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Simple Ideas on Wealth Creation, the Subramoney Way – Part 1

If there is one person I’ve known in my life who can most easily and sensibly guide people on wealth as on health, it is PV Subramanyam (or Subra as he is popularly known). When he is not advising people on how to manage their financial lives sensibly, you can find him running or cycling long distances.

Subra is a Chartered Accountant by qualification and a financial trainer by profession. He writes frequently on his blog, Subramoney, and has also authored a book on wealth creation called ‘Retire Rich Invest Rs 40 a Day’.

Subra believes to make money, you do not need too many ideas. You need simple ideas and discipline. Simple ideas, and many of them, are what he shared recently with me in his interview for Safal Niveshak.

Before I get into our discussion, let me share that this was the most unusual interview I have been a part of in my life. The reason being the venue me and Subra decided upon, which was on a hill here in Navi Mumbai that lies midway between our homes.

We met at the base of the hill at 7 AM day before Diwali, walked all the way up, prayed at the temple on the top, and then sat at the backside of the temple, roadside, for this interview.


Let me now go straight to what Subra shared with me. Like all interviews I have shared with you in the past, I have broken this one also into a few parts so that you get a chance to absorb the ideas better, and also practice patience while waiting for the next part. 🙂

Let’s me start with the interview now.

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

Subra: I started in the stock market sometime in 1979 when I was in the XIIth class, at about 17 years of age. My neighbour took me to a friend of his who had just started his broking business. We sat and talked and he talked about the equity market.

My father already had an equity portfolio, so it was not that we were new to equities. He had bought Hindalco in the 1950s and some Tata Motors and L&T were also there. Then, in 1977, when the FERA thing came, and when Reliance came out with its IPO, he already had some kind of a portfolio. And I also had some kind of money in my bank account.

So, I met my friend’s friend who was a broker, and started investing. We were a group of friends who were all investing. Thanks to what Warren Buffett calls the ‘ovarian lottery’, it was my luck that my father shifted to Ghatkopar (a central suburb in Mumbai), and therefore equities. If I were in Matunga (another suburb), I would have all been in bank FDs and that too Indian banks’ FDs. Luckily we were in Ghatkopar and my friends were all in equities, and thus I also got into equities.

Vishal: So, is there a massive difference in the investing culture as far as these two suburbs are concerned?

Subra: Oh absolutely! The Tamilian of the 1960s and 70s, especially the Tam-Brahms, always thought that equities were not for them and were only meant for the Gujaratis, Marwaris and Punjabis…but definitely not for the South Indians.

Also, culturally, in my house, none of my cousins were in equities at that time. They would all be in bank FDs or company FDs. My dad was an exception, and therefore I was an exception.

Vishal: Great! Now how did you begin to learn about the market and investing in general?

Subra: My friend was a broker and he continues to be my broker as of today. So it has been a 35 years relationship. He was doing his CA that time, and I also did my CA. We would often get into analyzing companies in the old-fashioned way.

We used to look at free cash flows, and companies that not only were generating FCF, but also paying dividends and investing for growth.

You see, there were companies that grew, but through IPOs. There were companies that earned a lot but did not distribute, and nor did they grow. They threw up a lot of cash but didn’t know what to do with that. So we had to find out companies that were growing, knew where to invest, and knew how to share.

Looking for such companies became out forte. But I guess, life was very easy then. We would just pick up an MNC and said, “Oh, this would do well!” So buying a Nestle, Glaxo, or Colgate was very straightforward. It was much simpler.

IPOs were priced low. Rights issues were priced low. I still remember companies coming up with IPOs at Rs 2-3 premium. Today, no company comes with less than Rs 100 premium. So that helped. The fact that there was a discount sale in the market, thanks to CCI, helped.

Then we sat on our stocks, and therefore, we made money.

I don’t think it was a great buying skill. There was no race to buy. You could just go in the market and buy. You could wait Monday to Friday and prices did not change much. So it was not a buyer’s market or a seller’s market. It was a market that was not very crowded, and thus buying was simpler.

So we said, “This is a Tata Group company so it must be good,” or “This is a Murugappa Group company so it must be good.” We bought such businesses and we sat.

Vishal: And sitting made a great difference, right?

Subra: Yes. I think investing is not just about buying or selling. It is more about the ability to sit, knowing that in the future this company would do well.

Like Hero Honda, which I bought in 1985 and held on till 2012-13…till Honda quit and I was not sure whether the Indian management would be as good and honest. This is because in a partnership, both the partners want to be honest with each other, because the other guy is watching. But since it becomes a single owner, then you don’t know whether the same level of honesty and integrity would be maintained. But I am happy to say that the company is doing well. But at that stage, I exited very happily, without any regrets.

Vishal: What’s the longest duration of holding of any stock in your portfolio?

Subra: I really won’t call it my holding. My dad purchased Hindalco in 1957. So that is around 57 years, which is older than me! Then he bought L&T sometime in the 1960s. Then most of his FERA shares like P&G, Glaxo, and Colgate were all bought sometime in 1977.

This was thanks to George Fernandes that these companies were forced to go public, and therefore we hold those shares. Again, like I said, you just had to apply. You put Rs 1,250 and you got Rs 250 worth of shares. That is today worth around Rs 35-40 lac. There is no connection to that IRR that people talk about. But yeah, you required patience.

Vishal: Do you believe such a long buy and hold strategy would work today?

Subra: No, I think there’s a problem. The discovery is much faster. People would not let a share like Colgate remain at Rs 90 for too long. The IPO of Colgate was priced at Rs 25, and I think it opened at Rs 60-70 going up to Rs 90. Today, people won’t leave it at that level for too long. And IPOs are closed much-much closer to their deserved prices. So, promoters don’t leave much on the table for investors.

But I am sure there are stocks that have not captured the market’s fancy. But somebody will write about them someday, and people will pick them up and the run up will be faster. So you’ll get good returns and you’ll get them much faster. So whether you will hold those stocks for 20-25 years, I really don’t know.

Vishal: I think that’s where the problem lies. People don’t want to stay put with stocks for 20-25 years.

Subra: I think media is also to be blamed for this. I have been in mutual funds and equities, and I am very happy with funds that have been criticised by the media for a quarter or two’s bad performance. So whether it has been Franklin India Bluechip or HDFC Top 200 fund, for me it has not mattered that they don’t do well for two or four quarters.

Take my holding in say HUL and Colgate. There have been many-many long periods of times when it looked like, “Oh God! HUL is going nowhere!” Or there were times when you felt that if you had sold Colgate and bought HUL, you would have got better returns, and sometimes you felt the other way.

This is all fine. This is theory. But today, if I ask my dad whether he is happy with a 27% IRR on Colgate, what is he going to say? He is going to be thrilled about it and I may not even be including dividends in it.

I mean, companies reward you for sitting. So why can’t you sit?

Pascal said that all of humanity’s problems stem from man’s inability to sit quietly in a room alone. It’s so true! Just sit tight. Don’t do anything and don’t play around with your stocks!

But people want some action every day. I have been 35 years in the market and have not done a single F&O deal. I don’t think if I am a long term investor, I should be selling for another 25 years. Why should I do an F&O? Why should I do leverage?

I am an old value investor – Have your own money, invest it. Borrowing from someone to invest in stocks, doing arbitrage etc. doesn’t work for me. I don’t see this necessary. You do all this to create more wealth, and do what?

It’s important that you have your own money, use it, and whatever is left you let that grow.

If my annual expenses are Rs 4 lac, anything above that just keeps getting invested, right? So why should I borrow and invest, and do what? Become richer, and do what?

I can understand leveraging in a business. If you want to grow you business by putting up more offices and factories and projects, leveraging makes sense.

But in an individual portfolio, I don’t see any great room for leveraging.

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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. Great one ! vishal!

  2. Great one !

    Thanks for sharing!

    Waiting for the next part

  3. Saimanohar says:

    The conviction to “Buy Right” and ‘Sit Tight” nevertheless what the market conditions are separates the chaff from the wheat. Thanks Vishal for getting these inputs for safakniveshak subscribers from Sri P V Subhramanyam . Eagerly waiting for the following parts of the interview.

    Wish life of mine is as simple as that !!!

  4. Kamal Garg says:

    Pascal said that all of humanity’s problems stem from man’s inability to sit quietly in a room alone.
    Buy right – sit tight.
    Think right – live happy.
    Simple but amazingly true. We actually stir a hornet’s nest by an urge to ‘do something’.

  5. As usual, an excellent post and interview. The common thing which we can conclude from value investors is “PATIENCE”. But one thing which I beg to differ from Mr. Subramaniam is w.r.t. “the discovery is faster”. We had a long dull period in second half of 2013 till about february 2014 when many stocks were trading at 2-4 PE’s and steep discount to book value. Though most of them were in cyclical industry but still they gave 300% returns after May 2014 when markets identified them in the bull phase.

    Am eagerly waiting for the 2nd part of the interview.

  6. time spent in the market is more important than timing the market , just buy right sit tight you will be rewarded

  7. R K Chandrashekar says:

    Hi all
    A wonderful article. Kudos to Subra who learnt investment at a raw age of 17 and has shared valuable insights.
    It parallels my own investing journey that began in 1978/79 with the FERA dilution and allotment in Colgate and purchase of HUL from a colleague. The difference being i was 26/27 yrs old with an MS from USA to boot! Patience and sitting tight on good quality businesses makes all the difference in wealth creation. At times, you need to be lucky, since for years together, the business and the company will be going nowhere. Then over a period, the business model/ market outlook may change for the better and you will be left high and dry if you didn’t retain those shares. Take my own example:
    I had in 1980’s- MRF;Colgate; and in the 1990’s – Hawkins, TTK Prestige in the 2000’s- Page Ind, No regrets though. I have held HUL, Asian Paints, Nestle, Bosch, Pidilite, HDFC Bank, Infosys, L& T, Hero honda and ITC for over 10-15 years and in the case of HUL since 1978. That is patience and power of compounding- my dear friends.

  8. Very glad to see your post with his interview. Subraji is a great man and not a day goes without me reading his blog. Personally benefitted a lot reading all of his posts written in simple and honest manner. He probes a lot through his questionas and rekindle your thinking.

  9. Great insights, Thanks for sharing this interview and the gems of wisdom Vishal. Look forward to to the next part. I am reminded of Buffet’s quote on leverage – “Smart people don’t need it and dumb people have no business using it”

    Thanks
    Hari

  10. Samir Prabhudesai says:

    Good article.
    My query is a bit off topic 🙂
    Was this interview conducted on the Parsik hill. Would like to know the location if any other
    Thanks

  11. Great post and interview. Well done indeed.

    I have one observation to make in general and would love to get everyone’s feedback. It’s refreshing to see that the comments in these posts on Vishal’s websites are generally positive, encouraging, thankful and motivational. I am in the US and the commentary in the blogs here and generally filled with criticism, negativity and overall attitude that the blogger does not say anything worthwhile.

    So kudos to all!! And kudos to Vishal for all the hard work

  12. Jalaj Baweja says:

    Hi Vishal,

    I appreciate and love the knowledge and insights both You & Subra Sir share on your respective blogs. So firstly THANKS A LOT for that. 🙂

    Secondly…. Please share the second part soon… Coz I can have patience when it comes to investing, but not when it comes to Ur’s and Subra Sir’s articles…. 😉

    Thanks & Regards,
    Jalaj Baweja

  13. FYI Retire Rich Invest by Mr Subramoney is available @59 (85% off) at Flipkart.

    • Enjoy Rokrdude….gift it to the kids you know! this book is meant for people below 30…and are already thinking of Retirement Corpus! May their tribe increase!!

  14. HI SIR,
    THANKS FOR INTERVIEW POST. SO MUCH TO LEARN OLDER INVESTERS
    ONE REQUEST,COULD YOU PLEASE ENLIGHTEN ON INVESTING ON SHARIAH COMPLIANT STOCKS.
    I THINK,THERE ARE LESSER STUDY ABOUT THAT.
    BEST WISHES,KEEP POSTING,
    MUNEER HAJARA MANZIL

  15. clement sadjere says:

    nice article.Thanks for sharing

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