INSUBCONTINENT EXCLUSIVE:
The stock market does not brook arrogance, says Sunil Shah, a Dalal Street veteran, who claims he earned his big bucks in stocks simply by
separating voice from the noise.
He says this is exactly what is going on in the market now; a shift of businesses from messy hands to
Investment opportunities will emerge in private sector banks where there has been a change of guard and where new leadership is trying to
the basics.
Going by his spoils, Mumbai-based Shah (46) seems to have a knack for spotting multibagger stocks.
He claims to have spotted
many big wealth creators at early stages: Omax Auto created major wealth for him in early 1990s, while Astral Poly and Minda Industries
turned out to be golden goose for him in recent years.
Shah says Omax Auto was his first multibagger pick, which also helped him to graduate
from a research analyst to an investor
He invested in Astral Poly in 2010 when its market cap was around Rs 200 crore
He still holds the stock, when the stock commands a market-cap of Rs 14,000 crore
Shah picked Minda Industries in 2015 and it has grown seven times since
My first meeting with him was in February 2009 and he could clearly visualise the market bottom in next three months
Shah, investing is an art of differentiating voice from the noise
The very basic approach should be to bifurcate a company on the basis of the underlying macros that can be key profit drivers
He applies some key filters to each stock he picks: sustainable return on equity, low debt-to-equity ratio, high cash flow from operations,
low working capital, solid sales - profit growth and prudent capital allocation
Shah says he relies on certain non-quantifiable factors to judge the quality of a business
Market feedback on quality and competence of the management, its track record in bull and bear markets, size of business opportunity and the
when to sell?The middle-aged investor says he gets extra alert when a company management tries to push growth
If I get a right tick on all the points in my checklist, I will continue to hold the stock
Importance of valuationValuation is the mother of all investment rationales, says Shah
yield is a big draw for him
The next parameter is price-to-book value
This provides the cushion to buy a stock at the historical cost of assets
The other critical parameter is the price-to-replacement cost
Besides, the typical textbook measures like discounted cash flow, price-to-earnings ratio, PEG ratio, EV/EBITDA, EV/EBIT and peer valuation
Lessons for investorsShah says serious investors must first learn to ignore the free advice available on social media
objectively, restrain impulsive action and try and access all relevant information
One should listen to market gurus, especially their views on emerging trends
farBillionaire investor Warren Buffett says he was lucky to be born in recession, as he could learn lessons at a very young age
Shah says he feels lucky that he got to start his investing career at the time when the Indian economy was opening up
his team managed Rs 1,500 crore under a non-discretionary portfolio management service
He later joined Enam Securities Direct as Head of Research, where he honed his skills in identifying midcap and smallcap companies that
When Axis Bank took over Enam, Shah partnered his friend Bimal Choksi to run a portfolio management service firm, Turtle Star Portfolio
managers.
Lessons from failuresShah says trusting statements of company managements and his own emotional biases have been the biggest
mistakes of his investing journey
His inability to decipher corporate governance standards was another major shortcoming
Shah cited an experience with RICOH India stock, which he had bought in 2014 trying to cash in on B2G-digitalisation
The company announced an order win worth Rs 1,370 crore from the postal department to digitalise 1,30,000 post offices, which lifted the
stock from Rs 200 to almost Rs 1,200 in a year.
The company kept on announcing positive news one after another even as its debt levels kept
Soon the auditors alleged that the company was fudging sales numbers and there was a loss to the extent of Rs 1,123 crore
The stock had a free fall
Important Thing, Education of a Value Investor, Of Long-Term Value and Wealth creation, The Intelligent Investor, Security Analysis, Rich
Dad Poor Dad and One up on Wall Street
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