"I keep track of these businesses even today. If Mr Market gives an opportunity to buy them back at more reasonable valuations, I will do so,” he said
Commenting on his investment style, Basumallick said he tries to look for companies with a demonstrable track record of earnings, large opportunity size, reasonably ethical management and relatively cheap valuations.
"Companies with differentiated business models or superior execution skills attract me. I mostly look for stocks with a three-year investment horizon," Basumallick told ETMarkets.com.
If as investors, we are able to narrow down the items we need to focus on and then work only on those, including reading, discussing and thinking on those topics, it would be far more beneficial to us.
If we like a company, we should try to understand how it operates, what we should be looking for in their results to understand how the company is doing. These may be non-financial data points as well, how the competitive landscape looks like, what are the world leaders doing (may not be present in India) and such things, which can help expand our knowledge about the company and industry. The interesting part is that this sort of knowledge compounds over time.
It is very important to remember that what you say “no” to determines what you can say “yes” to. And what you can say “yes” to would determine the outcome of an endeavour.
Picking stocks is a negative art – one of elimination rather than selection.
One of my key learnings in the market over the years is to look for easy problems to solve. There are no extra points for playing a difficult game. I tend to ignore any complex investment thesis in any stock. If a lot of variables need to play out for a company to do well, then it is better to let it pass and move over to the next company.
Reading annual reports of companies from an industry as a group gives a lot of insights into the competitive landscape, new developments and differentiators for any company.
In some industries, global reports can provide a glimpse of things to come.
But most investors that I know of try to forecast macros because they make them sound intelligent! The practical value of the forecasts is often negligible or negative to their networth, because it is wrong most of the time.
The one thing I understand is to focus attention on individual companies in the portfolio or watch list and their valuations. Even focusing on the broader indices does not help, since rarely any of us invest in the indices themselves.
What I have realised is that beyond what is written in books an investment checklist should try and capture all aspects of investing – qualitative, quantitative and, most importantly, behavioural. It should also capture my own past mistakes to ensure they are not repeated. The behavioural and past mistakes are not addressed in most investment literature, but they are the most crucial in my view.
As investors, our job is to understand the business we are invested in. We need to continue to focus on that business and the reasons why we have bought those businesses. Most of the times we get pulled into fruitless macro discussions, without pausing to ask how it impacts the companies we are invested in.
The challenge is that everyone wants to get rich within a short time. No one has the patience and mental fortitude required to hold on to good businesses over their business cycle. Business results, in general, tend to be mean-reverting, which means over time, great results become mediocre and poor results get better.
I will not hazard a guess on what the market will be like in 2019. Not because I don’t want to, but simply because I don’t know how to.
India is a $2.5 trillion economy today. At the current pace, we should double in 8-9 years and then double again in another 8-9 years. In this while, the market cap should also go up substantially from current levels, because a lot more of the large unlisted players would come to the capital markets through IPOs.
At a 100% market cap-to-GDP ratio, we are looking at an approximately $10 trillion market cap in 16 to 18 years. That is a five-fold rise at market level in this time frame. Individual stocks will definitely do much better. So, keep an eye for longer-term wealth creation stories, be invested in a well-chosen portfolio of stocks and fasten your seat belts for a bumpy ride.
A lot of my younger friends have completely moved away from television. We have already seen completely new industries like food delivery and taxi apps come up over the past few years, which are riding piggy-backed on this convergence of cheap data and smartphones. Over time, this behaviour will pick further momentum and a lot of industries will have to adapt themselves to the new way of doing business.
Argues Abhishek Basumallick, a known value investor: Of course, quality comes at a cost. Growth is good only when the return on equity is greater than the cost of capital.
Basumallick says investors should keep in mind that growth in earnings, its sustainability, quality of business and management, the ability to re-invest a large amount of capital back into the business and, most importantly, the price that you pay for a stock will eventually determine your return on that stock. So, the strategy should be to buy quality companies at 'marked down' price when available.
“CAN SLIM is primarily a momentum trading or investing strategy. It tends to work well in a directional market. Like any other strategy, it too has its pros and cons. CAN SLIM may not do very well in a choppy market. As a strategy, it tries to merge fundamentals and technical analysis,” says Kolkata-based value investor Abhishek Basumallick.
Kolkata-based investor Abhishek Basumallick says a reasonable price is what gives you the comfort to expect and make profits over a 2-3 year timeframe. And the profits should be higher than risk-free returns. From that perspective, there are some pockets in the market that are reasonably priced, but a vast majority of stocks are still overvalued.
“The fact that prices have fallen significantly and appear to be lower than what they were six months back is making people believe them to be cheap or fairly priced. But many may be not,” Basumallick said.