BHARAT SHAH, Executive Director, ASK Group , is one of India’s most renowned investors and has often participated in the Morningstar Investment Conference India.
His investment philosophy is centered around buying quality businesses that enjoy superior growth, which are available at reasonable valuations to enable an adequate margin of safety. Over the years, he has consistently spoken about his investing ideology, and his delivery is articulate with a healthy dose of brutal honesty.
Here are some of the insights he shared at the 2022 Morningstar Investment Conference. Growth vs . Value.
Growth and Value is the classical ongoing debate that I’ve never subscribed to, neither do I believe in.
It is an artificial divide and efficient investing should combine both elements. To pick one to the exclusion of the other is foolhardy. Without any meaningful long-term compounding growth, it is hard to generate adequate value. If it is growth at any price (GAAP), then it is unlikely to be intelligent investing. Even that package of growth and longevity has to be found at a price which tilts the economics in your favour; there must be adequate margin of safety.
Big fish in a small pond vs. Small fish in a big pond.
Equity is about finding a big pond rather than trying to overly debate the size of the fish.
If the fish is capable and the pond is large, the fish will grow to be fat and big and productive and healthy. If the pond is small, the big fish will get stifled and eventually strangulate itself. Therefore, the size of the pond is crucial to enable fish to grow. The size of the pond will provide the opportunity to grow and get bigger.
Think about it conceptually. When you buy equity, essentially what are you doing? You are postponing gratification. You’re making the sacrifice today in the hope of getting a larger outcome tomorrow. You’ve paid X price, and you’re hoping to get X+Y either tomorrow or the day after or whenever. That difference between what you have paid out and what you hope to get additional is the return. And that extra will come only if what you have invested into will get bigger over a period of time.
That act of getting bigger will essentially come from growth, and that growth essentially will come from the size of the pond – the size of the opportunity, along with the capability of the fish.
Patience to stay in the game vs. Timing the entry and exit.
In my early days of the investing as a fund manager, Infosys and Wipro were the two biggest
positions in my portfolio. Infosys went up 200-odd times from the time that I purchased, and Wipro went up even higher.
In retrospect, I exited too early. Did I know that Infosys would go up 200 times? No. All that I knew when I invested was that it was a good business, fundamentally attractive, a good, competent and honest management, and given the size of opportunity, it looked like it will probably grow. In mathematical terms, the valuation was attractive. So there were sufficient reasons to stay with it. It is the staying with it that gave that wing rather than my real capability to figure out whether it will go up 200 times.
Far more money is made in terms of the patience devoted to something which is actually worthy, rather than one’s prescient capability to pick out something at most opportune moment or most opportune price.
A lot of the time we ascribe astute skills and judicious competency to ourselves, especially when something wins handsomely. A small part of it may have some merit, but a large part of it is nothing but self-reflected glory or ego or arrogance.
To purchase at the perfect point of time or pick an outstandingly winning business sounds intellectually gratifying. While patience and the long term appears very pedestrian, boring, lazy, and intellectually mediocre. But, generally speaking, far more money is made by time spent with the good thing and patiently riding the market upheavals. Time and patience work like magic and that power is unbeatable.
Of course, you need to be with a good thing. However much of time and patience is devoted to pebbles and stones, they will never turn into diamonds.
Known businesses vs. Profitless companies with potential. I do not invest in profitless companies as I don’t have any particular fetish for self-injury.Businesses have to create value. They will create value if they make real, economic profits. And these profits have to […]
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