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Masterclass with Super Investors

Hiren Ved

 

Hiren is a postgraduate in Management Accountancy from ICWAI. He is the CIO of Alchemy Capital Management. The firm is run by him and his partner, Lashit Sanghvi and has even Rakesh Jhunjhunwala as an investor.

 

His early life:

Hiren’s family had a history of investing in the capital markets. He used to assist his father in the stock markets and also in various AGMs. He cherishes the talks of great businessmen like Mr. H T Parekh, Mr. Dhirubhai Ambani and Mr. Rahul Bajaj. Then as he gained interest in the markets, he moved on to reading annual reports, especially of MNC companies, which he recalls attracted him due to the fancy covers and colorful pages.

 

After his studies, he went on to intern under Mr. KR Choksey. He attributes his stock picking and research skills to Choksey, as he was able to build a strong ground in research right from the beginning of his career. Thereafter he joined Prime Securities for four and a half years.

 

How did he start Alchemy Capital?

Alchemy was initially started by Lashit and Ashwin as Alchemy Research. They were providing research reports on companies to brokers and investors. Rakesh Jhunjhunwala was also one of their clients. After six months of taking their services, RJ induced them that they were good, honest and ethical men and should set up their own company. He offered to be one of the investors and this is how Alchemy started in 1996. Hiren joined them in 1999. They also applied to SEBI for a PMS license. It took two long years for them to get the license but they finally took off with a capital of 5 crores in the year 2002.

 

In 2017, Alchemy was managing 6000 crores in assets which included investments from RJ and Qatar Investment Authority, among other notable investors.

 

In research, Hiren gives credit to his experience at KR Choksey. He learnt how to build relationships with company management. One gesture of Choksey that Hiren has followed till now is to send a handwritten note to the management post the meeting in order to thank them. It, according to him, was a good way to ensure management recall.

 

When he looks for a stock, he concentrates on three things to ensure whether the stock is a good buy or not.

  1. Is there any headroom for growth?
  2. ROCE
  3. Valuation

One of Hiren’s great successes was picking Bajaj Finance at less than 1x book value. In this interview, he repeatedly recalls how fantastic the management of Bajaj Finance is and why he has still not sold the company even though it is trading at expensive valuations.

 

He also likes to own companies that are doing a lot of R & D. He liked tech companies and was overweight on tech stocks in the Y2K boom.

 

With the right buy, it's also equally important to target the right exit. He coined a term called “CAGR killer” which occurs when you own companies (even great companies) that do not move for years due to expensive valuations. These create a massive reduction in the CAGR of the fund.

 

Lessons from Hiren’s investment journey: 

  1. Always take independent decisions. Never rely on others' research.
  2. There is no original idea. Even conventional stocks known to all can make a lot of money if bought at the correct price and inflection points.
  3. Demographics play a huge role in the PE expansion of stocks. Younger population in a country also means that the earnings would grow, hence more spending and profit growth for companies. Hence even a higher PE would be justified.
  4. Have a concentrated portfolio of high quality stocks.
  5. Do not rush to pick up turnaround stocks. There is usually a high risk as a lot of things need to work in your favour in order to make you money.
  6. He reads the following newspapers, namely: HT Mint, The Economic Times, The Times of India, The Indian Express, Business Standard and Hindu Business Line.
  7. He recommends reading thematic reports from Kotak and Ambit. He also recommends reading MIT Technology Review to keep updated about new technologies.
  8. Some of the books he recommends are: Superforecasting by Philip Tatlock and Dan Gardner, Thinking Fast and Slow by Daniel Kahneman.
  9. It's important to have extreme adaptability, learnability and flexibility in order to succeed in the markets.
  10. If one has a good understanding of risk-reward, a good temperament and a long term view with a high conviction, one can think about taking leverage for investing.

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