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“It’s not your buying that makes you big money, it is your holding”

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Face to Face with Manish Sarda

Stock markets have had a tumultuous ride over the last few decades. It had crazy bull runs, the Harshad Mehta and Ketan Parikh years to the Satyam fiasco. Almost everything necessary to make it a taboo in the eyes of common Indians. Even the IT boom and bust left many bankrupt. Many investors went kaput, but few stayed, endured and made massive amounts of money. Manish Sarda is one who has seen such success over a period of 25 years.

 

To start with let us know a little bit about your background?

I come from a background where the stock market is viewed as a place to gamble and equity is not considered an asset class. My family is in the traditional trading business of Tarpaulin. I have done Bachelors in Commerce but from a very early age, I started to understand how businesses function learning in the process the ingredients that are required to build solid businesses. These learnings became a crucial part of my stock market journey.

What inspired you to invest in stocks?

My stock market journey started in 1990-1991 out of curiosity. One of my friend’s brother was a sub-broker, who asked me to put some money in the market. I started with an initial capital of around Rs one lakh. Thanks to the Harshad Mehta boom my investment quadrupled in less than 3 months. It was all based on stock tips, but I started to consider myself as a great investor. And then the crash followed. A lot of companies in which I had invested ceased to exist and vanished from the market. This was my first and biggest lesson.

What did you learn from it?

I understood that safety of capital is the single most important thing in the market. I realized that if my capital is protected, the returns will follow tomorrow if not today, but if my capital is eroded then I am out of the market. After this setback, I started to think about my actions that led to this debacle. I realized that neither the gains were due to my analysis nor the losses. It was only speculation based on other’s thoughts. I realized that to be a successful investor, one needs to understand businesses and invest in them and not throw darts on random stories floating in the market. At the same time an extremely powerful thought hit my mind – if coming from a business family I can’t analyze companies based on their business potential, then how on earth will I be even able to make money from my own business. This thought changed my fortunes. I have never looked back.

So in your view how a new investor should start his/her journey in the markets?

In my view a new investor should never follow the herd as it will take him nowhere in the long run. To build and preserve wealth, from stock markets, one needs to have his or her own conviction. As it is rightly said “You can borrow an investor’s idea but you cannot borrow his conviction”. A new investor should focus on learning the process – how to ‘invest’ independently rather than coming with a mindset of doubling his money the very next day.

To hit a sixer in the stock market, you need to invest not only on the basis of “price” but on the basis of “growth” of the company. The goal should be, using the analytical skill, to reach an understanding of various triggers of different businesses and with that perceive how the company can be 3-5 years down the line with reasonable surety. A lot of people are trapped when they feel a company is cheap price wise because it hasn’t moved along with its peers, ignoring the “growth” aspect. They make a mistake of investing even if the company’s balance sheet is more or less the same even after 5 years.

Another important point to note is that there is absolutely no substitute for reading in the investing world. An investor should first invest his time in reading business magazines, annual reports, company con-calls, industry reports, books on investment, business newspapers, interviews of promoters and management, etc.

What is your broad investment philosophy?

The important things that I look for in an investment opportunity are:

The integrity of the promoter: Since we are trying to find out a partner as well as a manager for the business we are investing, we need to be ruthless in making sure that a promoter is not a fraud and is capable of taking the business to the next level. It is simple – just think how you would when you try to partner with someone in a joint venture business.

The company’s stock price must not be hyped: One of my beliefs is that we should stay away from the hype – hoopla. If everyone on the D-street is bullish on a particular stock and has bid up the price of a stock to the extent of euphoria, I compulsorily stay away from it.

Demand for products: There should be good potential for growth of the company which will only be ensured if there is sustainable demand of the products of the company. I look for clarity of demand for the next 3-5 years at least before investing.

From the day I first lost in the market, my most important rule has been never to take tips or follow someone. I believe that it is my hard-earned money that I am investing so till the time I am not completely satisfied with the prospects of the company I’ll not invest in it. Yes, if some renowned investor has invested in a big way in some company I would read it as I love reading about different businesses.

Your view on markets going ahead?

Indian markets are on for newer highs and highs, but the highs would be accompanied by some sharp corrections or falls. We should learn to be able to face the falls as well.

How markets are different from 1990-91?

The Indian stock market has become much cleaner than it used to be when I started thanks to the regulations and the measures taken by SEBI. When I started, we had to be very careful about the promoter’s integrity as most of them treated the company like their private property, but now market is highly regulated and it is not a difficult task to make money if one invests with proper understanding and sticks to discipline.

Share your successful stock picks.

There have been a lot of stocks that have contributed massively to portfolio returns. Can Fin Homes has been a big multibagger for me. It  has gone up nearly 12 times from my buying range. During 2010-13 Wockhardt was nearly a 18 bagger for me. There have been other companies too but the point I would like to make here is that once you find a great company at reasonable valuations you should allocate a high percentage of portfolio after doing your due diligence and hold it as long as the story remains intact. You need just a few life-changing stocks in your career as an investor. Once you find such a stock it is a crime to sell it till the story remains intact. It is often said “It’s not your buying that makes you big money, it is your holding”.

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