Author : Jahnavi Dodai
“Investing is a journey of self-discovery. It reveals your relationship with money, your tolerance for risk and your ability to stay disciplined in the face of uncertainty.”
As Mr. Siddhartha Bhaiya took us through his journey of 21 years into stock markets, 10 years of delivering over 38% CAGR returns at Aequitas Investments, his most important lessons learnt as a fund manager, habits inculcated in early years into investing and the discipline of protecting invested capital; finding 10x or even 100x multi-baggers seemed possible.
Siddhartha started his speech with valuable lessons one can learn from historical data, he solidified how investing in Nifty could itself give multi bagger returns over long time horizon. In the last 40 years, Sensex has been growing at a CAGR of 16%. In fact, the journey of Nifty from 800 in 2001 to 20000 in 2023 in around 22 years is itself a 25x bagger. His recollection of Nifty’s historical performance gives us immense confidence in how it could look in 2070.
As Mr. Bhaiya rightly quoted, “If you minimize the downside, you automatically increase your probability of going right”. He probably saved years of mistakes one could make before learning their lesson. He emphasized on reasons why people find it difficult to make money in the stock markets, let alone find multi baggers. Interestingly we often see people gambling away in the stock markets or acting on others’ tip without prior research. He went on to mention how people would spend more time buying a shirt than a stock. Other indulgences for QUICK gains that people often engage in is buying IPO stocks for listing gains. When 9 out of 10 companies listed in stock markets eventually delist. Irregular investing habits add to the difficulty of investors. However, he called leverage the biggest sucker punch.
He later went on to explain the importance of the right mindset and the role it plays in making or breaking someone. He explained how today as investors we’re far better placed to know what we’re investing in; all we must do is have the right mindset. Staying away from gambling, IPOs & leverage could minimize one’s downside of losing in the stock markets. And in hindsight, as investors our very first rule should be to not lose capital.
In today’s day and age where we have the accessibility to learn from lessons of people who’ve spent their lifetime practicing the right things, we must cash in on the idea of learning from other’s mistakes.
Having the right mindset first and foremost involves having the right behavior & habits whether in life or in investing. He drew examples of how a Chain Smoker was once an amateur taking his first drag. Every wrong practice starts with trying to do them once, until it bleeds one out. Be it a bad habit in life that deteriorates your health or a wrong investing practice that bleeds you out of capital.
He mentioned how reading habits from his very early days helped him rise above the ordinary. His anecdotes on catching good habits of reading & maintaining a healthy lifestyle seem truly important. As a matter of fact, day at Aequitas Investments involves reading and working out for the entire team.
He emphasized how important time is in the markets. The idea was not just to find value in businesses but also the patience to hold them. To let the story play out and let the multi bagger run its course. Interestingly he mentioned how at Aequitas the average holding period of stocks is more than 5 years and the top 7 out of 10 holdings are held for more than 8 years. Drawing relevance from one of his own holdings, Apar Industries, one of his early finds which is a 36x bagger today took more than 4-5 years to even start paying off.
His idea for all new investors involved a regular habit of investing in a company every single month for a period of 3-5 years, and gradually increasing the time horizon of holding each company for 2,3,5 years. At the end, some would have given out average returns, some would have lost the most value, and some would turn multi baggers. This approach can give an insight into what are the common characteristics in multi bagger stocks, a firsthand learning experience just for a small tuition fee.
What stuck most with me was the idea that even if one makes a 10-stock portfolio and 9 stocks are down 90% and one turns out to be a 10 bagger, the overall portfolio could give more than 50% returns. Even better if one stock is a 100 bagger, the overall portfolio itself would be a 10 bagger. And one must be bad in picking stocks to find 9 companies that are down 90%.
He quotes how you can borrow stock ideas, but you can never borrow conviction, hence, your own research is far more valuable than any multi bagger idea or tip. He mentions the journey of Mr. Rakesh Jhunjhunwala with Titan and how it saw more than 12-13 drawdowns throughout the course of holding the company, some drawdowns were even greater than 50%. He stressed the importance of not being shaken out of your position, which is possible only when your conviction is strong.
Investing is a function of both luck and skill, but we must learn to decouple one from the other. In a bull run, every thing looks good, whereas in a bear market even the best of companies could appear as wrong investment decisions based on short horizon returns. However, surviving the drawdowns, having the right mindset and the time in the markets can massively determine how returns look over long term horizon.
Being a small cap fund manager, Mr. Bhaiya explained how many of the small cap companies are plainly junk and when we as investors look at market capitalization to determine our interest in buying a stock, it is nothing but a misleading matrix. While continuing to explain the multi bagger DNA of Aequitas Investments, he mentioned what to look at while researching a company.
When asked about what makes a multi bagger, Mr. Bhaiya pointed out that its not just value or growth or his contrarian approach, it’s a confluence of all three. While researching, he suggested looking at industry leaders, best players in the worst sectors, market efficiency or highest market share, corporate governance as some of the criteria to select a company. He considers market capitalization to sales as one of the best ratios. The idea is not to buy small companies, it is rather buying big companies at smaller valuations.
The multi bagger idea struck me, as Mr. Siddhartha Bhaiya calls it tasting the tiger’s blood, once you taste it, you’ll never settle for anything else. Performance of Avanti Feeds (100x), JSL (20x), Finolex Cables (20x) are a testament of the DNA that runs within Aequitas Investments.
The entire session gave an insight into timeless lessons and practices followed by the likes of Warren Buffet and Peter Lynch. If Indian stock markets were a battlefield, Mr. Siddhartha Bhaiya is a warrior, and his two weapons are time and patience.
To conclude I don’t think multi-baggers are just a farfetched idea. Listening to one of the best fund managers of our country and his simple yet consistent approach makes one belief that they can find one too.