Please share your first stock and mutual fund pick?
The first stock that I picked was Nucleus Software Exports Ltd. At that time, it was a ₹500 crore market cap company. I made money from it, but it was a pure value bet. I did not spend enough time understanding the quality of the business or the product itself.
My brother looks after my mutual fund investments. To take benefit of Section 80C, I started my first mutual fund investment in the Mirae Asset tax saver fund.
How do you find a stock as your value pick?
The two areas where I focus majorly are ‘cashflows’ and ‘growth in those cashflows’. I always look for companies that are growing faster than India’s nominal GDP. If India’s nominal GDP is growing at 12%, a company’s sales are growing at 13-15%, with an operating profit growth at 15-17% and balance sheet improvements resulting in cash flows growing at 17-19%, that’s where I want my portfolio to be.
Money is not in buying and selling of stocks but in hold. How long do you prefer to hold a portfolio stock?
The average holding period for a portfolio that I execute is three years plus at present. The first-two investment that I have made for my clients, I have not sold them yet.
Please share your favourite sectors where you comfortably find a value pick?
I don’t exactly focus on a particular sector, instead, I like to look at things across the board. However, if I have to name any specific sectors then I would say -pharmaceuticals and infrastructure. At present, I see a lot of opportunity in these two sectors, but both of them are ‘stock specific’. Both these sectors have a lot of landmines and a lot of opportunities.
What is your asset mix?
I have 95% equity, and six months of expenses in debt, which would be 1% of my net worth. I have some gold, which my mother gifted to me in my marriage.
Do you invest in international stocks?
I used to invest in international stocks when I was in the US. I do have investments through mutual funds in international stocks, but not any direct equity investment. My brother sees my mutual fund investment. I invest only in Indian stocks because I see a lot of opportunities here.
We succeed after committing mistakes. Any of your mistakes that you would like to share with our readers?
One mistake that I made was by investing in Kesar Terminals & Infrastructure Ltd. It was a company that had great cash flow business. Once I met their management at the AGM and I realised there was a discord between what I assumed and what the execution should have come through. I got some red flags, but I still believed in that company. I was a little complacent and hesitant to sell it. That was my biggest error –complacency.
Please share the investment strategy that has been working well for you?
Two things have really worked for me–one is the simplification of my investment philosophy. I spend more time on understanding business, quality of management, and buying at the right price. Second thing is to have a sparring partner. I used to run my own small PMS fund earlier before Tamohara. At that time, I was living in an echo chamber, making mistakes. When I merged it into Tamohara, I found my sparring partner, Sheetal Malpani, Chief Investment Officer, who could stand up to me and say I agree with you on this and I don’t on this. We always joke around in our office that every Warren Buffett needs a Charlie Munger. Without each other, they won’t have the success that they have now. Every investor should have a sparring partner.
The strategy that did not work for me is having too much hope in people. Sometimes as an investor I think we all get so emotionally invested in the stock we bought that even if the numbers are otherwise we just trust them. Kesar was an example of that. And that is where sparing a partner helps. So, if they have not spent the same amount of emotional investment into that company they can spend tall and say this is not true, and you need to take a hard look at it.
Any portfolio management tip during a volatile market?
At Tamohara, the portfolio strategy has remained consistent. We are going after companies that have shown the ability to grow their cashflows. We don’t buy any company where we do not understand the terminal value of that business.
We have also developed two things during this time, one is the Tamohara checklist under which we have come up with this massive questionnaire to fill up. It includes questions such as, ‘Has the auditor’s payment changed abruptly?’ Second, we came up with a scoring system. It is essentially taking our investment philosophy with all the checks and balances we wanted to cater to, and we tried to codify that into a number. We run this periodically on all the companies in BSE 200 and companies that we might be interested in investing in. Just to have a check and balances in place.
How do you look at yourself as an investor?
Whenever I look at any company, the first thing I try to understand is “How does the ‘rokda’ flow into this business?” I always try to look at every single company and investment, strictly from a cash flow perspective. I focus more on the fundamentals.
What does wealth mean to you?
Wealth to me is absolute freedom. Freedom to take the choice that I don’t want to live in Mumbai anymore. I want to set up my research house in Goa and open a coffee business. Wealth is a liberation factor that you don’t need to worry about fulfilling your dreams anymore.
Will you move from equity to debt at a later phase in life?
The confidence that I have in Indian equity is unparalleled. My equities will help to get to a stage of wealth where I do not have to be concerned with debt. And, the only piece of real estate I wish to own in the future would be a house in Goa.
Please tell me about your portfolio returns?
The purest way to showcase my returns is how my family portfolio has performed. My parents are my toughest clients. I have been managing my family’s portfolio since 2014. Every 1 April, my family sits down at a family board meeting I present them the report card of investment. 24.3% (approx) is the CAGR of my family excluding the dividends. We are a family of six people and I handle the equity portfolio of everyone while my brother sees after mutual funds.
As per Tamohara Long Term Equity strategy, it predominantly invests in small and mid-cap companies. Could you please share the names of these companies?
Some of our past winners are Tasty Bite Eatables Ltd and APL Apollo Tubes. Laurus Labs Ltd is another one on the list, but we sold it about nine months ago. We have focused more on small and mid-cap companies because we feel we can do differentiated work there.
Also please tell me about the multi-cap strategy where you invest in large-cap companies. How do you pick such stocks?
In large cap, our biggest winners have been SBI and M&M. One Saturday, I picked up Mahindra’s annual report, and it spelled out a lot of changes that they were willing to do. So we decided to take that into our list in October 2020. These two large-cap companies have been our biggest winners in the last three years. Investing in a large cap is more about discipline.
What is the average number of stocks that you target in a portfolio?
We target 15-18 stocks per client per portfolio.
How does your team manage risk?
We employ a risk management team at the company’s level. So, we have a thesis that we have put in place for any company. We give ourselves three quarters after buying a company to see if our thesis is playing out. If the thesis is not playing out, we revisit the company and analyse it again. “Accept the folly and bow out of the race, don’t get slaughtered and sit on massive loss that you really can’t recuperate from,” says Tamohara CIO.
At the portfolio level, the only risk management tool that we have is if we do not find the company available at our price point, we will sit on cash and defend it until it favours us.
How much AUM do you manage? Has the fund AUM grown in 2022?
When I joined in April 2021 we had ₹160 crore (approx) AUM. At present, Tamohara manages ₹300 crore (approx) AUM.
Being a voracious reader, what books would you like to suggest for investment?
I only like two books on investment, the rest are just a repetition of the same things. So if someone is new to the field of investing, stick to “One Up on Wall Street by Peter Lynch”. And, someone who has gained a little experience in the stock market may read, “The Most Important Thing by Howard Marks”.
What is your favourite book? What are you reading at present?
Well, my favourite book is fictional. I am a great fan of Harry Potter. Recently, the book that I enjoyed reading was “The Swerve: How the World Became Modern”. Among the biographies that I have enjoyed the most is Walter Isaacson’s Leonardo the Vinci. I also enjoy books by William Dalrymple. Currently, I am reading a book on the Medici family.