“Buffett Graham & Co. is a great institution for investors to learn the simple, sensible tricks to manage their own money,” I told a friend a few weeks ago. “However, all their ideas won’t work here given that we Indians have been brought up differently, and the markets also work differently.”
“But then, there are no great teachers in India who can share their investment life in front of us investors,” he said.
“There are some!” I said.
“Like Prof. Sanjay Bakshi, Mr. Chetan Parikh, and…”
“And my tribesmen!”
It was a Eureka moment for me when I realized that there are many Safal Niveshak tribesmen who have been investing for the past 20-30 years, who have seen several ups and downs of the market, and who have created wealth for themselves by sensibly investing their money.
Plus, there are some who have been investing for the past 10 years, and also have a lot of things to share with new investors on how to take their first steps in the investment world.
Thus was born the “Safal Niveshak TribeStar” – a tribesman who will come on this platform to share his/her investment life with the rest of the tribe.
Years of investment experience is not the only criteria for becoming a Safal Niveshak TribeStar. Of course you must have some experience in the investing, but more importantly, you must be willing to be a guiding light for others – by sharing not just about your great investments and how your picked them, but also about the mistakes you made and the lessons you learned.
I start this series with Mr. R.K. Chandrasekhar (who has allowed me to call him RKC :-)), whom I first met at my first-ever Art of Investing Workshop in Bangalore in April 2011.
Our bond has grown stronger since then, especially with RKC opening up his investment life in front of the tribe via his comments and feedback on my posts.
RKC started investing when I was born, so it’s quite a lot of years that he has been there, seen that.
Without wasting another moment of yours, here’s RKC, Safal Niveshak’s first TribeStar, opening up his investment life right in front of us.
Believe me, what you are going to read below will be more relevant that what you would read in a few investment books written by Western authors…simply because RKC lays out before us the life of a small Indian investor.
Disclaimer: Stocks/Examples quoted below should not be construed as recommendations.
Safal Niveshak: Before I pick your brains on investing, please share about your life, family, and career.
R.K. Chandrashekar: I was born in an upper middle class family – the youngest in a family of 5 children.
Our parents gave us good education, not wealth, made us stand on our feet, taught us that money needs to be shared, set examples in philanthropy – I am told that my father gave a donation of Rs 10,000 in the 1940’s to Acharya Pathshala, an educational institution (Bangaloreans are familiar with) when the school was going through tough times. Rs 10,000 was a princely sum those days.
My father also gifted his full share of agricultural land in favour of his younger brother, who was saddled with 10+ children. It’s another matter that no gratitude was shown.
In those days, our house was like a choultry and my older cousins who are now in their 70’s and 80’s, recall very fondly. Some of them stayed with us for years doing their graduation and had great regard and respect for my parents, particularly my mother who looked after them like her own children.
They say charity begins at home and today, I am proud to say that my wife and I had taken under our wings an aunt of mine for many years and another aunt with polio is being provided financial support by my brother and I.
HCL’s motto has been “Employee First Customer Second”. My mother practiced this for years! As a child, I used to wonder why my house maid/servant gets his breakfast before me at times. We had servants who stayed with us for generations and even today my wife follows the same, having learned the trick from her mother-in-law! My part time car driver has been with me for 14 years.
On the professional front, I quit the rate race even before IT became fashionable and work-life balance not thought of. I set up my placement services business from home and hired a Business Center – part-time to meet and interview candidates after office hours.
I was clear from the very beginning that I would not be a volume player, but build the business on niche skills, trust and timely delivery of service.
My friends used to envy me, as I went off on holidays twice a year. While all of us in the Technology hiring business got affected during the dot-com crash and post-2008 Recession, I was less dented due to low cost model of my business. Then, having spent 20 years in this business, I closed shop more than a year ago.
SN: What got you into investing, and how did you begin to learn about the market and investing in general?
RKC: From an early age, at home, I was known as someone who is careful with money. Pocket money saved to buy books and not splurge on partying/friends. So I got into the savings habit once I started earning with no financial commitment.
I had a colleague in Kirloskar Electric where I worked, who gave me an introduction to stocks by selling 25 shares of HUL @ Rs 25/share (FV10, year: 1977-78).
It also coincided with FERA Dilution of MNCs. A real lottery, since the price of IPO was fixed by CCI very low to the intrinsic value.
I got allotments in Colgate, and Warren Tea. These were exciting times and we used to apply in multiple names to increase the chances of allotment.
I had a fair knowledge of Finance and Economics, having taken a course in Managerial Economics as part of my MS(O.R) and exposed to DCF (discounted cash flow).
But honestly I never applied that before investing!
There were no investment magazines back then – Capital Market and Dalal Street came in the mid 80’s, so it was broker and the gossip on the market floor!
SN: What would you say is one of the most important lessons you learned early on?
RKC: It was that the daily price movements of stocks are not based on company fundamentals alone but more to do with human emotions, greed, demand and supply.
Another important lesson learnt early on was – never borrow and invest in stocks.
As a corollary, which I learnt very bitterly much later – never lend money to someone who invests in the stock market (I gave a few lakh to my co-brother in 1989-90), to invest in stocks with guaranteed 2% per month. Unfortunately, he died in an accident, his father had a heart attack a few months later, his partner ran away, and his family who had assets washed its hands off.
SN: How would you describe your investment philosophy?
RKC: Invest in a portfolio of businesses (high degree of moat, market leadership, top class management, sound business ethics) to generate wealth over the long term with power of compounding.
SN: How do you typically find ideas and what is your selection process before an idea gets added to your portfolio?
RKC: I find ideas from day to day experiences – while shopping, watching the TV-particularly the advertisements – remember the fishing net and Fevicol jingles, Hamara Bajaj and Desh Ki Dhadkan, reading and observing what is being bought/sold. Painters first choice – Asian Paints. Plumbers swear by Fevicol. Children love Maggie and Kit Kat.
Growing incidence of diabetes and sugar free substitutes lead me to Zydus Wellness, Knowledge of the IT industry where I have worked zeroed me to Infosys. Pedigree while investing in an IPO gave me HDFC Bank.
Another important idea I have looked at is MNCs who have technology leadership/ strong roots in India/delisting potential/buy backs. This has led me to Bosch, HUL, GSK Pharma and iFlex.
The single most important factor I consider important is return on equity (ROE), which indicates how efficiently the company is in using the shareholders’ money.
I look at consistency over many years. I have noticed that higher ROEs command a higher price in the market, a reason why MNCs like Colgate and Nestle are at high valuations.
As a starting point, here are ratios I look at before investing –
- Cash EPS – Positive and high
- ROE – 20%+
- Dividend Payout Ratio – 25-30%
- Debt/Equity – Nil or Very low, depending on the industry
SN: How do you take care of ‘risks’ while investing?
RKC: One, I diversify. In fact, my weakness has been over-diversification!
I have spread across direct equity, mutual funds, ETF, gold, real estate, venture capital funds and an art fund.
Two, invariably I buy stocks in small quantities, spread over many months, like an SIP in mutual funds.
This way, if the initial picking was wrong, I would exit and my loss would be minimal. If the subsequent investments (SIP) were at a higher price, it would reinforce that my original pick was a good one, though my average purchase price would have gone up. Example – Average purchase price of BHEL adjusted for bonus/splits is about Rs 36 (bought many years ago) and that of Zydus Wellness is Rs 180.
SN: What have been the most challenging investment lessons you have learned?
RKC: Well, here are some of them…
- Not to fall in love with your stocks, even the bluest of blue chips – they can’t love you back! As in life, so in stocks, detachment is a must have attribute. As a corollary, never chase stocks that are on your wish list and timing exits of winners is a real challenge.
- Never speculate, do not go short in the market. Buy if you are sure of taking delivery and you have sufficient funds in your account.
- You can never predict exactly or with fair amount of success the future price of a stock/index/market – so don’t be obsessed with price if you like the stock and all other factors are in your favour. Many may not agree, but if that was not the case, I could never have picked a Nestle, CRISIL, Bosch or HDFC Bank.
SN: How has your approach toward investing changed over the years?
RKC: My basic philosophy hasn’t changed.
I have always been a buy-and-hold type of investor, but the process and the system has changed for the better.
In the olden days, I would say the price discovery was inefficient – the company could manipulate the price by simply calling for a book closure!
Share certificates would get stuck for months with the company. We had a host of problems then – storage and loss of certificates, signature mismatch, transfer deed validity, odd lots, et al.
Again you needed to find a trustworthy broker, since they could easily cheat you with the price since the trade details would be given at the end of the day. We were more bothered with these problems and hardly any systematic research was done on the companies we chose to buy!
There were no FIIs or business channels on TV with stock experts sprouting their Buy and Sell recommendations. Biggest investors back then must have been LIC and UTI.
In those days, we could get away by investing with minimal research and more common sense, as we were a closed economy and markets were not efficient. That is not the case today – we are saddled with data and all and sundry give their expert opinion. Today, we need to shut the noise and do our own homework before investing.
I have been fortunate that my buy and hold has turned out winners once India opened to FIIs and our GDP expanded from Hindu growth rate of 2% to 8%+. However it was not always hunky dory.
There was a period for many years when I chose to shut myself from investing in the stock market – this was when I lost my shares and the money deposited with my co-brother.
Soon after, the Harshad Mehta frenzy and his crazy “replacement cost” theory took over. I bid my time and started nibbling in stocks.
Having tasted success with the MNCs back in the 1970s and 1980s, I picked companies like Glaxo, Atlas Copco, Carrier Aircon, Bata, Castrol and ITC…and also took small bets systematically in BHEL and L&T.
Gaining confidence, I started picking larger quantities of companies like TTK Prestige (around Rs 35 per share), Tata Steel and LIC Housing.
I read Peter Lynch’s book in 2001-02 and that influenced me to look at companies which are part of our everyday lives – companies with brand value, market share and professional managements…the likes of Hero Honda, Nestle, Asian Paints, HUL, Pidilite, Bosch, Infosys, and Castrol.
These, along with L&T, ITC, HDFC Bank, LIC Housing, Tata Steel and BHEL, became my core portfolio.
One important lesson learned is that after all the analyses, invest in companies with sound and professional management with business ethics and long standing in the industry – companies that can overcome short-term business downturns and emerge stronger.
While I invested in great companies with pedigree, I had my share of rotten apples – Pentafour, Silverline, Oswal Agro, United Diagnostics – which have vanished without a trace!
SN: In your personal portfolio, how many stocks and mutual funds do you own on an average?
RKC: Hold your breath – this would come as a shocker to most including me – 35 stocks and 5 mutual funds!
That’s because I started investing a long while ago-1977 and being primarily buy and hold, it has grown this large.
Now I have started pruning and hope to bring it down to 22-25 in the first phase and ultimately to not have more than 15 in my portfolio. A tall order indeed!
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?
RKC: I sell if any one of these conditions is met:
- If the initial decision to pick the stock was a mistake.
- Market has changed dramatically for the company – competition, government policy, corporate governance issues.
- P/E multiple is way too high and I see good profit on the table.
- Find a better opportunity elsewhere.
- I need the money – personal expenditure.
- Reduce exposure to a particular sector/industry.
SN: Do you “average down” into a losing investment? Why or why not?
RKC: No, if the original stock pick was a mistake, because that would mean putting more good money after a bad investment. I would rather book the loss and make up in another opportunity elsewhere.
However, if the stock is a good one but the initial purchase price high, I would average going down.
SN: What is the best investment advice you have ever received?
RKC: Time in the market is more important than timing the market.
SN: What is the worst investment advice you have ever received?
RKC: This is from a relative, who said that every stock that has fallen will one day wake up. Incidentally, he borrowed money from his colleagues, promised them high returns and invested in the stock market. He vanished after running huge debts. (His family, wife and children have disowned him).
SN: What has been your favourite investing-related book and why?
RKC: It has to be “One Up on Wall Street” by Peter Lynch.
It is built on the premise that so much of information is around us, if only we observe our immediate world – shopping malls, the work place, etc. We will discover a wealth of investment opportunities. We can easily beat the professional analysts on Dalal Street.
Following this philosophy, I have gained from picking these stocks early (purchase price in brackets) – Asian Paints (955), Bosch (4768), Infy (302), ITC (62), Nestle (1444), Pidilite (62), Zydus Wellness (180), and not to speak of HDFC Bank (IPO) and HUL (3.50 after adjusting for bonus and rights).
Again, I have had my missed opportunities big time. Letting go of Colgate 25 Shares allotted in IPO (1978), which adjusted for bonus and splits would have grown to 12,800 shares worth Rs 1.72 crore!
Then, selling Hawkins, TTK Prestige when they were languishing in price range of 50-150, and yes selling Page industries for 800 odd a few years ago!
SN: If you had one piece of advice to share with other tribesmen, what would it be?
RKC: Buy right and sit tight. Think Colgate and what it would have done to me!
Patience and time in the market can cover up a lot of sins, while creating wealth. So even if the initial price was a bit on the higher side, or the company was going through a difficult phase in the short to medium term – over the long term that would get ironed out, provided of course that you have picked your stock correctly. With P/E expansion over time, you cost of acquisition would look pittance as the above examples show.
Also, do not neglect companies which are liberal with dividends – you can build a retirement nest of regular pension in the form of tax free dividends. It could to some extent protect your investments during a market downturn.
SN: Thanks a lot RKC! I couldn’t have thought of a better start to this series. I hope other tribesmen, especially those just starting out on their investment journey, take a leaf or two from you investment life.
RKC: Thanks Vishal for choosing me as a first among equals! If fellow tribesman can learn a few lessons, avoid pitfalls and imbibe some traits, I would be the happiest person.
About RKC: R.K. Chandrashekar, RK to friends/associates, has been associated with IT, since the early 70’s; first as a student at Carnegie Mellon & Case Western Reserve University (Graduated with an MS in O.R from CWRU, 1975) and later working in companies like DCM Data Products, OMC, Tata Burroughs and Sonata. RK left Sonata in 1992 to set up G.C. Associates – a Talent Management organization, focusing on the IT Industry. At that point of time RK was one among a handful who were the pioneers in the IT placement space. RK brings to the table his wealth of experience in Human Resource Management, Mentoring, Senior Talent Spotting and industry wide networking skills. His hobbies include reading, wealth management and travelling.
Well, you can become the next Safal Niveshak TribeStar!
All you have to do is download this file, fill up the answers, and email them to me. As simple as that!
Now let me know what you think of this initiative, and your lessons learned from the investment life of RKC.