Why Negen’s Neil Bahal swears by special situations strategy

Why Negen’s Neil Bahal swears by special situations strategy

Neil Bahal bought his first stock, Infosys, at a very young age of 15 years, and has never looked back since. Bahal founded his first company, a sub-brokerage, when he was just 22 years old. Today, at 37, he manages over ₹550 crore through his portfolio management service, Negen Capital, which he founded in 2017.

Bahal, founder and CEO of Negen Capital, follows the ‘special situations’ style of investing, which was championed by legendary investor Warren Buffett and American academic and hedge fund manager Joel Greenblatt. Bahal shared his portfolio details, investment strategy and financial journey for the special Mint series—Guru portfolio. Edited excerpts from an interview:

What brought you to the stock markets?

It was by chance, actually. I’m probably the first person in my family to get into the stock markets. When I was in school, I was watching a business channel one day, and I just got hooked. It was love at first sight. At the age of 15 years, I started investing and my first stock pick was Infosys in 2002. My father set up ademataccount for me. Initially, I was investing with very limited knowledge, and without any kind of guidance or mentorship. It was more like buying one share and then selling it.

Were you investing out of your own pocket money?

My father gave me a little money. My real investment journey started with the IPOs (initial public offers) of Yes Bank andPetronetLNG. These were my first two big wins. As a young kid, I ended up making decent money. Of course, the returns were on a very small base, but when you start making decent money in percentage terms, you get even more hooked.

What was your initial investment strategy?

I was a very typical retail investor and there was no real strategy as such. It was whatever you like, you buy. For example, if there was something good for a particular sector in the union budget, I bought a stock. Since India has been a great story, whatever I bought went up. I stumbled upon winners, but largely due to luck. Mint Take us through your early professional life.

Right from my seventhgrade ,I was selling old stamps and posters. At that time, Sportstar magazine used to carrycentrespread pictures of cricketers and other sportspersons. I would try to sell these posters to myclas​smatesfor ₹20-30. So, I never thought of doing any job. I wanted to be a full-time investor but that was not easy, because I needed money for that. So, I started my own business during the last year of my degree at SP Jain Institute of Management and Research, and Negen Capital was born as a sub-broker in 2007.

Did you burn your fingers in the market crash of 2008?

Well, 2008 was not very kind to anyone. I, too, saw my portfolio go down by a huge margin of around 70%. But one important lesson from that period was that even if my portfolio went down, the period after that was good for me, especially in 2014. The lesson was that as long as you own decent companies, and do systematic investing, you’re going to be fine because India is a very good story. The 2008 crash was a big event because it took away my fear completely.

How did your investing strategy evolve?

Around 2014-2015, I was introduced to a new way of investing, which is a kind of an extension to value investing, called special situations investing. That really changed the trajectory of my life.

Did serious investing start happen with this strategy?

Yes, that’s correct. My brother, who worked at a hedge fund in London, introduced me to the special situations strategy after he came across Joel Greenblatt and his story. Today, my brother manages his own alternative investment fund.

How does this strategy work?

So, special situation is basically an advanced way of doing value investing. In value investing, you buy a business at a discount, a strategy that Warren Buffett made famous. Then the internet came, and everybody started getting information about a business. So, your good businesses started trading at a very high valuation, and whichever business was available at a cheap price, it was largely because of a reason, which could be a corporate governance issue or an industry going through a bad period.

Special situation is a kind of corporate action, something like a delisting, demerger or a change in promoter altogether, which changes the DNA of a business completely. […]

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