Face to Face with Abhishek
After trying Technical and Fundamental analysis, Options trading and several other schools, Abhishek believes that the sustainable way to wealth creation is buying and holding good business.
How you you’ve evolved over time as an investor?
I am an Engineer and an MBA but in my opinion all the fancy degrees are immaterial when it comes to investing. My real education in investing started when I read a book called Rich Dad Poor Dad which was given to me by a friend of mine. After reading the book I realized that if I want to make lots of money, then it is imperative that either I become a businessman or an investor. At that time, I was just 21 years old, with Zilch capital, coming from a typical middle class family, with no business background, working in an IT firm. Thus, I figured out that the easiest way to become an investor is to get into the stock market. The first thing I did was to start reading Economic Times and Business Standard every day. Also, I devoured Investopedia.com and Fool.com. I started reading books such as the Warren Buffet Way, One Up On Wall Street, and Beating the Street etc. I fell in love with reading so much that I have read over 1000 books on investing. I have been very lucky being associated with a lot of very good people, throughout my journey as an investor. After trying my hand at technical analysis, futures and options trading and several other schools, I’ve realized that the only sustainable way to wealth creation for me is buying and holding good business.
How has your thought process evolved during these 16 years?
After reading about numerous successful as well as unsuccessful investors, I realized that one really makes money in markets by protecting the downside. The most important thing is to avoid permanent loss of capital. Now when talking about timing the markets, it’s almost impossible to do it. Trust me, nobody can time the markets on a consistent basis. However, every year or two you might come across a market correction that would be a great opportunity to get in the market and hold. Along with investing our money to compound our wealth one should also invest our time and efforts to compound our knowledge. Both are equally important and both grow simultaneously. Also one needs to be present in the markets all the time to embrace the temperamental growth.
You are holding Supreme Industries even after it has been a 70 bagger for you. What gave you the conviction to keep holding it for so long?
One thing which caught my attention was that the company was growing consistently at 20-25% and was trading at 5-6 PE. Another significant thing which I loved about the company was that ROE and ROCE were consistently growing. For a plastic manufacturer, to have a 25-30% of ROCE seemed to be phenomenal. Also, their margin expansion appealed to me. Management came across as very pragmatic and transparent in their annual report and other communication. It seemed like a perfect fit for my portfolio as it did pass through a rigorous checklist. Also during the turbulent times in the market it didn’t fall much which did give a boost to my conviction.
What would you look at say quarterly results to make a decision whether to sell or hold or add more to the existing position?
The first thing I emphasize on is the scalability and growth of earnings. Are these earnings growth sustainable? Another thing I observe is that does the management walk their talk. Every quarter to six months, I check whether the initial thesis on which I’ve bought the company is still intact or not. I also wait for market to behave in an irrational way so that once I get my desired price I add more to my existing position. Keeping a track of your company is of utmost importance, especially in such dynamic markets.
It is easy to figure out what to buy, but 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 the 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. Also at the first sign of danger, I would exit a stock. If I realize that my hypothesis is not playing out, I accept my mistake and sell. Second, if I think that market 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 newspapers. That would be a signal 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.
Naseem Taleb talks about the role of skills and luck in life and investing. What is your opinion?
I believe in investing and in life luck plays a substantial role. There are different ways people look at it. Some call it ‘x’ factor, unseen hand, divine intervention, etc. There are numerous variables which one does not know that controls markets. The market is a complex adaptive system. A lot of things can happen which is beyond our control. For example, a CEO or MD of your beloved company may meet with an accident or a natural calamity occurs, etc. One needs to focus on increasing the probability of being lucky by being disciplined.
What would be your advice to someone just starting out in the realm of investing?
The first thing is simple – you have to read a lot. You have to read about the industry, read about sectors. Focusing on any particular industry try to read about the competitive dynamics, output, key players etc. in that industry. Start reading annual reports and make it a ritual. Over the years you will gain an enormous amount of insights. Your objective is to understand the dynamics of the industry rather than analyze each and every company. Also, I would like to emphasize the importance of maintaining an investing journal. Write down why you are investing in a particular business. What you like about that company. Also write what would you do if it were to fall more than 30%. And write what you will do if the price would go up 100% in a short period. Buy more, re-evaluate etc. Writing is such a simple tool, but the majority of people don’t use it. Writing will eliminate a lot of stupid mistakes.
How you manage your time?
First, I would like to express gratitude to my family that they are very supportive. There are times that I cannot track markets due to work pressure, but I’ve evolved my style as such I do not need to keep in touch with markets on a daily or weekly basis. I never paid any short term capital gains in last 4-5 years. The longevity of holding period also influences the fact that I do not need to be in the market every day. I spend a lot of time reading during weekends. The benefits of having a job is that I have steady cash flows so I do not need to generate returns from the market for my livelihood, which is very helpful when the market goes through turbulent phases. The only disadvantage I see is I don’t get enough time for reading more and keeping up with a lot more companies which full time investors might be able to do.
Can you share your top five books?
One up on Wall Street and Beating the Street by Peter Lynch; Margin Of Safety by Seth Klarman; Poor Charlie Almanack and The Most Important Thing by Howard Marks.