of Enam. Manish Chokhani, Durgesh Shah of Corporate Database, yourself and a host of the value investor eco-system, which has developed in the last two decades and I am lucky to have their company.