Investing lessons from Shridatta Bhandwaldar, Head – Equities, Canara Robeco Mutual Fund | Value Research Shridatta Bhandwaldar, Head – Equities, Canara Robeco Mutual Fund, shares investing insights from his career to help you become a smart investor
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Shridatta Bhandwaldar's most precious investing lessons

Shridatta Bhandwaldar, Head - Equities, Canara Robeco Mutual Fund, shares investing insights from his career to help you become a smart investor

Leaning never stops in the investment field. Every day, month and year teaches you some new lessons. A few of these are contextual and rest are more fundamental/philosophical. Latter are the ones which are critical and shape investors' thought process over the long term. A few critical lessons that I have learnt over the last 15 years after dabbling and making lots of mistakes in the first few years of my investment journey are:

Quality of business is utmost important: There are certain businesses and sectors which have inherent advantage of scale/ capital efficiency and vice-versa. These advantages come to these industries and companies either due to the structure of the industry or the value addition through the products/services to the customers. This leads to longevity of growth, sustainability of growth and capital efficiency. As an investor, this allows compounding of cash flows and huge downside protection over time.

Business acumen and integrity of management/promoters is a critical aspect to create wealth: As minority shareholders, we are completely dependent upon the management/promoter for the medium-term cash-flow compounding. To invest in businesses where the promoters display fairness to minority shareholders and have business acumen to re-deploy cash flows for growth is critical.

Earnings cyclicality is inherent to all industries; identifying positive earnings deviations is the key: Once the above two aspects are taken care of, then it's critical to understand which pockets within the acceptable universe of businesses are showing positive or negative earnings deviation. This is critical, since all sectors have earnings cyclicality - some have moderate cycles and others have deep cycles. As a portfolio manager, attempting to be on the right side of earnings deviations becomes very critical over time.

Flexibility and conviction of thought process (both at the same time!) can save a lot of pain: While as an investor one needs to have a lot of conviction in one's views, one shouldn't get bound to them permanently. Facts change and when facts change, one should have the humility/ flexibility to accept that one is wrong and change one's views accordingly.

Uncertainty is your best friend as an investor: This allows one to buy acceptable businesses at below average valuation, enhancing returns through cycles. Market behaviour is such that the near term gets overstated and the long term gets understated.

Investment mistakes
Mistakes are a part of learning in investments. During the first few years of my investment journey, I dabbled a lot in weaker managements and businesses and realised that half of your work is done by just taking care of these two aspects. One has to realise that the stock price is just an outcome of underlying cash-flow growth over time. Underlying cash flows can't keep compounding in businesses where either the business lacks scale/capital efficiency or is run by a management which is inept or which doesn't intend to share benefits with minority shareholders.

Insights from my investment journey
I started my journey as an infrastructure analyst during the last decade. There was an enormous amount of excitement/ exuberance towards these businesses. The nature of these businesses is such that they generally struggle to generate free cash flows through cycles. This sector has traits such as (1) weak industry structure with limited entry barriers, hindering scalability; (2) questionable management practices; (3) weak balance sheet structures, given high working capital cycles; and (4) poor capital efficiency. This start taught me a lot about what one should avoid as an investor.

Happy investing. Focus on spending time in market rather than trying to time it!

This interview was conducted in June 2022

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