Neeraj Marathe is an investor based in Pune, Maharashtra.

His core competency lies around investing in Indian listed

companies, specifically mid-caps and small-caps, using fundamental analysis and value investing principles. He is an
avid reader and reads books based on value investing, behavioral finance and psychology.

As a hobby, he has been teaching for the last 10 years in B-Schools based in Pune, where he teaches specialization
subjects like security analysis and portfolio management.

1. How and why did you get started investing? What is your background?

I have no family background in stocks. In fact, my parents have always considered equity as too risky to invest in! I
started dabbling in stocks during my college days out of sheer curiosity. My education in accounting helped me to
understand certain things better and my curiosity grew. I started reading up on various investment philosophies and
styles. I went through all the Buffett, Munger, Fisher and Lynch material that I think every investor starts off with and I
realized that this is what I wanted to do in life!

2. Describe your investing strategy and portfolio organization. What valuation methods do you use? Where do you get
your investing ideas from?

I have a very conservative and risk-averse state of mind when it comes to investing. My whole investing philosophy
revolves around the objective of not losing money. I feel that if one is able to avoid the big blunders in investing, one
will be reasonably successful. I am a valuation-driven investor. I do not exclusively buy quality nor do I believe in
holding quality at obnoxious valuations.

In terms of portfolio, I am a concentrated investor. I do not own more than eight to 10 stocks.

I use a variety of valuation methods, depending on the business and situation. Discounted cash flow,
earnings/EBITDA multiple, replacement cost (in specific cases like cyclicals) are most often used. In rare cases,
expected future dividends becomes a great way to value a company too. I believe that how you use any valuation
method is more important than which method you use. In an Excel sheet, anything can be justified if you want it to be,
so how to use a particular method to reflect a conservative and practical scenario is more important.

3. What drew you to that specific strategy? If you only had three valuation metrics, what would they be?

I do not believe than one should be constrained to using a limited number of valuation metrics. Valuation is surely
more of an art, so it has to be applied as such, depending on the situation at that point of time. However, three factors
drive valuation in my opinion: earnings, cash flows and dividend. One should get a hang of these while valuing any
business.

4. What books or other investors changed the way you think, inspired you or mentored you? What is the most
important lesson learned from them? What investors do you follow today?

My favorite book has always been "The Most Important Thing" by Howard Marks (Trades, Portfolio). I think the book
has helped me become a better investor and a better person. Another big influence for me has been the thoughts and
writings of Seth Klarman (Trades, Portfolio). I personally identify the most with his style of investing.
Some Indian investors have also been a big influence on my investing journey. Professor Sanjay Bakshi, Durgeshbhai
Shah and Dnyanesh Bhatawadekar are some people who have really helped me develop as an investor. My partner,
Saurabh Shah, who is unfortunately no longer with us, is someone who taught me a lot about life and is probably the
reason I am where I am today.

Some Indian money managers I look up to and follow include Chetan Parikh (Jeetay Investments), Rajeev Thakkar
(PPFAS Mutual Fund), Kuntal Shah and Samit Vartak (SageOne) and Kenneth Andrade (Old Bridge Capital
Management)

5. How long will you hold a stock and why? How long does it take to know if you are right or wrong on a stock?

There is really no single answer to the first question! I will hold the stock as long as I think the business is doing well,
the management has not done anything unethical and the valuations are not obnoxious. I can compromise to a limited
extent with the first and third point, but never with the second!

I never think or conclude that I am 100% right on any stock. In my opinion, self-doubt, a constant search for
disconfirming evidence and an open mind are critical to investing. However, I will think that I have been reasonably
right on a stock if the business does as well as I expected it to within the time frame I had in mind and the market
recognizes and rewards the stock.

6. How has your investing approach changed over the years?

The small evolution I have had is like most investors I know. I have slowly moved away from exclusively Graham-style
investing. However, even today, I am not totally comfortable with paying up for quality just for the heck of it. In that
sense, I continue to be a valuation-driven investor. However, I do think that I have evolved on the business analysis
side and I try to understand businesses in much more depth than before.

7. Name some of the things that you do or believe that other investors do not.

I always believe that I can be horribly wrong with my next stock pick and my big blunder is just around the corner. I
find a lot of investors always believe the opposite about themselves. I believe there is no place for complacency in the
market even if you have had a good run. Humility is probably the least found virtue in the market.

8. What are some of your favorite companies, brands or even CEOs? What do you think are some of the most well-
run companies? How do you judge the quality of the management?

A few brands I really admire include Jockey,HDFC, Bajaj, Amul, Parle-G and Bisleri.

A few CEOs I admire include Siddhartha Lal of Eicher Motors (BOM:505200), Arvind Uppal
of Whirlpool (NYSE:WHR) and Marc Llistosella of BharatBenz.

A few well-run companies I track include Whirlpool, Foseco India (BOM:500150), Ashiana
Housing (BOM:523716), Gruh Finance (GRUH), Page Industries (BOM:532827) and Eicher Motors. (All Indian
companies, CEOs and brands)
I always try and judge the quality of management on two parameters: integrity and efficiency. For both, history can be
an excellent guide. Reading annual reports of companies and other publicly available data for the last 10 to 15 years
and collating their words, actions, reactions and results gives a good view about both the integrity and efficiency of the
management.

9. Do you use any stock screeners? What are some efficient methods to find undervalued businesses apart from
screeners?

I rarely use screeners. I think some other ways of finding undervalued businesses include looking into businesses and
sectors which have fallen out of favor for a variety of reasons, businesses with high potential but less aspirations
where management has recently changed and businesses going through temporary distress.

10. Name some of the traits that a company must have for you to invest in, such as dividends. What does a high-
quality company look like to you and what does a bad investment look like? Talk about what the ideal company to
invest in would look like, even if it does not exist.

I will take up the third question to first. For me, an ideal company would be one in which:

There is a long runway and scope for growth (opportunity size coupled with good brand or positioning).
The management is ethical and efficient and is nimble enough to identify and face potential disruptive threats
and competition.
Capital allocation has been top-notch.
There is a strong chance that margins will be maintained for a longer duration.
The business has favorable fixed and working capital terms.
Cashflow and profit is shared fairly with shareholders through dividends and buybacks.
Valuations make sense (most important!)

For me, a bad company is one which, quantitatively speaking, has huge capital needs with meager cash flows.
Qualitatively speaking, it is one where the management is unethical, complacent or is behind the curve in their
products and positioning in the industry. Also, one whose capital allocation record has been questionable.

11. What kind of checklist or homework do you utilize when investing? Do you have a specific approach, structure,
process that you use? Or do you have any hard cut rules?

I do not have a one-size-fits-all approach. Situations are different, businesses are different and hence, the way we
approach them will have to be different. However, some things I try to ensure, like a checklist, include:

Do I understand the business and its value drivers?

Do I understand the financials of the company? (Even if I dont understand something, I will give it a pass. I
may not necessarily conclude that there is an accounting fraud, etc.).
Do I have an opinion about the management's quality, integrity and efficiency?
Have I read all publicly available information about the company, its products and its directly comparable
peers?
Is it a business I am able to value? (I do not have the ability to value all types of businesses, so I have to
keep my own limitations in mind).
 Do I have a view on the fair value and the price at which I will sell? Will it meet my own internal return
benchmarks?
What could go wrong? What can be the downside in case things go wrong?
Am I positioned for good luck or bad luck in the particular business at that particular juncture? Do valuations
reflect that? Is the market overly enthused or utterly dejected while valuing the business at present?
Is it something being touted as the next big thing? Is it being talked about as the next Apple, etc.? I would
want to be especially careful in such cases.

12. Before making an investment, what kind of research do you do and where do you go for the information? Do you
talk to management?

For me, annual reports, publicly available conference call transcripts and presentations, industry reports and
magazines have been the biggest sources of information. I do not talk to management. The most I do is sometimes
attend the companys annual meeting, but I am not inclined towards personal meetings with managements.

13. How do you go about valuing a stock and how do you decide how you are going to value a specific stock? When
is cheap not cheap? If you can, give some of examples.

I have already covered the valuation aspect. One example of when cheap is not cheap is a cyclical business at the
peak of the cycle. Earnings will seem robust and the stock will appear statistically cheap. But as the cycle turns and
earnings dive, the stock will appear very expensive at the same price.

14. What kind of bargains are you finding in this market? Do you have any favorite sector or avoid certain areas, and
why?

Sadly, I am not finding much in this market. I am extremely comfortable with high cash holdings and am currently
trying to be patient and wait for a few good, fat pitches.

15. How do you feel about the market today? Do you see it as overvalued? What concerns you the most?

I track the Indian market. Currently, India is going through an upheaval of sorts which will impact businesses
materially. In this scenario of high uncertainty, valuations seem to have discounted a lot of positivity, making them
appear to be overvalued.

16. What are some books that you are reading now? What is the most important lesson learned from your favorite
one?

I am currently reading "The Tell-Tale Brain" by V.S. Ramachandran.

I do not think I can point out a single lesson as the most important one from among the books I have read. It is a
continuous value addition process and there are often a lot of aha moments. One conclusion I always draw from
reading good books is that I know too little and there is lots to learn.

17. Any advice to a new value investor? What should they know and what habits should they develop before they
start?
Be clear on why you want to become a value investor. Is it because it is a great buzz word and currently a fad?
Analyze yourself first, have an out-of-body experience and look at yourself dispassionately. Do you possess the
mental make-up to become a value investor? If not, identify your strengths. You might be great at something else,
there is no one right way in investing.

Build relationships with good people. Be ethical and humble. Listen more. Be open to the fact that you could be
wrong. Keep expectations reasonable.

18. What are your some of your favorite value investing resources or tools? Are there any investors that you
piggyback or coat-tail?

For me, annual reports, industry and financial magazines are invaluable tools. I also use websites
like www.screener.in for a quick look at the financials of a company.

While I talk with a few investors about businesses, valuations and investing, I am not a big fan of coat-tailing. While
you may borrow someones idea, how can you borrow his conviction? That can only come through your own hard
work.

19. Describe some of the biggest mistakes you have made value investing. What are your three worst investments
that burned you? What did you learn and how do you avoid those mistakes today?

My biggest mistakes have been mistakes of omission. This is where I studied the business but gave it a pass for
reasons which were frivolous in hindsight. While these mistakes might be forgivable sometimes, they are an absolute
crime when you are on high percentage of cash. I have been burned a few times due to this and it has impacted my
overall portfolio returns materially.

20. How do you manage the mental aspect of investing when it comes to the ups, downs, crashes, corrections and
fluctuations?

I think this is the most important aspect in investing. I try to manage this by being mentally ready for it. Here, a bit of
pessimism helps so that you do not panic when things go south for a while.

Also, trying to think about what a business will be like over a longer term will help you tide over short-term panics.

I try to disconnect myself from media to a great extent. They have a job to do and what they do is fair for them, but not
necessarily good for us as investors.

21. How does one avoid blowups in value investing?

Overestimating ones abilities and thinking you can do no wrong are sure-shot ways to blow yourself up and should be
avoided. Also, the illusion of control that some investors have will tend to hurt them. You have to accept the fact that
businesses do not function like Excel sheets. Ego and overconfidence must be avoided.

22. If you are willing to share, what companies do you currently own and why? How have the last five to ten years
been for you investing wise compared to the indexes?
While I have managed to comfortably beat the indices for more than a decade, there is always room to improve. I
think the near future will be more difficult from an investing point of view, so I am tempering down my own
expectations.

23. Here's a fun one - What stock would Warren Buffett (Trades, Portfolio) or Benjamin Graham buy today if he were
you?

Well, I am nowhere even remotely close to the thought process of the greats to predict what they would do, so I do not
have an answer to this really.

24. What is the most contrarian investment you have ever made? Why did you make it and how did it turn out?

Most of the contrarian investments I have made have been in cyclical businesses. They have turned out OK, no
complaints. Others have been in decent businesses going through temporary distress. As long as your analysis as to
the "temporary" nature of the distress is correct, they too turn out to be good contrarian investments.

25. If most fundamental investors study the greats (e.g. Buffet, Klarman, etc), then surely value investing is no longer
a 'contrarian' investment strategy?

This is a fascinating question! Intuitively, what you say sounds right but if one thinks about it more, one will conclude
that it will not be so.

I think that while reading and understanding the greats is relatively easy, applying the practice to suit yourself is very
difficult. For example, Buffett is someone about whom so much has been written and it is out there for anyone to read
and digest, but still there is only one Buffett. If all of us were Spock, then yes, value investing will not remain
contrarian. But as long as the human element in us influences investing, I think pure value investing will remain
contrarian and elusive.