Masterclass with Super Investors
Rajashekar is a Chartered Accountant (CA) by qualification and has over three decades of experience in the stock market. Over his professional career, he has worked with a few audit firms, been an editor of a leading stock market magazine, ran a value investing newsletter, a research desk and was heading the institutional broking business at Kotak Securities. He now runs a PMS by the name of SiMPL (Securities Investment Management Private Limited). He has developed his investment strategies over the years through reading and practicing. He believes in buying high earning growth companies that are available at cheap valuations. He also uses technical analysis to support his investment decisions.
His early life:
Rajashekar was born in a village in Tamil Nadu. He, along with his family, had shifted to Ahmedabad, where he completed his graduation along with CA in 1980. He started working right after that. He got a job in Bahrain, and he is said to have saved 50-60% of his income there. By the time he came back to India (after five years), he had ample money to start his own venture.
His market experience:
Rajashekar started to invest in the markets via the IPO route. Even when he was an NRI, he used to put money in Indian IPOs, although without any research. After suffering a few losses in the market due to market manipulation, he decided to read about the company’s financials and only then invest.
He went to the Registrar of Companies’ Office, the BSE Library, the CMIE (Centre for Monitoring Indian Economy) office, etc. and read the annual reports, offers documents and other resources in order to understand the company’s fundamentals. This made him invest in some of the classic companies like MRF (he invested when it was trading at INR 75). However, he wasn’t aware of when to sell it. This made him sell his MRF stock with a meager gain of 100%. Look at where the stock is today!
However, this instance along, with other incidents, made him realize that there is more to a company than financial statements. He then read financial magazines. While doing this, he recognized that the analysis of companies done in these magazines was very immature, and this could be made better. This made him write a letter to the editor of the magazine with a re-analysis of the same company. The publishers found his article interesting and asked him to write regularly for their readers. He soon took over as the editor of the magazine.
What was the basis of buying and selling at that time?
The early investment phase of Rajashekar was to buy good quality companies that typically had good return ratios and healthy balance sheets. However, he had no knowledge of stock valuation. He just knew one matrix, PE ratio, and that worked for him during that phase because this was the period of 1980-90 when most of the companies were available at cheaper PE valuations and were candidates of re-rating to higher PE valuation.
Then he got introduced to technical analysis via some seminars, and he read a few books. But he soon realized that due to his long term vision and a fundamental tilt, this was not a very efficient way to invest. He was then guided by a friend to read Security Analysis and The Intelligent Investor. This, he recalls, made a lot of difference to his investment philosophy. Soon after this, his two ventures, SiMPLE (The PMS) and Value Investor (the Newsletter), were initiated.
Thereafter somewhere post 1995, he understood that it was not only the micro level factors like financial performance or management guidance that influenced stock prices, it was also the macro factors like stock market cycles that needed to be analyzed. In short, he was now up for risk management rather than mere stock picking. This made him formulate a policy to sell the stocks that were trading above the fair value. He, however, did not exit it as soon as it went above the fair value, rather he always waited for the market to reverse which he found via technical analysis and then sold the stock. Basically, he was a long term investor but not a “buy and forget” or “hold forever” type of investor.
What is his investment process?
Part 1: Evaluate whether the company can grow its business value meaningfully from here on.
Part 2: Value the company based on the current state, via variables such as its assets, cash flow multiples, earnings multiples, etc.
Part 3: Decide on position sizing or how much capital to allocate in one stock.
Lessons from his stock market journey:
- Read a lot of books without discrimination. Some of his favourites were “Trader Vic'' by Victor Sperandeo, “Winning on Wall Street” by Marin Zweig and "Trading in the Zone" by Michael Douglas.
- Position sizing is a very important aspect of risk management.
- Keep a stop loss, even for investment picks. This would help you save your profits. He learnt it through a book called “How I made $2 Million in the Stock Market” by Nicholas Darvas. He would typically not sell a company just because it has fallen; however, when the fall is already accompanied by a deterioration of fundamentals like slower earnings growth or corporate governance issues, he would sell the stop on hitting a stop loss, which is typically 20-30% below the CMP.
- Good investors are good at introspecting.
- One should leverage only when you expect the stock price to give a meaningful return in the short term. Never borrow to invest for the long term.