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 • Opto – Continuous dilution, dependence on

something that harms the business long term 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
STFC • Superb management
• Good growth; low NPAs
• Excellent franchise; unique
customer base of 2nd hand
truck owners
Supreme • Leading plastic
manufacturer in India
• Best-in-class management
• High return ratios for a
commodity business
Checklist Details
SELL decision –
Cyclicality of customers (CV owners) -
Karnataka mining ban
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 What kept me from BUYING –
• Speedo • Valuation
• Internationally, JOCKEY underwear is NOT a
premium product
• No perceivable moat (!)
• Questionable market size
• The growth music will stop, I just don’t know
when.

Confirmation Bias
 The Curious Case of Sintex
Feeling Concerned; BUY:
Happy - 3x Loss Aversion • Valuation
Foreign • Friendly Management
acquisition - 80 yrs record of
- FCCB uninterrupted
dividends
Monolithic SELL:
under • Headwind - No
Started performs; FCCB traction in pre-fab &
getting conversion; monolithic
interested equity dilution
• Increasing debt -
– BUY Debt & FCCB
– SELL Zone overhang
Zone
• Equity dilution
BUY:
• Valuation
Started getting • Business Tailwind -
interested – BUY Zone 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, • Sintex (?)
specially those who have borrowed to • Cement (?) – JK Lakshmi,
add capacity that can get utilized better Shree Cement
• Financial companies – banks, NBFCs, • Banks – specially PSU ones –
Insurance some are really cheap
• Increased consumer spending, specially valuation. There are banks
on durables on loans (home loans, with PE < 10 & PB
consumer durable loans, auto loans etc) <0.5…worth looking at
Canara Bank, Union Bank
• Bajaj Finance, SCUF,
Edelweiss (?)
Increase in Mobile / • Content providers can sell content on • Beneficiaries – Can’t figure
Broadband penetration multiple platforms out
• Newspapers, TV, Cable consumption goes • Losers – Cable TV, Broadcast
down and get replaced by on demand networks, Newspapers
video