Bharat Shah, Executive Director at ASK Group is a veteran in the Indian stock markets with over 25 years experience. In this series of interactions, he shares his views and experiences.
Can you take us through your over 20 years of investment journey in equity markets? I don't know for what reasons, but in high school and college days somehow, the world of investing fascinated me. Three decades back, the markets were rather less evolved and shallow and I didn't have any real understanding or knowledge. But, investments drove me and I bumbled along and continued studying and reading about the markets. Even when I was studying for my Chartered Accountancy and MBA, investing remained my love. I would go to 'raddiwala' and buy annual reports in kilos because I didn't have money to buy shares.
I developed by own home library of annual reports running into thousands of copies, just so that I could study and understand what was happening around the markets. Passion was always there but, I didn't feel courageous because markets were chaotic and were regarded as a gambler's den.
One fine day in the late 1980s, I finally decided to take plunge into the financial markets. It was a major decision and my family was aghast. To give you some perspective: there were no foreign investors, the markets were really small and there was no real professional career being in the markets. The only person who supported me was my wife, for the start of my journey in investing.
Many money managers look at investment strategies of successful investors like Warren Buffet, Peter Lynch, Charlie Munger and Philip Fisher. Have you even done this?
Isaac Newton once made a statement when people complimented his success after he discovered laws of motion and gravity. He said, "If I have seen farther, it is only because I had the benefit of standing on the shoulders of giants before me." In every branch of knowledge there are always people who can teach you and who have something valuable to share which stays forever in our minds.
It is up to each individual, whether he has the desire, intensity and humility to learn or absorb from the masters. I would say, why just Warren Buffet or Charlie Munger, there are many other illustrious and outstanding investors who have provided valuable ideas through which one can hope to create outstanding long-term wealth creation. Obviously, I have benefited by understanding, observing, meeting and reading about these people. But just by knowing or reading about them will not equip you fully. Craft can be taught or learned (and that too, only for the basic building blocks) but wisdom and character need to be built by self.
One has to understand and build one's own methods. The giants you mention have thrown light on our path, but we have to walk the path ourselves and deal with challenges. Benjamin Graham taught the world about value investing and his thinking got shaped during the era of Great Depression. When the markets were through with depression, they had already lost an incredible 89 per cent. So, virtually everything was cheap in that scenario. Because his investing ideas were conceived during that period, cheapness or 'value' became corner stone of Graham's thinking. But it is Philip Fisher who taught world about the art of investing in 'quality'. Till then, even Warren Buffet probably was more looking more like Graham rather than Fisher.
So, his investing then resembled more of buying cheap 'cigarbutts' rather than later period, high quality compounding machines and even Buffet refined his thinking after incorporating the idea of quality in the business valuation. How can we forget the gratitude and debt we owe to many of these masters?' These are the people, the giants, who stood before us and showed us the path of equity investing but the journey we have to carve out ourselves.
Is there any example of an ordinary man studying the market and becoming wealthy?
I would not like to take any names but there are several examples. I believe, in India, over the years, genuine equity culture has withered away and has become weak. One has to appreciate that virtually no asset class can match the outstanding long-term compounding return generating quality that equity investing offers. But long-term also has to be accompanied by quality investing.
By holding a pebble for a long time, it can't turn into a diamond. You need to buy only quality and you need to buy that at a margin of safety. You then need to hold that investment over a long period of time with discipline and to have a wisdom not to prematurely part with the journey at every challenge or at every twist. If one does this; rewards are plentiful and outstanding.
I would like to re-emphasise that investors who want to benefit from long-term wealth and value creation need both the capabilities: to understand the businesses and to have the ability to value them, but to also have the discipline to buy quality at a margin of safety and having wisdom to stay the course. If one can't bring to bear upon one's method, these attributes, one cannot blame macro factors or market situations for one's own woes and losses. Markets don't have any duty towards you. Markets have no obligation to make you rich simply because you have allocated some capital to it. But I would like to say it with a degree of conviction and all seriousness that if you practice the true equity investing over a long term, it is almost impossible to lose money.
I hope and wish that equity culture, which once was very strong in this country and which has withered over a period of time, once again acquires fortitude and character so that investors don't misallocate their wealth unduly in favour of bank fixed deposits (FDs), real estate, gold and the like. Given that outstanding, long term wealth creation equity market phase is ahead of us, people who under allocate or misallocate in equity at this point in time, I believe, will have a lot of time in hand to regret and repent.
Markets don't have any duty towards you; and they have no obligation to make you rich simply because you have allocated some capital to it.
I would go to 'raddiwala' and buy annual reports in kilos to develop my own library to understand what was happening around the markets.
Many areas of capital goods offer a compelling long term opportunity, given the outstanding engineering skills and capabilities of the nation.