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Value Investing, the Rohit Chauhan Way

If you have been a reader of Safal Niveshak for long, you know how I have been greatly inspired by investors and value investing teachers like Graham, Buffett, Munger, Howard Marks, and Prof. Sanjay Bakshi.

But if there is one “value investor-cum-blogger” who inspired me to start putting my thoughts on investing out to the world, it was Rohit Chauhan.

Rohit is a self-taught value investor who has been investing for the last 13+ years and blogging for the last nine.

If you do a Google search on “value investing in India”, Rohit’s blog stands right up there, which suggests his preeminence among all Indian value investing bloggers.

Anyways, I was a bit nervous writing to him asking for his interview for Safal Niveshak. But Rohit eased all my nervousness and agreed to share his thoughts and also his amazing investment checklist, which I present to you today.

So, here’s Rohit and his simple yet amazing thoughts on the art and science of becoming a successful value investor.

Safal Niveshak: Before I pick your brains on investing, please share something about yourself – your education background and career.

Rohit Chauhan: I have a Bachelor’s in Engineering and an MBA in Marketing. My first job was with Asian Paints in sales and marketing. In time I realised that I was not really a sales/marketing kind of person (preferring to read and learn) and so switched into supply chain consulting, which has been my profession since then.

My first job also exposed me to the notion of competitive advantage of a business as I worked in a territory where the company had a 70% market share and had shut competition out completely, inspite of higher prices.

SN: What got you into investing, and how did you begin to learn about the market and investing in general?

RC: My start into investing was born more from necessity than interest. I had to take up the responsibility of managing the family finances at an early age, which meant that I had to learn about investing so as to secure the financial future of my family.

I started from the absolute basics – learning the difference between a fixed deposit and stock, basics of insurance etc.

The key event which triggered my switch to value investing was the book The Warren Buffett Way by Robert Hagstrom.

This book introduced me to an incredible individual who had done very well based on pure merit and intellect. Over the next few years, I read up all I could on Warren Buffett, his mentor Benjamin Graham and anything I could find on value investing.

SN: What would you say is one of the most important lessons you learned early on?

RC: The importance of managing your emotions – fear and greed.

I knew the basics of investing well by 1999, but was still swept (partially) by the dotcom and IT mania. I invested a sizeable percentage of my money in IT-focused mutual funds and a company called SSI, even though I knew that the valuations were stretched. That is the definition of foolish greed!

I promptly lost 70%+ of my capital in these positions, which in hindsight was a good lesson as it showed me that being rational is very important to being a good investor.

SN: What according to you is the biggest problem why most investors don’t succeed in the stock market? Is it due to their inability to value assets properly, or is it due to the difficulty in understanding market’s behavioural cycles? Or is there some other factor at work?

RC: I would put it down to emotions, or being rational.

I think a majority of investors can do well if they invest regularly in index funds or any decent mutual fund on a consistent basis. If the investor has some level of interest in stocks, they can identify a few good companies and understand them well over time.

The main reason why most are not able to do well over time is due to greed during bull markets (2007-2008) or due to excessive fear such as during 2009 and now.

SN: Michael Mauboussin, in his book “The Success Equation” writes that much of what we experience in life (and investing) results from a combination of skill and luck. How has been your experience with skill and luck? Can you please explain with a real-life example in investing?

RC: I have been always been wary of success due to luck as it will even out over time. In my earlier days of investing, this wariness meant that I allocated only a small portion of my assets to stocks as I wanted to be sure that my success was due to skill and not due to luck.

In investing, one can have a reasonable amount of confidence that the results are due to skill, if one is able to outperform the market for 5 years or more. Once I crossed that threshold, I increased my equity allocation as a percentage of my assets.

I have found that I have been luckier than others in investing for multiple reasons – One is that I started investing around the time the internet became available and hence had access to a lot of information which sped up my learning.

In addition, I have been lucky to have invested in stocks such as Blue Star in 2003 when they were dirt cheap and just before the capital goods sector boomed (I did not know that would happen).

In terms of skill, my focus has been to learn the process of investing, which is highlighted by Michael Mauboussin in his book, as being critical to success in a field where luck has large impact on the final result.

SN: How can an investor improve the quality of his/her decision making? Some successful investors have talked about the importance of keeping a decision-making journal. What is your take on this?

RC: I agree with the approach of keeping a journal and recording your decisions / thought process at the time of making your decision. If you don’t do this, it is easy to forget your thought process at the time of the decision and convince yourself that a failure was due to bad luck whereas success was the result of your own intelligence.

One needs to focus on the process of investing, rather than just the outcome (returns).

I have a bit more detailed approach in making an investment. Once I have identified an attractive idea, I update an excel template wherein I go through a checklist and try to ensure that I am not missing something obvious and to avoid some of the common behavioural biases.

In addition to the template, I also write a note which details the reasons for buying the stock – sort of a summary.

I tend to review the template and the note annually to evaluate what has changed. In addition to all this, I have maintained a blog for the purpose of recording my thoughts which I refer to from time to time, in order to look back at my thinking at various points of time.

SN: How do you typically find ideas and what is your selection process before an idea gets added to your portfolio?

RC: I follow multiple approaches to finding new ideas for my portfolio. I maintain a list of stocks which I like from a business perspective, but the price may not attractive. If the price drops or the business improves, I may decide to start a position in the stock.

In addition to the above, I follow quite a few bloggers and other investors whose thinking I respect…and if they have purchased a stock, it becomes a good starting point for me to dig further.

Finally I maintain a spread sheet to filter ideas based on various quantitative factors such as debt equity, return on equity etc.

Once I have identified a candidate, I read the last 8-10 years of annual reports to get a sense of how the company has changed or evolved. In addition to this, I also maintain a template which I update to record my analysis and then as a final step, I write down a summary note on the company before pulling the trigger.

This process looks long drawn and detailed, but it takes only a few weeks and is quite easy once you do it for some time.

SN: How important are investment checklists? Can you mention a few key metrics your own checklist consists of?

RC: As Michael Mauboussin says – “In a field where luck plays an important role, one needs to improve the process to get a good outcome.”

Checklists are very important to the process and I have found it invaluable in my own case.

I started maintaining one when I started investing, and for two main reasons – one to keep a record of my analysis of any particular stock (I do not want to rely on memory), and second as a store of learning.

This checklist has evolved with my learning and consists of various sections such as quantitative criteria – return on equity (is it more than 15%) or debt equity (less than 0.7).

I have some management criteria such as compensation, related-party transactions etc. in the checklist too.

SN: A lot of successful investors talk about the importance of having a “multidisciplinary approach to investing”. How do you approach this subject, and how can small investors create such an approach in their busy lives?

RC: I think the book – Poor Charlie’s Almanack and Seeking Wisdom: From Darwin to Munger – are very good starting points to this subject.

Beyond that, I think Prof. Sanjay Bakshi’s lectures and blog is an invaluable resource on the topic.

One needs to remember the point that all learning in investing is cumulative and it builds over time.

One needs to have the curiosity and a desire for learning and if you can devote even a few hours a week, it will build over time. After a few years, you will realise that you have learnt a lot on the topic.

SN: How do you define “risk” in investing? How do you take care of that risk?

RC: I would define risk as – not knowing what you are doing.

An instrument – equity or real estate – is not inherently risky as long as you know what you are getting into.

Let’s say you are in your 20s and have 20+ years of saving/investing horizon ahead of you. A market turbulence of the type we experienced in 2008 should not impact you as much as it would someone in the 60s who is closer to retirement.

So someone in his/her 20s can afford to invest in something which is risky in the short term, but can work out very well in the long term. The same option would be very dangerous for someone in his/her 60s.

I think the way to manage that risk is understand what you are investing in. If you do not understand individual companies and do not have desire to do so, the best option is look for low cost index or mutual funds and invest systematically in them on a regular basis.

SN: Corporate mis-governance has emerged as one of the biggest risks in investing. How can an investor insure himself against this risk? What are the factors you look out for to get hints of mis-governance in a company?

RC: I don’t think one can fully insure oneself against this risk.

This is one risk you have to deal with at all times, especially more so in India as the downside for unethical managements is not much. It is a sorry state of affairs where managements can rob hundreds of crores from minority shareholders and not get penalized at all.

I do not have any crisp formulae to look for mis-governance, but have developed a checklist to look for any red flag. Some key points in the checklist are – any suspicious related-party transactions, excessive compensation, instances of past mis-behaviour, and aggressive or bad accounting practises.

SN: As investors, one of the most difficult decisions we must make is with respect to selling stocks. What factors help you make “sell” decisions?

RC: I personally think selling is one of the most difficult decisions in investing. If a stock has done well, one has a tendency to fall in love with it and not part with it. On the other hand, if there has been a mistake in buying the stock, it is difficult to accept it and sell the stock.

I think the diary/original note we discussed in a previous question is of great help here. It is important to review you original investment thesis and check if it is playing out as you originally thought.

If the business has deteriorated or the management turns out to be a disappointment, then one has to bite the bullet.

SN: What are the 2-3 big mistakes that have characterized your investment life? Is there a way for investors to get over such mistakes?

RC: I would say my top mistake has been to allocate too little of my portfolio to a good idea and then sell out early, even though I understood the company very well and expected it do well.

I think one should evaluate each stock in the portfolio annually, and if the company is doing well, then one should not exit the stock just because one has made an X% gain on it.

It pays to stick with a good company for the long term if one is serious about wealth creation

The second mistake in my case has been that I refused to accept that the original thesis was not playing out and held onto the stock based on hope.

It is important to recognize the impact of opportunity cost in such cases. The only way to avoid such mistakes is to be honest with yourself and accept the reality that one will make mistakes 20-30% of times (even the best investors don’t get it right always).

SN: Who is one investment thinker that may be off the radar of investors that you think we should be following, reading and learning from?

RC: I would say Howard Marks is one such investor. He is the founder of Oaktree Capital Management. His memos and his book – The Most Important Thing – are must reads.

SN: What is the best and worst investment advice you have ever received?

RC: The worst advice I received (and unfortunately followed) was to buy a hot sector (IT) as it was doing well (in 2000) and everyone else was buying.

This incident made me realise the importance of thinking independently.

I have learnt a lot from other investors and though it is difficult to point a single piece of advice, I would say one of best ones has been from Buffett – ‘Risk comes from not knowing what you’re doing’.

SN: What are your top five suggestions for investing and related books/resources?

RC: My top suggestion for investing resource is not a book, but Warren Buffett’s letters to shareholders. I would highly recommend reading the following books to start with…

  1. The Intelligent Investor ~ Benjamin Graham
  2. The Most Important Thing ~ Howard Marks
  3. Common Stocks Uncommon Profits ~ Philip Fisher
  4. Poor Charlie’s Almanack ~ Peter Kaufman

SN: If you were to give “just one” piece of advice to a small investor on how he/she can become a smarter investor, what would it be?

RC: As Charlie Munger says – Be a learning machine.

Read continuously and learn. One needs to love the process of investing – learning about companies, how they work, how to value them etc. There are no short cuts to becoming a good investor.

SN: Thank you so much Rohit for the amazing insights you shared on your experience as a value investor, and also for your wonderful gift in the form of the excel template.

RC: Thanks Vishal! It’s been a pleasure sharing my learning as an investor. I hope Safal Niveshak’s tribesmen are able to benefit in some ways out of it.

Disclosure: I participate in the Amazon Associates Program, which simply means that if you purchase a book on Amazon from a link on this site, I receive a small commission. The book does not cost you any extra. I give 100% of the commission away for the betterment of the under-privileged.

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About the Author

Vishal Khandelwal is the founder of Safal Niveshak. He works with small investors to help them become smart and independent in their stock market investing decisions. He is a SEBI registered Research Analyst. Connect with Vishal on Twitter.

Comments

  1. Shamil Abdul Kader says:

    Very good interview. It is motivating for someone like me who come from a non-finance background – I have exactly the same qualifications as him.

    The moral of the story is that there is no short cut for success in investing – read a lot, use checklist/ reasons for decision making, review it periodically and fine tune the investment process.

  2. Wow, Rohit hats off to the detail you go in to. You are actually practicing what you are learning and reading in terms of developing a process and keeping notes.

    Thank you Vishal for this interview which shares the sheer amount of work an “investor” puts in.

  3. Sanjeev Bhatia says:

    Hi Vishal,

    This is a great initiative from you to bring the thought process of leading Value Investors on board for SN tribesmen. It will surly help in shortening the learning curve and reduce the time for trial and error, which often leads to frustration.

    Great Initiative. Thanks for the same. 🙂 And thanks to Rohit too for sharing his thoughts.

    Happy Investing.

    • thanks sanjeev
      I agree vishal deserve a huge credit for starting a wesbite and an effort to teach value investing to others right from scratch. there are a lot of good investors in india, but hardly any who take the effort to teach others. I can think of hardly anyone who puts as much time and energy in helping others for almost nothing in return.

      rgds
      rohit

    • Thanks Sanjeev! Great to know that you liked the interviews. Regards.

  4. manish yadav says:

    Hi Vishal,

    Another marvelous interview from your pen.

    – Manish

  5. He is absolutely brilliant. Isn’t he??
    Thank you so much Vishal for your untiring efforts. You are not far behind either.
    Not sure if its the right platform, but just wanted to share a small personal story.
    about 3 years back, after passing out as an MBA in marketing from a Delhi B-school, I landed up a job in Mumbai where I was given a mandate to push “Investment” products.
    Thinking that I have to make honest sincere efforts in my job, I continued with my merry ways (not researching enough and simply relying on presentation given by AMCs, PE funds, structured products, and all other fancy names, feeling good about myself meeting the fund manager etc., making tall claims to innocent investors about “understanding” investment products), was basically making a fool of myself only.
    In what can easily be termed as one of best things to have happened in my life, came across this innocuous term called “value investing” in some such presentation, I googled it and clicked on first link that appeared, my moment of introduction to Rohit’s blog.
    got immersed in his blog!! was simply blown away by the kind of analysis that he does before going for a stock. I mean did u look at that template !!
    Life has been different since then..
    Left the job within next 2 months. Luckily found a much better may be a little less paying job and been on everlasting journey of learning value investing.
    Yes my pace is lot slower and time devotion much lesser than I am not complaining, not in hurry either. Patience is a good virtue to have for this tribe..I hear.
    HIS comment that we can build it over time even devoting a few hours per week, surely is a booster.
    BTW first intro to SN was from his blog only.
    Thanks Rohit
    Thanks Vishal.

    Ashish

  6. Hi Vishal,

    I am a avid follower of your blog and i loved this one the most !! You are truly a selfless and honest man..Way to go my friend

  7. Amit Kinhikar says:

    Thanks Vishal ! The detailed analysis spreadsheet is excellent.


    Amit

  8. Anil Kumar Tulsiram says:

    Excellent initiative Vishal. I really appreciate the time you are taking out of your busy schedule. I plan for so many posts, but could complete very few……

    If I may add one question which I think should be ask to all value investors in future and in as much detail as possible is to to make them describe their investment philosophy [just for clarity I means any sectors which they avoid, whether they invest in deep value situations, special situations, growth stocks, growth at reasonable price or buying only beaten down and ignored stocks etc etc]. I fully understand one cannot ask all questions during interview and you are better judge where to lay more emphasis. I just felt picking up these value investors brain more on their investment philosophy will be be helpful to every one [definitely most to me:) ]

    • Hi anil
      let me answer some for myself.

      I think i have tried to explain the philosophy in the above note. I personally try not to be dogmatic or bucket my investing into deep value v/s special sit or anything else. I prefer to pick areas where there is a large discrepancy between value and price and if i can understand it well enough. so the idea is to go where the value is – large cap, small cap, beaten cap or no cap 🙂

      sectors to avoid – close to none. i think it is in context of price …a cheap price can make any sector good. the only stocks i avoid is where i dont trust the management. you can rarely get a good outcome in the long run with a dishonest management.

      rgds
      rohit

  9. Dear Vishal,

    I have been reading SN for a quite a while now and am quite late in appreciating the effort that you are putting in to make this whole idea of value investing spread. It is absolute treat to visit SN to find variety of topics relevant for value investing getting discussed and debated in an engaging manner. Your initiative of tapping into the minds of some of the “veteran” and “emerging” value investors by interviewing them will indeed go a long way in helping the tribe gain through “vicarious learning” (as Prof. Bakshi puts it!) Sincerely appreciate your efforts. Again, heartfelt thanks to Rohit for sharing such a wonderful template/checklist. It will be of immense value to someone who actually is as interested in process as in outcome. Truly motivating.

    Between, I believe you stay in Navi Mumbai while I also stay in Vashi and if possible, I would love to meet up with you some time!

    Thanks & Regards,
    Dhwanil Desai

    • thanks for the comment dhwanil

      rgds
      rohit

    • Thanks for your kind words, Dhwanil! Great to hear from you and know that you have been reading my rants all this while. 🙂

      BTW, as part of this initiative to tap into the minds of veteran value investors, I will touch base with you soon. 🙂

      I am travelling currently, and will talk to you when I am back. I live in Belapur and would love to meet you soon. Regards

  10. Grateful to SN for unveiling the face behind the Name Rohit……I did visualize him as some one stout,with moustache and wearing glasses.

    “We all see only that which we are trained to see.” ……….Chauhan means Agnivanshi….. and imagination take the flight.

  11. anurag – your comment is hilarious 🙂 🙂
    yes chauhan’s are rajputs known in history for brawns and lack of brains ! over the generations the brawns and bravery has been lost. not sure if any brain has replaced the loss 🙂

  12. Hi Rohit,

    We know each other for last 6years or so……….I would never dare to think the way you have interpreted my mesg………It was just that Dean of my college had a surname name Chauhan and he was quite intimidating…..No offence was intended…my apologies……….in a way i was also trying to highlight
    our baised notions.

    Regards
    Anurag

  13. Wow!!

    Rohit, we finally get to see you 🙂 The fame is catching up fast.

    Thanks Vishal for sharing Rohit’s interview. Though I know 5-6 other good (each has own area of expertise) value investors for the past 4-5 years, Rohit stands out from the crowd. His strength is his temperament which is the key in investing. There are many geniuses out there but if you can’t turn ideas into healthy profits on consistent basis, it doesn’t do much good. Sorry for being harsh.

    I still remember picking up LMW, CRISIL, Asian Paints, Ashok Leyland, Gujarat Gas, NIIT Tech and many more at dirt cheap prices around 2008-2009 (based on Rohit’s analysis and recommendations) and made 100-500% returns. I didn’t load up as I was new to Value Investing but don’t regret it all as I was already on my way to become financially free from RE investments.

    I recall going back and reading each and every post of his blog back in 2008, the journey has been very enjoyable since then. I have seen how he has grown over the years (or at least since 2008). Whenever I read his posts, it reminds me of only one man: Warren Buffett. Rohit also has wit and sense of humor. If he continues doing what he does (there are many aspects to it), he should be a very wealthy man one day.

    I love the fact he is humble and doesn’t get tired of learning/sharpening his skills, another value investor trait. Though I became financially free by solely investing in Indian RE but his thought process is similar to mine. He has certain level of conviction in his ideas but is also risk averse. So I can relate to him in many ways.

    Anyway, only person that comes close to Rohit’s style of Thinking and Temperament is a young lad: Dhwanil. He moved to Mumbai (I guess from Ahmedabad)….don’t know what happened to him or his blog.

    So watch out World…India has its own Riches/Learners/Teachers in the making.

    Again, you’re doing a wonderful job on this blog by sharing such blogs/people.

    Thanks,

    Vikas Rana

  14. Nic one Vishal.. Good to see the views of some of the value investors from india..
    Rohit.. can you share the template with us?

  15. hello Vishal ji,
    Many thanks Vishal ji for sharing such a wonderful artilces which are of immense help to guys like me.
    The generosity and openness with which you regularly share the ideas and insight and also the openess of Mr. R Chauhan is Commendable.

    Regards.
    Kishor.

  16. Good One Rohit. – Hope u still remember me.

  17. Sachin Dedha says:

    I really admire Rohit a lot.

    After Robert kiyosaki[Rich DAD fame], Warren Buffett, Graham, Munger, Rohit is my web guru. Sometimes i feel like Eklavya who is learning reticently from all these master minds. Each day i am learning something from these guys. I bow to you all for being available to us in this internet savvy generation.

    The idea i liked the most is the journalling and blogging. Since this is my first year in Value investing, it couldnt be a better time than this to start blogging.

    Thanks a ton to Vishal as well. Though i am totally new to your blog and referred to here by Rohit’s site. But the kind of admiration you have generated among your followers is admirable.In the age of Gurus who are not leaving any stone unturned in spoiling the youth, you two are a real icon of real life who have shown us the path of knowledge and hope.

    God bless you!!!

    Sachin Dedha
    Value investor[Since 2016]

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