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Focusing on the

Basics
Abhishek Basumallick

Disclaimer
Please assume I am personally invested in any stock ideas that may have
been referred to in the presentation. My views ARE biased. This is NOT a
stock recommendation. Kindly do your own due diligence and/or consult
a registered investment advisor before making any investment decisions.

Whoever we are, whatever we


are, as people, as investors is an
culmination of all our past
experiences

My Learning from Mr. Market


The market is a complex adaptive system too many parameters to model
for forecasting accurately both at the macro & micro levels
For example, drug for cell cloning will wipe out the entire conventional
pharma industry.
I cannot consistently time the market (Please read as I cannot do it at all!!)
Always fully invested. No meaningful cash holding in portfolio.

Given a long timeframe, all businesses are mediocre businesses.


Cameras, Newspapers, Landline phones, TV (?), Desktop Computers (?)
Sell decision comes from a decline in business momentum
Helps in NOT falling in love with any business

My Learning from Mr. Market


"He that fights and runs away, May turn and fight another day;
But he that is in battle slain, Will never rise to fight again." - Tacitus

Diversification is crucial to portfolio risk management.


I cannot guarantee great upsides from my stock picks. But I can limit getting
wiped out by one bad apple in the basket.

It protects me from unknown company-specific risks


When investing in small / mid caps, most of the companies have keyman risk.
Something untoward happens to the keyman and the business will go down
the drain (remember Apple without Jobs?). People with 40-50% allocation to
such a stock, will find it very difficult to get even.
I think its optimum to have between 10-20 stocks in the portfolio.

My Learning from Mr. Market


All roads lead to management
Very difficult to be certain that management are not crooks and cooking their
books (even partially). Take care when there is a change is key management
personnel. e.g CEBBCO
Management has a vested interest in promoting their company. Take their
word with a BIG BOWL of salt.
Managements are as much under psychological influence as common people hubris, endowment effect etc
Numbers tell a story. That needs to be verified against management speak. e.g.
a co says they have a lot of IP. Then their intangible assets should be high.
Consequently their RoE should be high.

My Learning from Mr. Market


I am my worst enemy in the markets.
I use a personal checklist, one which is a living document that gets
appended over the years.
Covers my research process, business quality, management quality and
valuation
Covers lessons from past mistakes my own as well as vicarious
Covers potential behavioral biases
Makes sure I get the basics right. Over time I have realized that my mistakes
have come from not doing the basic stuff well.

Investment Philosophy
What excites me (in a stock!!)?
A lollapalooza effect of more than one of the following factors working
together:
Large opportunity size

Supreme Ind, Mayur, PI, Astral, Cera, Symphony / Hawkins, Page

Limited competition

PI (CSM), Bajaj Finance

Very low debt

All long-term holdings

Industry tailwind

Pharma, Financials

Great management

TCS vs Infosys; Supreme vs Sintex

Cheap Valuation

All picks except Symphony / Page, Zydus Wellness

Investment Philosophy
When do I sell a holding?
Business deteriorates or management does
something that harms the business long term

Opto Continuous dilution, dependence on


inorganic growth checklist red flag
CEBBCO Continuous change in
management team checklist red flag

Switch to a better opportunity

Since, I am always 100% invested, any new


acquisition means, I have to sell what is least
favoured at the time. Pidilite vs Mayur

Broader market becomes very high

Overall Sensex / Nifty PE of > 25.


Headlines in non-business daily
(Anandabazar / Telegraph)

Examples
Company

Description

Checklist Details

STFC

Superb management
Good growth; low NPAs
Excellent franchise; unique
customer base of 2nd hand
truck owners

SELL decision
Cyclicality of customers (CV owners) Karnataka mining ban

Supreme

Leading plastic
manufacturer in India
Best-in-class management
High return ratios for a
commodity business

BUY /HOLD decision Continuous focus on improving margins &


RoCE
Moving out of low margin businesses
(commodity furniture)
Management compensation, debt
management, dividend payout
Huge manufacturing & distribution reach
Continuous product innovation

Examples
Company

Description

Checklist Details

Page

Jockey
Speedo

What kept me from BUYING


Valuation
Internationally, JOCKEY underwear is NOT a
premium product
No perceivable moat (!)
Questionable market size
The growth music will stop, I just dont know
when.

Confirmation Bias

The Curious Case of Sintex


Feeling
Happy - 3x

Concerned;
Loss Aversion

Foreign
acquisition
- FCCB

Started
getting
interested
BUY
Zone

Monolithic
under
performs; FCCB
conversion;
equity dilution
SELL Zone

Started getting
interested BUY Zone

BUY:
Valuation
Friendly Management
- 80 yrs record of
uninterrupted
dividends
SELL:
Headwind - No
traction in pre-fab &
monolithic
Increasing debt Debt & FCCB
overhang
Equity dilution
BUY:
Valuation
Business Tailwind Custom moulding,
Prefab & Textile
improving

A meaningless peak into the crystal ball


High probability event

Possible implications

Possible Beneficiaries

Lowering of interest rate

Leveraged companies may benefit,


specially those who have borrowed to
add capacity that can get utilized better
Financial companies banks, NBFCs,
Insurance
Increased consumer spending, specially
on durables on loans (home loans,
consumer durable loans, auto loans etc)

Sintex (?)
Cement (?) JK Lakshmi,
Shree Cement
Banks specially PSU ones
some are really cheap
valuation. There are banks
with PE < 10 & PB
<0.5worth looking at
Canara Bank, Union Bank
Bajaj Finance, SCUF,
Edelweiss (?)

Increase in Mobile /
Broadband penetration

Content providers can sell content on


Beneficiaries Cant figure
multiple platforms
out
Newspapers, TV, Cable consumption goes Losers Cable TV, Broadcast
down and get replaced by on demand
networks, Newspapers
video