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Value Investing, the Sanjay Bakshi Way 2.0

After much delay due to issues in fixing a mutually convenient date, my interview of Prof. Sanjay Bakshi is going to happen soon.

Just to give a background, Prof. Bakshi is one of the best minds in India in the fields of Value Investing and Behavioral Finance.

He teaches MBA students (at MDI Gurgaon) two popular courses: “Behavioral Finance & Business Valuation” and “Financial Shenanigans & Governance”. He is also a Managing Partner at ValueQuest Capital LLP — a value investing specialist in moats investing.

I had the privilege of meeting Prof. Bakshi in July 2012 and picking his brains on Value Investing.

Now, I will soon be conducting a Skype interview of him, and thus need your help in preparing a questionnaire. I need to finalize a maximum of 10 questions, and thus invite you to send me the ones you would’ve asked Prof. Bakshi had you met him personally.

Please avoid questions like “What stock do I buy?” or “What do you think about XYZ stock?”

Broadly, you must ask questions around “stock market investing” and “investment behaviour” in general and “value investing” in particular.

Please add your question in the Comments section below by Tuesday (11th Feb.). Then, I will consolidate them and finalize the 10 that I will ask Prof. Bakshi in the interview.

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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. Please ask him about Value traps. I have been able to find so many value buys, debt free companies selling for less than cash, or debt they can raise but they remain there forever. How do you differentiate between actual value buys and value traps. how do you find the companies with a catalyst which will propel them from below the intrinsic value to where they belong. Coz rite now value investing is an academic activity for me and i have not felt it at a Experiential level.

  2. 1. How to develop circle of competence?
    2. What are the characteristics of a company with Durable competitive advantage or Moat? – both Qualitative and Quantitative
    3. How do we ensure a company with a strong moat – Because, we may think the company has a moat, but, may not
    4. What are the signs of a company with a genuine management and what are the early warnings of a company not shareholder friendly
    5. What are the accounting early warnings signals to be aware of
    6. How to identify a genuine turnaround?

  3. Harish Bihani says:

    Question for Prof. Bakshi – What is the right multiple for a structural moat story…..say Nestle……does he think that these cos are buy at any price/multiple? Will he never sell this even if stock goes to say 80x P/E?

  4. Hi Vishal,

    Congrats on meeting Sanjay Bakshi for the second time. It is a great opportunity for you and all the tribesman.

    In 2012 professor wrote an excellent article on Socratic Solitaire.

    If you can request him to do a similar post which explains his thought process in analyzing a business would be extremely useful for all of us.

    Regards,
    Jana

  5. Nitin Sharma says:

    First of all I am not a typical value invester (I seldom buy the beaten down stocks, example BHEL in current scenario) and I never buy large quantity. Instead I buy the Growth stocks whenever they are available at discounted price(example, private banks after recent falls due to RBI tightening and Titan after last month due to upfront payment in Cash). In addition I buy more often and in phased manner. I have 2 questions.

    1) What is the advice to investor like me to avoid falling for overpriced stocks and gain most out of Mr Market.
    2) Can we do a short term course on value investing from Mr. Sanjay Bakshi

  6. Adib Motiwala says:

    How long did he take to realize to pay up for quality (if it was answered already, never mind).

    How one position portfolio during euphoric times and general over valuation? Sell 1/3 and stay in cash?

  7. Rahul Shah says:

    I have a question for Mr Bakshi, see if you can ask him this:

    “If one goes by your latest article in a business magazine, you seemed to have had a change of heart in your investment philosophy. Are you now convinced that if the business quality is very good, one can even pay a PE of as high as 30-35 times and still earn good returns over the long term?”

    Many thanks in advance.

  8. Mihir Ajmera says:

    Hi Vishal,

    Its nice to read your posts..

    Questions for Sanjay Bakshi:

    How would you justify the high PEs of consumer stocks currently?

    Investment Case for Cera Sanitaryware and Asian Paints – how to rationalize buying decision at current valuations?

    How do you compare these with Coca Cola (US) – a consumer stock with consistent inelastic demand which has been hovering in the same range for more than 10 years..

    Once the investment cycle picks up in a year or two – will much of the money shift towards capital goods, infra stocks – making the consumer stocks available at cheaper valuations. How do you decide to wait for an opportunity to get a stock at a better price v/s just investing considering the long term story?

    Thanks

  9. Jagat Yagnik says:

    Hi,

    I am keen to know how to find out about successful turnaround comanies well in time.

    Regards

    Jagat

  10. How to look at a business where government is the controlling shareholder (PSUs) ?
    Which mental models are most relevant in thinking about these kind of businesses ?

  11. I would ask Prof. Bakshi to take us through the thought process on the current possible opportunities in the market like Thomas Cook, Strides Arcolab, Texmaco Rail and Mangalore Chemicals. What are the triggers, how should one go about it and how should one analyze a business such as Shriram Transport. Thank you.

  12. There are many theories about the frequency of bull and bear market cycles. One of them is the 17.6 year cycle as given in this link.

    Based on the 17.6 year cycle we are apparently in a “secular” bear market at present which is expected to last till 2018 before a new “secular” bull market cycle begins. Within the current “secular” bear market what we seem to be going thru is a “cyclical” bull market which is expected to end in 2013 before another “cyclical” bear cycle begins.

    Couple of questions on these cycles:

    1. How reliable are these theories on bull and bear cycles?
    2. Are we currently in a secular bear cycle?

    • I’m not so sure about this theory of a periodic bull / bear market, but I’ve one question – how much role does industry macros play (for Prof.) and how would he have avoid capital goods stocks in end of 2011 when they appeared so cheap, or he has also invested in them, only to see them further down by over 40%? Hence, in general, how does one avoid a prolonged period of falling stock prices due to sector problems, or this is bound to happen, often in value investing?

  13. Satish Rajan says:

    Hi,

    How do you handle steep and sudden market corrections in even the best quality stocks? ( like what is happening now after the RBI moves with stocks like Yes Bank, Indusind Bank etc. These blue chip stocks have corrected by anything from 35 to 40%.)

    Would you ever sell a stock, as long it continues to maintain all the positives it had when you decided to purchase the stock .ie high ROE, high EPS growth, low debt etc. ?

    Would it be possible to have a discussion between the safalniveshak.com tribesmen and Prof Bakshi some day?

  14. Abhinav Prabhudan says:

    Hello Sir, congratulations to you for a opportunity to meet the giant again. 🙂

    Sir, I am very new into the world of investing and haven’t started analysing stocks but just reading and reading whatever I possibly can about investing. I have been following your site and equitymaster. But I must confess that not very diligently. But trying to improve everyday. And I must thank you for your efforts. Your articles have improved the way I look at life now. They have helped making my convictions more strong on what I believed.

    Now getting to the question –
    Recently I heard an Interview of Prof. Aswath Damodran on equitymaster. He said that he has changed his way of looking at stocks now. There are 2 processes to analyse any stock, one is the value process where we look at the fundamentals of the company and try to find out the intrinsic value of the stock and then whether it is undervalued or not.
    And the second is the pricing process which represents the supply and demand which is governed by whatever drives the fancies of the investors. As value investors we believe that price will come around the value and if we have got the value right we ‘eventually’ will make money. But ‘eventually’ can be a long long time and if an investor has a time horizon of 2-3 years he will not only find himself wrong but wronger than when he made that investment and not because the investor has got the value wrong but because the pricing process has a life of its own.
    As per him, Price and value diverge. Cheap can become cheaper and expensive can become more expensive.
    Bubbles are created when the value and price diverge in huge quantities and people stop looking at the value process.
    All this would not matter if the stock constitutes 3-4% of our portfolio but if I have a 25% allocation to one stock then it becomes very important to look at the pricing process.

    If this is worthy enough, can you please ask Prof. Sanjay Bakshi to throw a light on this and what he feels on how important it is to look at the pricing process being a hardcore value investor.

  15. Narayanan says:

    Buffett has said “diversification is for the know nothing investor”. Now if I borrow from Carl Jacobi and invert this, I would think “concentration is for the know everything investor”. The question is, given the regulatory uncertainties and the extremely large pool of shady promoters, is there anything called a know everything investor in a market like India?

    Now, one might think you can filter out promoters who lack integrity by looking at their history for evidence of misdeeds. But it would be wise to remember Taleb who has warned as against confusing ‘absence of evidence’ for ‘evidence of absence’. The fact remains that while investing in India the probability of investing in minority unfriendly managers is substantial and the regulatory framework for dis-incentivizing offenders by jailing them leaves a lot to be desired. The other thing to worry about is regulatory changes where for example, there was probably no prior evidence of RBI messing up the gold jewellery industry and now its a different game.

    • Yes Vishal, a good question – how do we screen “questionable managements”, for whom we may not be able to find any “negative evidences’…

  16. With reference to his article on ‘Paying up’
    If he can throw some light on the following

    Paying up for quality (referring to stalwarts like Nestle, HUL etc)
    &
    Paying up for growth (referring to companies like Astral Polytechnik, Page Industries etc).

    If we could have a sense on valuation metrics/mental models he would recommend for both these examples.

    Thanks

  17. Aditya Veera says:

    How can the average aam aadmi retail investor, who has a lot of conviction and an iron stomach, but no time for stock picking, benefit from value investing? Are there mutual funds or other vehicles available that follow the principles of value investing strictly without drifting in style or ‘smoothing’ the volatility of the portfolio by hedging with growth stocks etc.

  18. My question is on developing mental models,The Mental Models that Charlie Munger refers to so much.
    How does one go about working on building the Mental Models which will be the foundation of our decision making. how should one approach this problem, if possible what could be the A,B & if possible the C of starting on building ones mental models.what are the possible pitfalls. Even something as simple as where does one start amongst the long list of mental models that are available could be of immense value.

    If the good Professor could explain all this in a bit more simpler (than Munger) would be icing on the cake.

    rgds

  19. Vivek Pai says:

    Hi,
    As a small retail value investor, what are 10 quick identifiers (more or less- the number is not sacrosant) for a value pick vis-a-vis a psudo value pick?
    Vivek Pai

  20. srikanth says:

    hi,
    Congrats on getting the opportunity of meeting Prof.bakshi again
    I would like to ask Prof.BAKSHI how he is feeling about INDIAN ECONOMY at current point. Does he see the current slowdown as a structural one or cyclical? what are its effects on domestic consumption and especially on BANKING SECTOR?

  21. What is take now on Infrastructure leasing as a value buy??

  22. I would also like to ask Prof. Bakshi regarding why eminent value investors like Prem Watsa, Seth Klarman etc. are in such a defensive mode to an extent that they are ready to suffer losses in order to protect portfolios against adverse market movements. And what are your views on the long term potential of the Indian economy and also the bubble scenario in the housing sector in India.

  23. sanjay jhunjhunwala says:

    Given the shallowness of the Indian markets, lax insider trading rules and investor unfriendly promoters, how many companies will fit the value models proposed by Buffet or Graham, if any.

  24. Chetan Chhabria says:

    Temperament of people also plays a key role while investing. Can you please ask Prof Bakshi to throw some light on this. How does one change/adopt his temperament to make decisions in the market that will benefit the investor.

    Regards,
    Chetan

  25. Prashanth says:

    1) In his last interview, Prof. Bakshi mentions that no money has been made in the last 5 years (till 2012). It’s one more year and things have gotten worse. Given that a non-performing govt. is one of the risks for an investor and the next election likely to throw up another disastrous verdict, what should an investor do? Another 5 years of a left leaning govt. could possibly damage the India story permanently. Look at foreign shares and find ways to invest in countries with more capitalist systems (may be through indexing)?

  26. Dharmesh Patel says:

    How to value a growing businesses like page,hul,pidilite,titan etc.

  27. 1.What will be the incremental number of people come int oequity market for investment?
    2. Given only 3% of indians currently own equity assets, with investor education growing will FII impact on market reduce steeply ?
    3. What are his estimates of macro economic indicators for next three years (capital formation, GDP growth)
    4. Which are the new trends that he sees emerging in the next five years? Solar industry? Water resource based ? Private tuition education industry ? Product based IT cos?

    5. Will private sector grow in defence industries ..?

    6. Given power and roads,buildings are base for mfg,agri products movement, post election 2014, any govt will invest in those?

    7. Which are the reforms he sees as a professor ,that the govt will have to bring in the next three years ? ..Land reforms..allowing corprate farming..? insurance ? Cos act amendment? LAbor reforms to encourage private sector enterprises
    8. Which oligopolies ..dominant players will continue to rule for the next five to 10 years .. REliance in petro chem…..ITC in tobacco …..Kumar mangalam birla in cement and aluminium and copper ? Airtel in telecom? United breweries /MCdowell inds in liquor ? LArsen toubro in capital goods? HDFC BANK ?

    9. Which overseas reail giant will be major player ? Walmart / Carrefour/Tesco in the next 6 to 7 years ..
    10. Does he see the current trend of derivates trading and non delivery based trading increasse ? more speculation than actual investment? what is a healthy ratio of the trades in indian market?

  28. Hi, thanks for the opportunity.
    It would be very interesting to hear Prof. Bakshi’s opinion on ‘Quantitative Value Investing’ à la Magic Formula.
    In particular, the late Ben Graham apparently said: “I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities[…]” (Link). How does Prof. Bakshi justify the extra effort put into deep security analysis, when simple formulas generate equally satisfactory returns?

    • Yes, +1 for this question from my side 🙂 like using Magic Formula and a fairly diversified portfolio rather than deep business analysis…one obvious answer is – that since this is so easy to do today using screens, anyone can do it and that might reduce such opportunities, but only if such investors are all rational and stick to plan…but since we know most would not, is it an arbitrage opportunity?

  29. hello Vishal ji,
    first of all many congrats for second interview with Sh. Bakshi Sir.
    now as we have read and learnt a lot about behavioral finance, the question is how to practice it.
    if you happen to get time please ask Bakshi Sir, how to practice behavioral finance….some handy way of working it out so that our brain doesn’t work against us.

    Regards,
    Kishor.

  30. Hi,

    I am an ex student of prof. bakshi in MDI and truly inspired by him. In fact he has changed the way I look at the things now. Really privileged to be his student.

    Congratulations on meeting him again. I wish I will have the great opportunity to meet him again and get better perspectives on the things.

    Question:
    Can you please ask him how a person can approach about starting his own financial services or asset management firm, like he started way back when he started his investment journey in India. What are the skill sets that are required and how one can build them (apart from stock picking skills), how to build the required framework to open the company, networking with the clients, required past performance as a retail investor etc. It will be really great if he can share his thoughts on this transition from a retail investor to a fund manager?

    Thanks!

  31. Kumar Abhishek says:

    How to identify value trap ? Suzlon is a value trap but tata steel is not in spite of for tata steel debt is increasing, profit is less ,costly aquistion of chorus, poor steel demand, falling rupees and share price is falling.

  32. Kunal Lal says:

    Thanks for another great article.

    I wanted to ask about moats, but Balaji in a previous comment has already asked that. But apart from that which companies does he think already have strong moats or are in the process of building one?

    Beyond this, what would be a set of parameters that I could look at to find out if the company is investment-worthy or not? What are the ranges, given the historical performance of various paramaters for the Indian industry?

    Also, he talked the idea about base rates. How do I find these out? Is there any indicative site or portal for this? I may have not tried hard enough, but I really didn’t find any source that gives this. Does this really mean that this might need to be extrapolated using articles and other data?

  33. sandeep agarwal says:

    My question is on building diversification in portfolio. Prof Bakshi follows 3 different strategies simultaneously – 1. Buy high quality stocks at fair prices and benefit from long term growth 2. Buy statistical bargains (here he follows themes like dogs of nifty, debt capacity bargains, cash bargains etc). His view is that one should look at each theme as one stock and 5 stocks in each theme is enough diversification for that theme and 5 such themes (i.e. 25 stocks) are enough diversification for the statistical bargains.3. arbitrage, which is for parking money temporarily till he finds opportunities under 1 or 2.

    my question is on strategy 2 in particular. if you need 5 stocks for each theme to play out then how do you practically build such portfolio. do you need to buy all 5 almost at the same time. what if you do not find 5 such companies and find only 1 or 2 under that theme but few more under another theme.

    secondly, for strategy 1 and 2 combined how many stocks at a time does he ideally keep in portfolio and how does he build diversification over time.

    diversification is an important concept but not dealt with very well anywhere in terms of how to build it.

  34. Jagadees says:

    Although everyone want to hear success stories from legends of value investing discipline, I believe we can learn so much from their failures too.
    In the Outlook profile in 2010, he mentioned that he got enamoured with warren buffet’s letters and Graham & dodd’s statistical bargain and started an investment partnership upon his return from LSE. But within 3 years, he shrunk it by 40%!!!

    I would like to ask him…
    1. What are the mistakes/missteps resulted in capital erosion? and lesson learned in the process. (Because this happened after he got fairly familiar with buffet’s letter and graham’s teachings which is the same stage many of the new investors may find themselves now. This can give valuable lesson)
    2. How he tweaked his investment process to avoid the repeat in future?
    3. What is his most recent mistake – is it a value trap? or investment thesis gone wrong? or paid over-optimistic valuation for business?? (Or if possible list of mistakes he done over his investment journey with examples)

  35. My questions for Prof Bakshi:
    1. Do you believe that our present monetary system is fraudulent in nature and if yes, how do you factor it when making investment decisions?
    2.If the monetary system was sound wouldn’t dividends contribute a greater proportion of investment returns rather than capital gains?

    Thanks.

  36. cseaspirant says:

    Q) How a layman,without an MBA/CA, no idea of accountancy , don’t even know what is a balance sheet, or any basics, and with all the everyday tensions and mediocre IQ level can go about learning to invest, develop is circle of competence, and invest without the help of pros?

  37. 1. Only companies getting high multiples and valuation premium in such times are companies which are generating consistent free cash flow with minimal debt. I believe that there are many opportunities in companies with high leverage though these companies are also generating free cash flows and face minimal risk of default ?? How would you value such companies (Eg Valuing a company like IRB Infra) ??
    2. I would like to know more about your value investing boutique firm… the structure, attracting clients etc. I intend to start one of my own for my relatives and friends in the near future.

  38. Q. I read your recent blog discussing the Financial Tecnology and MCX situation and loved your thoughts on it. I would like you to suggest any good books or readings discussing such special situations.

  39. Hello, I would like to know what Prof Bakshi thinks about index/etf investing. Is their scope to apply value/conservative investing principles? Does Indian markets has way too many value traps that we are better of index/etf investing?

  40. sandeep agarwal says:

    1) I would like to understand how he analyses BIFR type restructuring cases and where does he get information regarding the debt restructuring being done with companies by banks. Is it only based on company announcements or is that information systematically available elsewhere as well.

    2) He recently said investors should pay up for quality. as long as they do not overpay it should be fine. how does he define overpay for high quality companies like Asian Paints.

  41. sandeep agarwal says:

    Hi Vishal,

    Did you not meet Prof Bakshi for version 2.0 as there has been no update on this yet. we are all eagerly waiting for the interview notes.

    regards,
    sandeep

    • yes
      me too awaiting the interview details with Prof Bakshi..

      i wonder if any of my ten questions was worthy of listing to professor and got a response
      Vishal..kindly update

  42. Hi Vishal,
    Here is my question for Prof Bakshi. I would love to ask this to him because this could be a potential game changer in investing.

    “As of today, software installed on simple PCs can do weather predictions and can defeat international level chess players with decent success percentage. Considering this, what chunk of value investing process can be automated”

  43. Hi Vishal,

    Looking forward to your interview with Prof Bakshi. Please find my question below

    What is his opinion on Porter’s five forces as a tool for investment analysis, it would interesting to know if he uses it while he is trying to understand the industry structure in which a company operates, and how it has helped him.

    thanks
    Hari

  44. M S S Murthy says:

    The article by Sanjay titled ‘ What Happens When You Don’t Buy Quality ? And What Happens When Tou Do ? ‘ . I am a disciple of Value Investing for past 34 years and has benefited substantially from that approach to investing . This article by Prof Bakshi has changed my entire approach on Value Investing . I am thankful to him for that . My question to Prof Bakshi is that one of the important tools he has used in this article to arrive at value is ‘ PE charts and P/BV charts ‘ . Can I know as to the sources to derive these charts for companies . This will be helpful for analyzing individual companies.

  45. Bhavesh Chauhan says:

    Given a smaller size of funds (as is the case for individual retail investors) will he prefer Graham way (cheap stocks) or Fisher way ( high ROE and relatively high PE stocks)?

  46. Jayan Kozhikote says:

    My question:

    Though we are able to find companies that trade at prices below book value and free cash per share, these companies are not favoured by MFs. Are we missing something ?

  47. Pankaj Kulkarni says:

    Prof. Bakshi
    Do you think value investing makes sense in growing economy like India where stocks that command premium valuations continue their upward march? Prime examples that comes to my mind are Shree Cements, Asian Paints, Bosch and there are many more.

  48. Hi Vishal,

    Congrats on your opportunity to interview one of the best minds on Value Investing in India! Had I met him personally, the answers to these questions would get me going if not ‘quench my thirst’:

    1. What valuation methods should one use to find the intrinsic values of the businesses? Specifically, a rule of thumb on which methods to employ for which sectors/businesses would help.
    2. Since most individual investors do not get to, do not want to, do not know how to, talk to the management to gauge their potential and traits, are there any metrics/ratios that convey this information to the investors? How should one go about this?
    3. Are there metrics/ratios that convey the durability of the moat that a business has? How should one go about this?
    4. When analyzing the financial statements, how can one determine if a business is rock solid or if it is in trouble? What should one look out for?
    5. How does one spot value traps?

    Thanks!

  49. Nikhil Moryani says:

    Questions for Prof. Bakshi,

    1. What should one keep in mind when one is chasing future growth in a business?? Where can one go wrong chasing growth??
    2. How to price growth and how much to pay for it??

  50. My question for Professor Bakshi would be “What are the signs one needs to look for to identify erroding moats?”

  51. Dear Vishal,

    If possible kindly include the following queries in your list for Prof. Bakshi,

    1) Thoughts on the relevance (or the lack of it) of the overall market valuation, on the investment decisions of a small value investor.

    2) Thoughts on investment in illiquid low market-cap scripts with respect to value investment.

    3) Thoughts on relative comparison between two value investment opportunities.

    4) Thoughts on ideal size of portfolio (number of stocks) and portfolio allocation. Diversification vs. Concentration etc.

    5) Thoughts on mental makeup characteristics required for long-term investment success.

    Thanks & Regards,
    Gunjan

  52. I find his giving details about stocks like Relaxo and Cox & King analysis at a time when the stock has already gone up, little unethical. I find he is manipulating his fans by motivating them to buy so that prices will go up further and he can benefit more. Can you confront him with this manipulation ( as per me) of his followers?

  53. Hi Vishal,
    Thank you for giving us this opportunity! I have a few questions.

    1. Which firms/research teams/ Individuals does Prof Bakshi consider as the foremost practitioners of Value investing in this country? I ask this as my guess is that a lot of the readership here would like to make a living in this area but may not be aware where to look. Like Buffett said – “Work for someone you admire”.

    2. Almost all the value investing theory is based on developed market trends/stats and analysis. Does one need to tailor the value investing approach to Indian equities? Are there special considerations?

    3. Seth Klarman and many others (even Buffett ) had mentioned that investors with small amounts to invest should look at things that no one is looking at, the ones that slip through the cracks. Where would these areas be in Indian equities? And given the paucity of data and questionable management that could be running these companies, how does one do the due diligence and get comfortable that the data is correct so that we don’t get blindsided?

    4. How does one develop a daily routine to be able to reach the level of competence to be able to beat the market consistently over many years? I refer to this article. Todd Combs , who Buffett hired ended up reading more than 500 pages a day. What sorta routine/discipline does one need to develop to reach that level?

  54. Saurav Jalan says:

    Dear Vishal,

    My questions for Prof. Bakshi are :

    1. What is the tax liability of an LLP formed for investing money in equities ? For eg: If somebody forms an LLP with a partner based on the model of Value Quest Capital LLP, then how does the IT department would treat capital gains from such a legal structure ? Would they treat it as business income or normal capital gains while determining the tax liability ?

    2. In present time in India, what is the standard hurdle rate which one should consider while forming a partnership based on Buffett Partnership model ? Is it 6%, i.e roughly after tax return on a bank FD or some other figure based on a more rational logic ? Moreover, what is the right approach of calculating the fees of the managing partner ? Annually or the accumulated amount at the end of the lock in period of the investment partnership ?

    3. In the experience of Prof. Bakshi, how many stocks one should hold in a concentrated portfolio so that his returns are maximized in a fixed time period of let’s say 5 years. Seeing the standard of corporate governance in India, would it be wise to bet 40% of your portfolio on a single stock ?

    Thanks and Regards,
    Saurav Jalan

  55. Hi sir ,
    Plz ask following if possible :

    How do you avoid getting caught with ur own reasoning. … I.e how do you look in to a business from an outside and bystander’s point of view without accepting your internal beliefs about the conpany.

  56. Swaminathan says:

    Approach and steps we need to follow to figure out future stars..Also, what will be the source for those and what qualities does those company posses for us to consider. Being a small cap company, most of the parameters wont be available…strong B/S, known Mgmt etc… Thanks

  57. Dear Vishal,
    It was a treat to read Prof Sanjay Bakshi’s interview, I have simple question for both you and Prof Bakshi:

    In the intelligent investor Graham gives considerable importance to Dividends, in contrast Philip Fisher does not find anything important about dividends. It would be great to have your views on the same.

  58. My question is for Prof. Bakshi to publish his rate of returns data for everyone to see.

  59. A few questions I would ask :

    1) can value investing be a main work / main business / income source ?
    2)how to establish a long term value investment partnership fund for friends and family on the lines that Buffett , Pabrai founded , how to decide the fee structure ?
    3)how to emotionally cope up with losses made in the market and keep investing with courage and faith and wisdom ?
    4)”in the long run we are all dead ..” as a value investment reader i come to see and hear this often , can u explain this and counter it with any good explanation / example !?
    5)Phil Fisher’s Art of Scuttlebutt , how relevent is it in the Indian market for small investors ?
    6)how much time does it need to become a great investor ??
    7)how to avoid growth traps , are there any ??
    8)the power of compounding , how to put it to best use , is it by best investing at regular intervals or a lump some at once or both ?

  60. Many times a stock looks undervalued, is growing at a decent rate, has a good dividend yield, balance sheet is good and people invest in the stock based on such parameters. But in some cases management does something which is not good corporate governance and the stock tanks despite being cheap in the first place. We can evaluate management based on their salaries, based on past history, based on perception in the market etc. But even after all these factors are cleared there is still a chance that corporate mis- governance may happen. This is mostly true in the mid cap/small cap space where the media focus is less and chances of investors being taken for a ride are higher. How does one overcome this factor or what sort of a checklist should one have to deal with this so that investing in such companies can be avoided.

  61. Pranshu Khandelwal says:

    I would like to ask his thoughts on leverage in investing. Not talking about leveraged companies but use of leverage by value investor. Does he think leverage should be absolutely avoided or if moderate amount of leverage make sense and if so how much?

    Thanks,
    Pranshu.

  62. s k aggarwal says:

    So many value investors in India but not a single holding investment company like Berkshire Hathaway in India.

  63. Barath Mukhi says:

    Hi Vishal,

    The question I would like to ask Prof. Bakshi is:

    Buffett made his initial 200 million dollars using the investment themes he learnt from Ben Graham. Do Ben Graham’s ideas work even now? For example, building a portfolio of say 30 stocks based on the Earnings Yield Bargains suggested by Ben Graham.

    I’ve learnt from Prof. Bakshi that it’s a good idea to pay up for quality. This works well when you have ample capital, say one crore rupees. What I am not sure about is – What works best for a small investor just starting out in the market – Value stocks or Growth stocks?

    Is it a good idea to first build capital using Graham’s strategies and then switch to a Buffett/Munger type of an investment strategy? Which route should a small investor take in order to get through the 1st $100,000 barrier Charlie Munger has talked about? Even Prof. Bakshi took the same route in order to get to a stage wherein he realized that large amounts of capital cannot be invested in Graham type of stocks because these are mostly small caps. My idea is small capital = Graham stocks and once your capital grows big enough one can switch to Buffett type of investments. Please correct me if I am wrong…

    Regards,
    Barath.

  64. hello Vishal ji,
    many congrats for the interview with Prof. Bakshi.
    Vishal ji, i don’t have much in my bag to ask right now, but very naive / foolish question comes to my mind, if you or PRof. Bakshi can guide me then it would be really very great of you both.
    “As a investor we can’t take our eyes off the mkt movement ( i m not saying buying or selling). eventually we happen to buy a few things as it seems boring just to look at mkt and don’t do any activity.
    Cutting it short i want to how (behavoiral aspect) how to take off my mind from mkt when its high or not cheap. i mean some activity to divert my attention from mkt to somewhere else.

    Regards,

    Kishor.

  65. For me management is one of the most important parameter to look at – they are the one who run the business and create value. Mr Sanjay Bakshi had blogged about Ajay Piramal (it was just amazing), if we can have more blogs with example regarding management qualities (I have read owner-operator type blog) if he has any more thing to add on it. What are the best sources (newspaper everyone gets them) to understand management behavior.

    Just messed up – its so difficult for me to explain things, I am just pathetic at this.

  66. Hi Mr. Vishal,

    As a beginner, I had a very small question that’s not technical at all. Can you please answer this yourself and ask Mr. Bakshi as well: what are the kind of skills/personality traits that one should try to look for within themselves to understand if they are suited to the value investing profession.

    I love the idea of the profession but I have no background in it. And at times I feel scared about entering the profession as there might be some skills needed that I lack.

    For example, One thing I feel scared about is that I can’t do calculations in my head and I don’t have a good memory for numbers. I know Mr. Buffett never uses a calculator and remembers every damn number he comes across. Is this a skill that’s absolute necessary for success as a value investor.

    I will be glad you could answer that and ask the same to Mr. Bakshi as well.

    Thank you.

  67. Thanks Vishal for providing this opportunity. As a couple of other readers have noted above, it would be quite interesting to hear Prof. Sanjay Bakshi’s views on Quantitative Value Investing, especially in the Indian context.
    1) Given the quality issues associated with most of Indian firms esp mid-caps and below, do you think simple quantitative investing rules like Graham’s net-net or the magic formula etc would work in India? Is it possible to tweak them to get satisfactory results in the Indian markets?
    2) How much of your own analysis can be boiled down to one or more simple check-lists and and how much value does the remaining analysis add to the performance of the portfolio?

  68. Hi Vishal,

    Few question

    1. From where should an amateur investor start; low pe stocks, low priced stocks, paying up for good companies, cash bargains, risk arbitrage?
    2. Where it would be wise to invest in a company trading at less than its intrinsic value and okay kind of management or a company trading at par with instrinsic value but very reputed management?
    3. In a case of buy back, where the time period is of 6-12 months for buy back and where the management has bought back approx: 70% of the requisite shares, Are these special situations? and do we need to check fundamentals to take advantage of special situations in case of buy back? can the price drop after 70% of the accumulatino? is dere a still scope of benefiting from special situation if the offer has been open since last 6 months and managment has bought back 70% and price has come down?
    4. If Mr. Bakshi could enlighten on debt capacity bargains ?
    5. If possible some experience, learning and examples of CDR cases.

  69. Ashwin Gautama says:

    Sir sorry I know I’m late. If there is anyway this question can find its way to being answered by Sanjay Sir or you:)

    Sanjay Sir once wrote about Paying up for quality in Outlook Business. He said that the high quality Indian subsidiaries of businesses like Nestle, Hindustan Unilever, P&G trade at premium valuations because they haven’t reached their saturation point yet. So paying up for these stocks doesn’t hurt as over the long run an investor can earn a return from the earnings growth and not from the multiple expansion. He also said that the return on the parent companies did not compare with the Indian subsidiaries. I’m assuming the reason here is because these parent companies have passed their growth stage and are now in Peter Lynch’s words ‘Stalwarts’.
    Recently I read an interview of Parag Parikh in which he said that he’s been picking up these parent companies of because they trade at lower valuations as compared to the Indian subsidiaries. Thus his explanation was that he was in turn buying these Indian companies for nothing.
    My question is- What is Parag Parikh’s rationale behind this decision? From where will returns come?
    And also won’t an economic slowdown coupled with high inflation reduce the disposable income of the consumer, thus affecting the earnings of these Indian subsidiaries? How then is paying more for quality reasonable?

  70. Hello Vishal ji,
    For some insightful queries and question for your second meeting with Sh. Bakshi sir, i revisited your first interview write up, and in part-3 of that Sh. Bakshi sir has mentioned regarding one paper by havard prof regarding UU conditions – Unknown and Unknowable.

    As these are very unique kind of event and we don’t have any past data to rely on my question is : How can we train ourselves to develop complementary skills required to encash such UU or UUU conditions.

    If possible please ask Sh. Bakshi sir, how he has prepared himself for such UU situations and what readings he suggest to us to train our mind for such UU events.

    Regards,
    Kishor.

  71. Girish Varma says:

    Nice talks, sir please advice me to invest longtime mean 10 to 15 years holding stocks in good wealth creation

  72. 1. How do you identify a sustainable moat?
    2. What are things that a lay investor can look at to judge quality and integrity managements?
    3. What are the early signs that tell you a moat is drying up or no longer sustainable?
    4. How do managements destroy successful moats?
    cant wait to read 2.0 .. cheers

  73. Gopal Narayanan says:

    1) What are the screening criteria in selecting companies for investment ?
    2) How does one quickly identify(< 5 min) if a company is worth studying deeper or not ?
    3) What is the sell criteria for compounders ?

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