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Happy Investing 2020

2019 has been a fabulous year for Stockifi. 22 out of 26 stocks recommended so far, has
given ~25% to ~110% returns in just 2 to 6 months.
We hope that the momentum continues in the next year as well.
4 Rules we follow at Stockifi:
> Worry Top-down, invest bottoms - up.
> Learn to embrace volatility, don’t be afraid of it.
> Have a plan ready before you invest/enter into a trade.
> Lateral Thinking and Scenario analysis is very vital for successful investing.
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In early days of my career, I was fortunate to have an opportunity to meet and interview
several super investors such as Mr. Ramesh Damani, Mr Sonjoy Bhattacharya etc.
Following is the compilation of few of the best answers on investing:

→ How do you make a decision to sell?

It is essential to hold on to good business. I’ve seen a lot of people who sell the stocks
just because it has doubled or tripled. They say things like stock has doubled so I’ll sell
half and take my money out and I feel it reflects their naivety.

Until the story and the initial hypothesis on which I bought the stock is intact, I would
hold on to it. I wouldn’t sell a business just because it has given me X% of returns. Also
at the first sign of danger, I would exit a stock. If I realise that my hypothesis is not
playing out, I accept my mistake and sell.

Second if I think that markets as a whole are much overvalued, I sell gradually. For
example, one sign I’ve observed is you will find market related articles and reports on the
first page of several vernacular new papers. That would be a sign to exit. However, let
me tell you that I am not very good at selling and thus I try to avoid mistakes while
buying the business in the first place. Also, one needs to be in the markets for at least a
decade to master the art of selling.

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➔ Nowadays with too much information flow, how do you manage to ignore the noise?

I must say anyone putting his hard-earned money in the markers should exercise due
diligence. If it would be so easy to get rich by someone tweeting or by a WhatsApp
message, the world would be full of billionaires. Here’s my tip, ‘‘don’t follow tips’’.

One needs to understand that market is not a get rich quick scheme. Even warren
buffet earned 95% of his wealth after the age of 50. So, it is best to ignore a lot of ‘too
good to be true’ noise in the market. If someone tell you that he knows a stock that
would double in three months, ask him has he invested his every single penny if he is so
sure.

➔ Is it possible to time the market?

There are three phases of the bull market. Phase one is the initial uptake in the markets.
Phase two is the longest and perhaps the slowest phase in a bull market. Phase three is
almost always a vertical rise in the markets where in majority of retail participant jumps
in and a huge amount of euphoria is witnessed. In phase three it is typical to find extreme
discrepancy between price and value.

Ideal strategy should be to stick to the basics which is to find and invest in good
businesses at a reasonable valuation and hold it. Also, one of the crucial lessons that I’ve
learnt is never to try and time the market but rather time in the market. Only at rare
extremes (too much pessimism or too much optimism) one might be able to time the
market but otherwise it is very difficult and foolhardy to time the market.

→ Do you believe in the role of Luck in Investing?

As buffet says he was lucky in terms that he won an ovarian lottery as he was born in
1950s in America. Also, to be born in India which is the land of opportunities, one needs
to be lucky. But beyond that I feel there is a skillset involved.

If you were born in Central Africa amidst civil unrest, extreme poverty, etc. that may be
termed as unlucky. But understanding the market, allocating the capital in a sensible
manner, saving for the future all that requires a skill set. Also, one needs to understand
it’s simple but not easy to make money in the markets.

To spot a 5/10 bagger you need skills but to hold a 50/100 bagger you need luck!

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→ What would be your advice to someone just starting out in career of investing?

I would say market is great place to get rich, but not in a hurry. And how you get rich?
By the magic of compounding. If one were to start with a reasonable base capital and let
the magic of compounding work patiently, one can be fairly rich within 20-25 years.

To give an example, when my son was 13 years old, we had organised a name ceremony
for him. We invited hundreds of friends and family and all of them gave him some or
other gifts. I don’t remember a single gift except one gift from a friend of mine who gave
him HDFC shares worth Rs. 25,000. Today they are worth Rs. 25 lakhs and it does not
include dividends. Thus you can imagine power of an appreciating assets.

The second and most important thing is to read a lot. It is very important that one must
read about Business, Economics, History, Psychology etc. It is essential to keep on
learning about new developments in this disruptive era.

Third and the most fundamental thing about investing is to buy things cheap, buy Rs.1
thing for 30-40 paise. It’s as simple as that. Also, Investment is a long-term business.
When you are buying a stock, think that you are buying a part of the company's business.
View it over a period of time and don't look for investment as a source of short-term
returns.

➔ Can you elaborate on your process which you use while analysing any business?
First I check out whether the business generates free cash flow or not. Sometimes you
can have high reported earnings and low to non-existent free cash flows. The existence
of free cash flow ensures that the company is unlikely to be wiped out at the bottom of
the cycle. If you stick to this principle in a disciplined fashion, you will considerably
lessen the amount of risk you take.
Second important element is the integrity of management. If there are a few things that
stand out in my mind as being vital, one is honest management. As buffet has said it is
tough to have a good deal with a bad person.
Third is the level of competitive intensity in the business. After committing several
mistakes, I understood that risk is typically much lower when you buy a monopoly
business. It may sound obvious but most investors do not pay enough attention to this
simple idea.

Also one of the last things on my checklist is to anticipate what can change in a
business. You have to try and figure out what this might be either by scanning historical
precedent or divining the future.

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➔ Does Moat Investing really work?

Very few know what moat really is. Moat is an assumption that there are certain
“sustainable” barriers to a business. Moats were more intact earlier when the economy
was closed, there were quotas and licenses were difficult. Now with globalization,
disruption in work processes (ecommerce vs retail) too much competition and a lot of
efficiencies in the system, moats are far more complex.

Moats have to be measured from a future perspective but there is no guarantee that all
moats will be sustainable. For example, if it snows and water freezes in the water that
makes a moat around a castle, you could be attacked, conquered. You could be smart
and could deploy more guards to protect the castle and then the questions would be
about who has more ‘trusted” “economical” “loyal” “skilled” guards.

Now in today’s world of disruptive Innovation, someone will bomb your castle from the
air and then again there will be no moat. Amidst the world of destructive innovation, the
task of investing is becoming tougher and tougher. As it is said, ‘’the only thing
constant in life is Change.’’

➔ What is your message to young investors in the markets?

I would like to give them three mantras of the market.

1. CONVICTION: Understanding of the story is very crucial and to maintain the

2. DISCIPLINE: One needs to inculcate discipline in terms of trailing stop loss,

3. PATIENCE: Stock market is a place where a company’s real worth may take time to
fully reflect in price. Right temperament and patience is what we need to cultivate
within ourselves to create a sustainable wealth.

Also it is very important to stay grounded as in markets one can easily get carried away by
unreasonable returns expectations. So stay rooted, read as much as you can and enjoy the
process is what I would like to advise the newbies.

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➔ How significant do you feel is the role of emerging equity culture in India?

Gold is a non-productive asset and FD is barely matching inflation. In absolute terms you
lose money in Gold and FD over a long period of time. Real estate has liquidity
constraints. So, what is left is equity which are a very good avenues to invest and grow
your money. Now our government has done a whole lot of things to promote equity
culture, may it be rapid dematerialisation, transparency etc.

They have made it a no brainer to invest in equity market as one can compound money
tax-free. Even dividends are tax-free in India. I just don’t understand why a lot of people
have been ignoring all these benefits. I feel one of the ways to boost equity participation
would be to open a similar scheme like jan dhan yojna, where in which everyone gets
a free D-mat account and awareness about the power of equities.

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