From The Horse’s Mouth: Meet Shah Investor Profile

Meet Shah is a name to be reckoned with. His tweets inspire not only the retail investors out there but are also the topic of discussion by HNIs alike. Today, he has given us a look into his life, his hobbies and some of his favorite books, how he started investing, his regrets his investment mantras and checklists among other things. This is not an interview one should take lightly and read and reread as many times as possible.

So, without further ado,

1. Tell us a little bit about yourself

I am a simple person passionate about building and enjoying life responsibly more than anything else. I am an MBA by education, businessperson by profession & Stock market investor by passion. I believe in runways long runways, be it Life or Investing.

2. What was your first experience with the stock markets & how did your journey start?

In 2007, when India was celebrating the T20 cricket world cup victory under the captaincy of young Mr. Dhoni, the other part of the nation was worried about stock market crashes. My friends were talking about the stock market, daily they do intraday with the upper circuit and lower circuit. That was my first introduction to the stock market. At that time I was a student and 7 years later, in 2014 after my completion of MBA, I joined my father's business. The stock market was never on my list. For we gujju's business runs in our blood but the fact of the matter is - newly educated generation wants to do a peaceful business but due to the industry standards it was not possibly possible. During the same period, my younger brother (pursuing CA at that time) and I came across a few papers which were the physical forms of companies bought by my father during his young age. It was majorly filled with crap companies, only a few outstanding companies we found which are HDFC bank, Aarti industries, etc. We asked our father regarding the same & he replied do whatever you want to do with those shares. He always allowed us the freedom to pursue our dreams. I told him, I am zero in the stock market but I will invest in companies which have growth, good business person and can survive for at least 10 years. During that time, Mr. Modi became the prime minister of India and everyone went gung-ho on the stock market. My curiosity heightened up and I called the broker to sell good stocks & buy fancy stock. I was making quick money. I was doing intraday & short term trades. But I never did FNO. I thought I had found a peaceful business to pursue my dreams with. Tv analysts, newspaper & our broker were the sources of company tips for us. Out of nowhere, one day market went down and our stocks crashed & whatever little we had earned in a few years, we lost almost everything. Luckily, we were holding a few shares that our father bought like HDFC bank, etc went up and our overall portfolio only suffered from scratch and saved us from getting a big wound. The greed of making quick money & Fear of missing out caught my mind to buy fancy stocks for the short term instead of buying good stocks for the long term. I reminded myself of what I told my father before entering the stock market "That I will invest in those companies which have Growth, Good Businessman & can at least survive for 10 years". Then we subscribed to a few advisories to get solid research ideas. We were buying whatever the advisory told us to buy. We were earning on almost 60% to 70% of stocks tips only because of the advisory We did great for a year but then reality checks-in and markets crashed in 2015 and 2016 and in just 2 to 3 days of crash in both years, we lost almost 50% of our earnings. It was like we were about to leave the stock markets. Finally, during that period my brother completed his CA & he told me regarding Warren Buffett. I was like let's read what the biggest investor of the world has to say about the stock market. We exited almost every position which was full of crap small & mid-caps and filled with crook promoters. We then started reading books on the stock market. We read books by:
Peter Lynch, Philip Fisher, Ben Graham, Robert Kiyosaki, Howard Marks, Warren Buffett, Charles Munger, Mohnish Pabrai, Vishal Khandelwal, etc, etc.. & the list goes on. Read Warren Buffett's letters to shareholders & finally found "what-not-to-do in stock market" rather than knowing "what to do in the stock market".

3. What is your personal checklist while making an investment and portfolio allocation like?

A) Whether the company falls in my "Circle of Competence" or not?

B) Management history and Company's accounting ethics & Fraud history.

C) Checking the company through Peter Lynch's six category process.

D) Applying Porter's Five Principles.

E) Financial data analysis & Valuation Analysis.

F) The margin of safety.

G) Runway.

H) Allocation Plan out.

H) Applying Mental Models & Emotional check.

I manage two types of portfolio:
Portfolio-1 Blue-chips. (Few bought by my father since IPO)
Portfolio-2 Promising small & mid-caps.

My portfolio is concentrated by numbers but diversified by sectors.

4. When do you sell a stock? What are the criteria according to your rationale that a stock has reached its life? When do you know it's time to get out of stock?

A) Deteriorating in the company's fundamentals (Sales revenues, Profits, debt, Leverage, etc)

B) A permanent change in the business scenario.

C) Interference of government policy or foreign policy. (Taxation, Import-Export, USFDA, etc)

D) Change of hands.

E) Poor Capital Allocation and Weak diversification.

F) Found better investment opportunities.

G) the Second generation taking on. (Need to check whether the second generation is capable or not)

Since selling is more complex than buying, but few checkpoints can help us trigger the selling decision.

5. Do you have any mistakes or regrets?

We earn success from experience, we earn experience from bad experiences. And what leads us to bad experiences? Our own mistakes.

The biggest mistake of mine was exiting Pidilite after making a very small profit. Still regret that mistake to let go of a good business at reasonable valuations.

Bought a liquor company that turned out to be a 5x in 2 years and then went bankrupt because of the fraudulent promoter. Though I exited with 5x. Another such chemical company I bought which turned 3x in 3 years & then the scam unfolded, exited at 2x. Another such company in the FMCG sector which gave me 5x in 2 years turned out fraudulent, exited at 3x. I made huge x profits and deployed in another such plastic company which turned out 100x in a negative sense and I lost 50% of what I earned. My biggest error was that I didn't dive dip into the history and goodwill of promoters and accounting ethics of the companies. Since then we have decided to dive dip into the annual reports & company history. Regular updates, meeting with promoters, plant visits, channel checks, etc to make sure everything is in smooth shape or not.

It is rightly said learning is greater than earning.

6. How did you increase your market knowledge?

First, I learned it by reading a book written by Peter Lynch "One up on wall street". I was blessed that I had my uncle with me who is a market veteran & investing in the stock market before my birth, he taught me some great lessons regarding market behavior and company's history and gimmicks.
Secondly, I was fortunate to have learned my business analysis lessons from my father, he taught me the toughest of lessons in the easiest of ways.
Lastly, my younger chartered brother taught me how to identify frauds and analyze the company's balance sheet and financial data.
I am a mix of common but extremely successful people's stock market experiences.

7. What are some life mantras that you go by while sitting on the market roller coaster?

The biggest advantage and disadvantage of the stock market is "Ease of buying & selling with single click" & "Easily available stock tips".
* Never rely on anyone except yourself.
* Investing is game patience.
* Do what you are good at (Trading or Investing).
* Always have a framework.
* Accept the Nature of Market (Volatility).
* Simple is good but not easy.
* Focus on the constant thing in the changing environment.
* There is no "Full Proof" method in the stock market.
* Don't marry your stocks just flirt with them for long very very long.

In the stock market, there are plenty of opportunities available. One bull market will make you think you are on your part of becoming financially independent on your own but when bear market reality checks in one will know the bitter truth of the market. Never be bias on anything. Improvise, adapt & overcome.

The stock market is the place that gives the hardest of lessons during the best of times.

8. Who do you idolize and which people inspire you?

A) Sumeet Nagar of Malabar Investments.
His selection style depends on the next big trend and he has a knack of picking exceptional bottoms up companies having high growth. He usually goes with the number one player or number 2 player in the industry while selecting any company run by young promoters. One of the cleanest spoken and youngest yet experienced teams I ever met.
Past successful holdings: Page Industries (Jockey), Symphony, Motherson Sumi, Hawkins, Info-edge, etc.
Current promising holdings: Safari, Prataap Snacks, Hatsun Agro, SIS, etc.

B) Pulak Prasad of Nalanda Capital.
His investment style more or less resembles what Sumeet Nagar's style is. He usually selects companies that are the only ones in their listed space or goes with number 1 or 2 players.
Past successful holdings: Page Industries, Exide, Shree Cement, etc.
Current promising holdings: No new buying from Nalanda Capital only Adding few to their already bought Matrimony.

C) Mohnish Pabrai of Pabrai Investments.
His style of picking lesser-known companies run by exceptional management at an exceptionally low price.
He usually picks stocks with low risk and high uncertainty. Apart from his stock selection, his way to live life and thought processes is the key to build a strong portfolio and life.
Past successful Holdings: Fiat Chrysler, etc (not much in Indian stock markets)
Current promising bets: Sunteck Realty, Rain Industries, Kaveri Seeds, etc.

D) Saurabh Mukherjea of Marcellus Investment.
His style of picking companies is different yet simple. One of the neatest guys I ever met. He picks companies that have a great historical track record, clean accounting, and good corporate governance. He usually picks blue chips companies that are market leaders and have high growth and a long runway.
Past successful holdings: HDFC Bank, Asian Paints, Pidilite, etc.
Current promising holdings: Dr. Lal Pathlabs, Relaxo Footwears, etc

E) Porinju Veliyath.
His style of picking companies is very unusual. One of the finest guys I ever met who has all sorts of themes under his belt. He picks companies from small and mid-caps space. He focuses on hidden names. He also focuses on small companies owned by big houses.
Past successful holdings: KRBL, United Spirits, Future Group company, etc.
Current promising holdings: Praxis Retail, Shalimar Paints, etc.

F) Raamdeo Agarwal.
His style of picking stocks is value + growth. One of the smartest value migration theme people I ever met. Apart from his stock picking, his wealth creation study & entrepreneurial skills attract me the most.
Past successful holdings: Bharti Airtel, Hero Motocorp, etc.
Current promising holdings: Vaibhav Global, AU small finance bank, etc.

G) Vijay Kedia.
His style of picking stocks is a mix of macro + micro factors. He speaks from a heart that's what I liked the most when I met him. He usually selects number 3 or 4 or 5 players in the industry to go with.
Past successful holdings: Cera Sanitaryware, Atul, etc.
Current promising holdings: Everest, Repro, Vaibhav Global, Sudarshan Chemical, etc.

There are many investors whose stock-picking abilities and ideology I like but these are the ones whom I like the most. Porinju Veliyath is my first and will remain my most loved investor.

9. Can you share some of your hobbies with our readers?

Cricket, Gymming, Travelling, Reading, Learning about different business strategies and tactics & studying my father's business process, Public speaking & Motivating others is my biggest passion.

10. What are your personal thoughts on disruption?

The world is so fascinated by disruptions, I do not focus much on that I rather focus on the things which will remain constant until a long time. Definitely, I cannot neglect or underestimate the effect of Disruption but I usually go with themes where the chances of disruption are less and where the main aspect is attached to the constant process. Human habits don't change easily unless provided or given extreme comfort and that is where the game is where one can get the understanding of behavioral aspects of the Constant process, Migration process & Disruptions. "Human habits" is the biggest theme of all time in every generation. Study it and bet according to it.

11. Can you share a list of your top 5-10 investment books with our readers?

A) "One up on wall street" by Peter Lynch.

B) "The Warren Buffett Way" by Robert Hagstrom.

C) "Coffee can investing" by Saurabh Mukherjea & team.

D) "The Intelligent Investor" by Benjamin Graham.

E) "Common stocks & uncommon profits" by Philip A. Fisher.

F) "The most important thing" by Howard Marks.

Apart from these books, Warren Buffett's letters to shareholders, Principles by Ray Dalio & Raamdeo Agarwal's Wealth Creation study attracts me the most.

12. Lastly, what advice would you like to give to younger people or beginners who have just started their stock market investing journey?

A) People try to put too much effort and calculations while investing in the stock market. Keep it simple and process-oriented.

B) Knowing your "Circle of Competence" is the most important of all aspects.

C) It is very tough to resist the temptation of shopping things available at discounts. So invest the amount you save via discounts whose products you buy. (Best if you go with blue-chips as it eliminates the risk of checking accounting gimmicks to a greater level).

D) Go with Mutual Funds if you don't have the bandwidth to deal with the volatility of the stock market, there is nothing wrong with it.

E) Know your strength but weakness first.

F) No multibagger stock will provide linear returns, but in the long term, it is possible to get immense returns. Build your nerves to handle the ups and downs of the stock market because even a flat line on ECG means you are dead.

The above is for educational and informational purposes only. It is not an endorsement or a stock recommendation. The author may be holding the securities mentioned above. Do your independent and thorough research before investing.

 

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