After a long-long gap, and after profiling the ever-so-amazing R.K. Chandrasekhar and Dev Ashish in the first two issues of Safal Niveshak TribeStar, I bring to you another young investing star in the making, Nishanth Muralidhar.
Nishanth is a 32-year old IT software engineer, hailing from Kerala and currently residing in the US. He has been investing in the Indian stock market for eight years now and is a keen follower of value investing.
Over to you Nishanth!
Safal Niveshak: Please share with us your investment journey so far.
Nishanth Muralidhar: My investing journey, started at the age of 23, when I started my IT career in 2004. Right from the very first salary I received, I explored various investing options and stumbled upon equity mutual funds.
Through a series of articles in Value Research and other websites, I understood the basics of mutual funds and decided to invest in them. I picked 3 of the best funds out then – Reliance Vision, Franklin Indian Prima, and HDFC Equity. I didn’t have the faintest idea regarding asset allocation or diversification at that time; however I had read about the power of compounding.
I opened a demat account and decided to foray into direct equity investing. I started investing in stocks based on the recommendations from various stock brokers and websites. I had only a rudimentary idea of the PE ratio and knew nothing else about these stocks. I didn’t read the annual reports, balance sheets, income statements or cash flow statements.
I had no idea of their sales growth, if the companies were profitable, or if they were paying dividends regularly. “Just buy and monitor prices daily” was my motto.
Along the way, I invested in more mutual funds. I learnt about risk adjusted return, the Sharpe ratio, Expense ratio, Portfolio Turnover, and the difference between active and passive funds. Somewhere along the way, the concepts of asset allocation and diversification took root in my brain. In 2007, I had a chance to travel abroad for work and took it.
Being abroad meant a much larger investible surplus, and I was ready to take some risk for the sake of much bigger returns. Majority of my portfolio was in mutual funds like DSPBR Equity, ICICI Dynamic, HDFC Equity, Sundaram Select Midcap etc. and a small portion in higher risk funds like Magnum Global, ICICI Emerging Star and JM Small and Midcap. The last one I selected just for the brilliance of its fund manager (a big mistake!).
Also I invested in mid and small caps like Sintex Industries, 3i InfoTech, Parekh Aluminex, Srei Infrastructure, Elgi Equipments, Micro Tech, Compact Disc and Lakshmi Energy and Foods, all without doing a basic iota of research on my own.
Then the great market crash of 2008 happened. As things started progressing, it became apparent that this was no minor correction and the world was passing through unprecedented times.
Still, I continued investing steadily, as all my learning and reading had instilled in me one fundamental wisdom – “Buy when there is blood on the streets”.
As I was still abroad, I invested my entire surplus in mutual funds, both passive and active. I didn’t average down my stocks, but I didn’t sell any and continued to hold on. Overall, I was a heavy equities buyer and I didn’t sell a single share or fund during that period.
Due to a rather remarkable coincidence, I had to come back in April 2009 and my last SIP was done in March 2009, which we all know by now, marked the start of the recovery.
Due to some family commitments and personal things to be sorted out, I didn’t take a look at my demat account and mutual funds till April 2010. But it was amazing to me, the extent of the recovery; especially the gains I had made investing in the darkest hours of 2008. One clue about the pace of my returns would be to say that my Index fund (S&P CNX 500) doubled in value.
I took a substantial amount of the profits (only profits, as I left the invested capital alone) and bought a plot of land. Thus was I introduced to the murky and puzzling world of Indian real estate. But that’s another story. 🙂
SN: What would you say is one of the most important lessons you learned early on?
Nishanth: One of the most important lessons I learned was to read, research, verify and then do some more verification.
SN: How would you describe your investment philosophy?
Nishanth: My investment philosophy is in a nutshell to be diversified, to have substantial allocations to all broad asset classes so that nothing short of a total world catastrophe could affect me.
For direct stock picking, I follow a value strategy – to find undervalued stocks and stick with them for years, and enjoy dividends in the process. For equity funds, I try to pick not the best performing funds, but funds which have shown consistency and lower expense ratios over a long period of time. Basically, I try to pick funds which give above average returns at below average risk, while keeping costs low.
SN: How do you typically find ideas and what is your selection process before an idea gets added to your portfolio?
Nishanth: I subscribe to the research services from an independent research agency and from there I filter their ideas by my own criteria. Specifically the filters I use are low or marginal debt, high promoter holding, consistent track record of good dividend payments, a high return on capital employed over at least 5 years, a high return on invested capital employed over at least 5 years, profit growth of at least 15-20% over 5 years and earnings yield at least twice the return on the Government of India 10 year bond.
I also follow various investors like Prof. Sanjay Bakshi, Rohit Chauhan, Dhwanil Desai and websites like ValuePickr, The Equity Desk, Stable Investor, and WiseWealthAdvisors.
SN: How do you take care of ‘risks’ while investing?
Nishanth: As far as I can see, we can never completely eliminate risk while investing in any asset class. A land plot might be acquired by the government, a fire can break out in the flat which you bought, your gold in the bank locker can be stolen, debt funds can face extreme volatility and we all are acquainted with the risks of equity.
I try to eliminate risks by knowing as much as I can about a particular investment and never investing more than my comfort level in any asset class.
Right now, I’m increasing my exposure to equity, mostly via active and index funds. If you prepare an investment philosophy by thoroughly knowing yourself and customizing it according to your personal risk tolerance and capacity, I believe you will be on the right path.
SN: What have been some of the key lessons you have learned?
Nishanth: Well, here are some of them –
- Learn, learn, and learn. Never take anything you hear or read or see anywhere for granted. Do your own research, and then act with conviction.
- Every investor, whether he is 18 or 80, must have some exposure to equities, direct or indirect, according to personal risk tolerance and need for income. That is the best way to beat inflation, and not just through buying land or gold.
- Make a start. Invest regularly every month or quarter or week, even if you can spare just Rs 500. The power of systematic investing and compounding, combined with patience and discipline, goes a very, very long way.
- Never, ever fear bear markets. They are your friends, for it is in the truly devastating bear markets that you will make your true fortunes. Never sell in a bear market, but go into it heavily and buy. Caveat here is to buy only fundamentally sound stocks, funds or the indices themselves.
- Always keep some cash on hand, whether to combat a medical emergency, a car crash or a savage bear market. Cash backed up by courage in a crisis is priceless.
SN: How has your approach toward investing changed/improved over the years?
Nishanth: After I reorganized my portfolio, I made several changes to my investment philosophy articulated my goals in an written investment statement, plus also stated my asset allocation goals and also incorporated data regarding historical valuations of indices to aid my systematic investing plans.
I reduced my mutual fund portfolio from a bloated 12 to a more manageable 8 (including passive and active). I mentally liquidated my entire stock portfolio and considered which stock I would still buy at current levels.
I was left with 6 from 15 stocks. After 9 long years, I have found the way I want to approach my direct stock investing.
I started by reading several blogs focused on investing – Vishal’s blog, of course, Stable Investor, Professor Bakshi’s blog, Subramoney and several others. I also read Buffet’s letters, Seth Klarman, Howard Marks, Joel Greenblatt, Parag Parikh and several other luminaries. I have made up my equity investment philosophy, based on my own investing checklist and my risk tolerance. I started acting according to that philosophy in the latest down market of 2013, buying just 4 quality stocks and holding them.
SN: What factors help you make “sell” decisions?
Nishanth: Well, my personal sell philosophy is based on 3 factors:
- Sell if the business shows signs of fundamental deterioration or my original thesis for investing is not working out even after 3 years.
- Sell if the stock’s valuations far exceed the possible earnings growth for the company for the next 5 years
- If I need cash for a more compelling opportunity. Else I won’t sell a stock, not even for rebalancing or diversification
SN: What is the best investment advice you have ever received?
Nishanth: “Invest in quality Indian businesses. Pay up, but don’t overpay.” – Prof. Sanjay Bakshi
SN: What is the worst investment advice you have ever received?
Nishanth: “Only gold and real estate are true investing options, all other options, especially equity, are illusory.” – Indian society
SN: What has been your favorite investing-related book and why?
Nishanth: Value Investing and Behavioral Finance by Parag Parikh. He explains his ideas in a simple, concise, easy to understand manner and tailored for the Indian markets and the Indian investor.
SN: If you had one piece of advice to share with all investors, what would it be?
Nishanth: Never ever take at face value the words you hear from others, be it Vishal, or Warren Buffett or Rakesh Jhunjunwala. Always do your own research, verify the facts and then proceed, only on the basis of your opinions and conviction. Only then will you be a truly independent thinker and only then will you prosper on your own.
SN: Thanks a lot Nishanth! Your insights have been amazing, and especially for someone who is starting out on his/her investing career. I hope other tribesmen take a leaf or two from your investment life.
Nishanth: Thanks Vishal! It’s been a pleasure sharing my learning as an investor. I hope the tribe is able to benefit in some ways out of it.
Well, you can become the next Safal Niveshak TribeStar!
You don’t need to be a super successful investor to be a TribeStar. All you need to have is a sound investment philosophy, even if in a development phase, and the willingness to share it with the Safal Niveshak Tribe.
Then, if you are willing, download this file, fill up the answers, and email them to me. As simple as that!