Learning from Superinvestors #2 - Anil Goel Ji
Notes, reflections, and learnings from the book Masterclass with Super-investors by Vishal Mittal and Saurabh Basrar
⚠️ ATTENTION
I am not SEBI Registered. Whatever follows is not a recommendation or advice. Please consult your financial advisor.
Any stock mentioned is not a recommendation.
There are many paths to Nirvana! Here I am attempting to learn from the best in the field rather than re-invent the wheel. Investing is a personal phenomenon, one can’t copy the investment style of another person perfectly. So let’s learn from wide sources and incorporate what resonates with our psychology, goals, and temperament.
The first article was learning from Super Investor Ramesh Damani Ji.
First Impressions
The story of Anil Goel Ji contrasts with what we learned from Damani Ji. He comes from a business background and then became a full-time investor. He didn't invest in technology companies and avoided the 2000 crash. Also, unlike other investors, he is not an avid reader of investing books rather believes in experiencing, observing, and learning about businesses.
According to him, one should focus on understanding why things happen. Strive for an extreme amount of learning and have a lot of patience.
So learning is paramount in the investing business - that is a separate matter about which mode you prefer.
Learnings from Anil Goel Ji
(1) Develop your Investing Philosophy
I have seen that successful investors have their investment philosophy. Anil Goel’s Philosophy is KCPLTD i.e. Knowledge, Conviction, Patience, Luck, and Timely Deployment.
One should have a deep Knowledge of the business. Once one has deep knowledge, one will develop Conviction in one's assessment. Then one needs to have Patience for the market to properly value your stock. You need to have Luck, that you have done the work and the price comes down to your buy price. And you should have the nerve to Timely Deploy when the prices come down.
According to him, the key to investing is understanding the business and more importantly the management.
(2) Know your edge
One of my strengths has been to buy when institutions are selling. When institutions sell low-liquidity shares, they sell at any price.
Since I have a business background, I have an edge in understanding business. That advantage is permanent. One has to go deep into a particular subject. People go after breadth and length, while I believe one should go deep. We study the business so deeply that our vision becomes better than the promoters, from a stock market perspective. We can forecast their business better.
(3) Process
The target is not 15-20% but a multiplication of capital.
Invest in small caps or out-of-favor companies/industries - no competition among investors.
Looking for dirt-cheap valuations.
If you can pick the right company, you can make a lot of money. This can be done because our view is about how the business will shape up in the next few years. Therefore, it is important to have good, honest management in the portfolio companies.
Most returns come from P/E rerating. If you buy at 2-3 P/E, you might sell at 20-30 P/E, so it's a ten-bagger from rerating itself, while earnings go up by only three times, making it a 30 bagger. Earning growth is also important, as that's what will make the P/E rerate. But more money is made via rerating.
Focus should be on value not price.
Via Negativa: keep eliminating companies that you don't like. Deletion is a process of selection.
Like I don't take interest in IT, Pharma, or Banking, so it reduces a lot of selection. You should have a mind to delete. You should develop that mindset. The problem arises when an investor says that I want to invest everywhere. If you go for a dinner and try to eat everything, you will not enjoy anything. If you select one or two items that you like, you will enjoy more. Stock market is the same.
A defined investment universe - this way you develop a circle of competence and pounce when opportunity strikes. Extensive research is done continuously.
Core investment in 15-20 stocks apart from tracking positions.
For every investment, one should have a relative valuation system.
When we sell, we don't mind if the price of the sold share also goes up, provided our new investment goes up much higher. The only gain is the absolute returns one makes. Many people still don't follow this approach. People have a problem in selling, as they think it will still go up, whereas we should see which stock has the potential to go up more.
Earnings, Earnings and Earnings
About valuing cyclical stocks, asset value doesn't matter in the stock market. They become a value trap. Market values stocks on earnings. You should be able to see the reversal of the business cycle - when the earnings will come back. You can invest only on that basis.
Studying market cycles
Just like I study commodity cycles, I study market cycles. I started watching markets in 1992 and saw crashing in 2000 and 2008. I went back and saw that the market crashed in 1986. So there was a rough pattern of eight years. When a market crashes, it goes down for two to three years, remains subdued for one to two years and then there is a rush in the last six months. I think we are currently in the last leg of such a phase. Even laggard stocks are running. IPOs have started coming, the government is also selling, and companies are also raising money. Everybody wants to take money from the market.
There are old investors and there are bold investors but there are no bold old investors.
Jokes aside, there has been a plethora of fundraising and liquidity sloshing around... I would not complain about the valuations etc. etc. rather focus on downside protection.
We are not the only ones learning - management is also learning
Firstly, one should note that the management also learns over a period of time. Secondly, one needs to look at the bigger picture - which is the growth potential and long business runway.
Chances of disruption
You have to segment the markets into two parts - industries that will be disrupted and that will not be disrupted. What are the products that are basic necessities and are not optional? The process is to choose a company and then see whether it can be disrupted. For example, I don't see basic industries like food getting disrupted.
In a nutshell, he has tailored his investment style to play on his strengths which is his innate ability to read cycles. His experience in the steel trading business has been a great edge. He focuses on mean reversion whereby in difficult times you have an income stream from dividends and in good times one makes a killing as the cycle turns.
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Disclaimer: I am not SEBI registered. The information provided here is for educational purposes only. This is not a buy or sell advice. I will not be responsible for any of your profit/loss based on the above information. Consult your financial advisor before making any decisions.
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