Other[Music][Music]a very good morning to everyone presenta very good morning to everyone presenta very good morning to everyone present here we are delighted to have you allhere we are delighted to have you allhere we are delighted to have you all here for this sessionhere for this sessionhere for this session so without any ado i'll take theso without any ado i'll take theso without any ado i'll take the privilege to introduce our esteemedprivilege to introduce our esteemedprivilege to introduce our esteemed speaker for today mr manish fabraispeaker for today mr manish fabraispeaker for today mr manish fabrai mr manish prabrai is the owner andmr manish prabrai is the owner andmr manish prabrai is the owner and managing director of pubrae investmentmanaging director of pubrae investmentmanaging director of pubrae investment funds which is a globally recognizedfunds which is a globally recognizedfunds which is a globally recognized firm that manages a portfolio of morefirm that manages a portfolio of morefirm that manages a portfolio of more than 400 million dollars in assetsthan 400 million dollars in assetsthan 400 million dollars in assets and has exhibited a tremendousand has exhibited a tremendousand has exhibited a tremendous historical sacrificehistorical sacrificehistorical sacrifice what makes the fund stand out is that itwhat makes the fund stand out is that itwhat makes the fund stand out is that it is one of the very few funds across theis one of the very few funds across theis one of the very few funds across the globe that does not charge a managementglobe that does not charge a managementglobe that does not charge a management fee manish babrai is also the chairmanfee manish babrai is also the chairmanfee manish babrai is also the chairman and ceo of thunder holding whose primaryand ceo of thunder holding whose primaryand ceo of thunder holding whose primary objective is to acquire high qualityobjective is to acquire high qualityobjective is to acquire high quality businesses with high quality managementsbusinesses with high quality managementsbusinesses with high quality managements in place in a friendly manner not onlyin place in a friendly manner not onlyin place in a friendly manner not only this he has also authored a book calledthis he has also authored a book calledthis he has also authored a book called thundo investor which has been of great
Otherthundo investor which has been of great interest for all aspiring investors apart from his excellent trajectory in the professional field what makes her the professional field what makes her the professional field what makes her all the more inspiring to us is his all the more inspiring to us is his all the more inspiring to us is his inclination towards philanthropy which inclination towards philanthropy which inclination towards philanthropy which is reflected in his founding of the is reflected in his founding of the is reflected in his founding of the dakshina foundation back in 2007. dakshina foundation has gotten over 1146 dakshina foundation has gotten over 1146 dakshina foundation has gotten over 1146 impoverished but brilliant student impoverished but brilliant student impoverished but brilliant student admitted to the iit admitted to the iit admitted to the iit thank you for coming third the virtual thank you for coming third the virtual thank you for coming third the virtual floor is all yours
Otherthank you and thank you for that generous introduction i uh i appreciate it anyway great too great to be here you it anyway great too great to be here you it anyway great too great to be here you know one of the great things about the know one of the great things about the know one of the great things about the uh investing business is that uh investing business is that uh investing business is that unlike many other endeavors like if you unlike many other endeavors like if you unlike many other endeavors like if you play play play basketball or cricket or something else basketball or cricket or something else basketball or cricket or something else is that you can keep getting better is that you can keep getting better is that you can keep getting better at this throughout your life so it's at this throughout your life so it's at this throughout your life so it's kind of a kind of a kind of a an endeavor where an endeavor where an endeavor where continuous improvement and learning
Questionercontinuous improvement and learning possible and actually desirable which is wonderful so what i wanted to actually kind of talk to you about today is that when we look at this large tent called value investing it encapsulates quite a range of approaches and uh focuses one could have while trying to create wealth and generate good returns and so on so for example buying a dollar that is uh trading for 50 cents would be a great way to be a value investor focusing on spin-offs which george greenblatt wrote about is another way focusing on cannibals which is companies that are buying back their stock you know looking at what i call spawners which is businesses that are really good at creating new businesses and then you know spinning those off so that's that's another way one can go focusing on multi-baggers is also well within the within the tent of value investing you
Questionerwithin the tent of value investing you know one could do special situation investing merger arbitrage it's a long list of endeavors and initiatives you know ben graham suggested net net investing and so on so there's many different approaches one can take which would all be within the tend to value investing you know they say that you're old too soon and why is too late and i've i've you know made investments over the last quarter century or more which have covered pretty much almost all of these different ways of looking at things you know we also have things like p or ones you know things trading at low multiples of future video ones and that sort of thing as well what i've been able to glean when i look at all of these different initiatives or different approaches that one can take is that across the globe there are maybe 50 000 or 100 000 stocks in
Questionermaybe 50 000 or 100 000 stocks in different markets around the world and if one were to say that i only want to invest in companies that are trading at one or two times earnings one can find those one you know cast the net wide and deep one said i only want to buy 50 cent dollars or 30 cent dollars or 20 cent dollars you would find those as well so pretty much i think because the universe of prospective businesses is so wide and so large pretty much any criteria you set could work i think the important thing is that one is very focused in what one is looking for and has clarity of what one is looking for i've come to the conclusion and it's actually a pretty you know it took me a long time to figure this out but i think for most of you it would would seem obvious is is is if there is such a thing as a best approach out of all of these approaches
Questionerapproach out of all of these approaches the best approach i think would be onethe best approach i think would be onethe best approach i think would be one where one focuseswhere one focuseswhere one focuses on multibaggers you know businesses thaton multibaggers you know businesses thaton multibaggers you know businesses that cancancan bebebe a 10x in 10 years or lessa 10x in 10 years or lessa 10x in 10 years or less or maybe 100xor maybe 100xor maybe 100x ininin 20 years20 years20 years if oneif oneif one focused purely on the multibandsfocused purely on the multibandsfocused purely on the multibands there are some advantages that come upthere are some advantages that come upthere are some advantages that come up with that approach one advantage is thatwith that approach one advantage is thatwith that approach one advantage is that one doesn't have much in terms of taxesone doesn't have much in terms of taxesone doesn't have much in terms of taxes because you'll be holding businesses forbecause you'll be holding businesses forbecause you'll be holding businesses for a long timea long timea long time under most jurisdictions around theunder most jurisdictions around theunder most jurisdictions around the worldworldworld until theuntil theuntil the positions are soldpositions are soldpositions are sold unrealized gains are not taxedunrealized gains are not taxedunrealized gains are not taxed so basically it gives you an advantageso basically it gives you an advantageso basically it gives you an advantageand depending on theand depending on theand depending on the place on the planet that you practiceplace on the planet that you practiceplace on the planet that you practice this you know sometimes the tax ratesthis you know sometimes the tax ratesthis you know sometimes the tax rates can be as high ascan be as high ascan be as high as you know 40 50you know 40 50you know 40 50 deferring thatdeferring thatdeferring that forforfor decades ordecades ordecades or let's say 10 years or morelet's say 10 years or morelet's say 10 years or more is a huge advantage because you get ais a huge advantage because you get ais a huge advantage because you get a free interest free loanfree interest free loanfree interest free loan from the governmentfrom the governmentfrom the government sososo so there's an advantage in terms ofso there's an advantage in terms ofso there's an advantage in terms of taxes with this approach
Questionertaxes with this approach the second advantage is that you don't have this continuous treadmill of needing to you know find something undervalued then it gets you know fairly valued and then you sell it and then you go look for something else so the multibagger of the multi-bagger approach to investing has a few quirks and it requires us to kind of change our mindset on a few fronts so one of the one of the changes one has to make is that you know traditionally traditionally when one looks at what ben graham kind of you know father of value investing taught us is that you buy something for well below what it's worth and then as it approaches fair value you sell the position and then you you know go look for something else but in a in the multibagger framework what you would do is you would actually not particularly care if a position
Questionerif a position became fully valued or even overvalued so for example if you bought you know a business for 30 40 cents on the dollar and it's growing that dollar is growing and at some point it's worth 1.50 for example it's gone up more than 50 or what it used to be worth but the stock is trading at two dollars for example so under traditional gramian approaches you would sell that as you get past the dollar fifty or whatever but in in the quest for multi-baggers you would continue to keep it in your portfolio even when it became overvalued you would you would sell it if it became egregiously overvalued so one would need to distinguish between something that's overvalued and something that's egregiously overvalued let's look at some examples of businesses that and you know that might help explain kind of where this approach is coming from and
Questionerwhere this approach is coming from and where this approach is coming from and how it might work and so on how it might work and so on how it might work and so on so so if we look at our business if we look at our business if we look at our business let's say let's say let's say mcdonald's mcdonald's mcdonald's for example for example for example you know mcdonald's was was formed in you know mcdonald's was was formed in you know mcdonald's was was formed in the the the i mean it i mean the business existed i mean it i mean the business existed i mean it i mean the business existed but ray kroc took it over but ray kroc took it over but ray kroc took it over in the 1950s i think they went public in the 1950s i think they went public in the 1950s i think they went public in the 1960s in the 1960s in the 1960s it's been public for maybe almost 60 it's been public for maybe almost 60 it's been public for maybe almost 60 years years years since then it's still growing you know since then it's still growing you know since then it's still growing you know the number of restaurants the number of restaurants the number of restaurants revenues revenues revenues profits etc i mean it's gone through profits etc i mean it's gone through profits etc i mean it's gone through some ups and downs over the years but some ups and downs over the years but some ups and downs over the years but it's it's it's grown and it's grown it's it's it's grown and it's grown it's it's it's grown and it's grown spectacularly spectacularly spectacularly and and i think from the time it went and and i think from the time it went and and i think from the time it went public till now it's public till now it's public till now it's north of a 10 000 bagger north of a 10 000 bagger north of a 10 000 bagger you know you know you know every dollar you invested is worth more every dollar you invested is worth more every dollar you invested is worth more than ten thousand dollars not a not a than ten thousand dollars not a not a than ten thousand dollars not a not a ten bag or a hundred bagger ten bag or a hundred bagger ten bag or a hundred bagger like a ten thousand plus bagger like a ten thousand plus bagger like a ten thousand plus bagger and and and why did mcdonald's do so well why did mcdonald's do so well why did mcdonald's do so well it did well because it did well because it did well because in the early days when when it got going in the early days when when it got going
Otherin the early days when when it got going there were a number of initiatives athere were a number of initiatives athere were a number of initiatives a number of innovations that mcdonald'snumber of innovations that mcdonald'snumber of innovations that mcdonald's had come up with some of you might havehad come up with some of you might havehad come up with some of you might have seen the movie the founderseen the movie the founderseen the movie the founder i think the founders i think it's oni think the founders i think it's oni think the founders i think it's on netflix i'm not sure if it's on netflixnetflix i'm not sure if it's on netflixnetflix i'm not sure if it's on netflix in india but you might want to you knowin india but you might want to you knowin india but you might want to you know i think it's a very good movie to seei think it's a very good movie to seei think it's a very good movie to see there's also athere's also athere's also a biography that got written on mcdonald'sbiography that got written on mcdonald'sbiography that got written on mcdonald's called grinding it out it's also a goodcalled grinding it out it's also a goodcalled grinding it out it's also a good book it's a very old book but it's abook it's a very old book but it's abook it's a very old book but it's a great book to read there's anothergreat book to read there's anothergreat book to read there's another there's another book which was writtenthere's another book which was writtenthere's another book which was written by theby theby the the first ceo of burger kingthe first ceo of burger kingthe first ceo of burger king it's called the burger king and that'sit's called the burger king and that'sit's called the burger king and that's actually an amazing book as wellactually an amazing book as wellactually an amazing book as well but basically one of the earlybut basically one of the earlybut basically one of the early innovations mcdonald's came up withinnovations mcdonald's came up withinnovations mcdonald's came up with was that everything they sold could bewas that everything they sold could bewas that everything they sold could be eateneateneaten without a fork or a spoonwithout a fork or a spoonwithout a fork or a spoon or a knife there was noor a knife there was noor a knife there was no cutlery neededcutlery neededcutlery needed to you know french fries you could justto you know french fries you could just
Questionerto you know french fries you could just take it from your hand and so on thetake it from your hand and so on thetake it from your hand and so on the other thing the other big innovation wasother thing the other big innovation wasother thing the other big innovation was that it was served really fastthat it was served really fastthat it was served really fast you know the the production time andyou know the the production time andyou know the the production time and actually if you really study mcdonald'sactually if you really study mcdonald'sactually if you really study mcdonald's internal processes and how it functionsinternal processes and how it functionsinternal processes and how it functions it's kind of like a light manufacturingit's kind of like a light manufacturingit's kind of like a light manufacturing type operation the software and enginestype operation the software and enginestype operation the software and engines they usethey usethey use internally is like what you would use ininternally is like what you would use ininternally is like what you would use in a light manufacturing operation and ofa light manufacturing operation and ofa light manufacturing operation and of course like for example they were verycourse like for example they were verycourse like for example they were very specific about the way the french friesspecific about the way the french friesspecific about the way the french fries should beshould beshould be with the russell potatoes so in factwith the russell potatoes so in factwith the russell potatoes so in fact like for example when mcdonald's enterslike for example when mcdonald's enterslike for example when mcdonald's enters a new country like india or russia etca new country like india or russia etca new country like india or russia etc it takes them two or three yearsit takes them two or three yearsit takes them two or three years from the time they decide to enter tofrom the time they decide to enter tofrom the time they decide to enter to the time they can open their firstthe time they can open their firstthe time they can open their first restaurantrestaurantrestaurant because it takes a couple of years tobecause it takes a couple of years tobecause it takes a couple of years to train the farmers and generate thetrain the farmers and generate thetrain the farmers and generate the supply chainsupply chainsupply chain for the right kind of potatoes and such
Questionerfor the right kind of potatoes and such so it takes takes them sometimes so it takes takes them sometimes so it takes takes them sometimes more than a couple of years just to open more than a couple of years just to open more than a couple of years just to open the restaurants and such the restaurants and such the restaurants and such but the interesting thing about but the interesting thing about but the interesting thing about something like mcdonald's is that almost something like mcdonald's is that almost something like mcdonald's is that almost all the innovations they came up with all the innovations they came up with all the innovations they came up with there were a lot of copycats there were a lot of copycats there were a lot of copycats and there were many businesses that came and there were many businesses that came and there were many businesses that came up that up that up that cloned or tried to clone cloned or tried to clone cloned or tried to clone what they were doing what they were doing what they were doing and and and in general fast food became a huge in general fast food became a huge in general fast food became a huge industry with many players it wasn't industry with many players it wasn't industry with many players it wasn't just burgers you know we then got a big just burgers you know we then got a big just burgers you know we then got a big kind of growth in pizzas kind of growth in pizzas kind of growth in pizzas chicken chicken chicken kfc so you know a lot of different kfc so you know a lot of different kfc so you know a lot of different entrants came in and also i think the entrants came in and also i think the entrants came in and also i think the on the consumer side it also changed in on the consumer side it also changed in on the consumer side it also changed in terms of what the frequency people were terms of what the frequency people were terms of what the frequency people were looking to eat all of this stuff but looking to eat all of this stuff but looking to eat all of this stuff but anyway even with all of that competition anyway even with all of that competition anyway even with all of that competition mcdonald's was able to establish a brand mcdonald's was able to establish a brand mcdonald's was able to establish a brand people knew before they went into a people knew before they went into a people knew before they went into a restaurant any
Questionerrestaurant any mcdonald's what to expect the kind of standardization and you know consistency the cleanliness the you know consistency the cleanliness the consistency and and the nature of the service
Questionerworked so that particular moat has been going strong for 60 years there aren't really any signs that say that the moat is eroding and may not do so well in the future they couldn't do well and it's a high it's a very high return on equity business so basically if you think about a franchised mcdonald's where you know an entrepreneur you know you know you know does a contract with the you know does a contract with the mcdonald corporation so in a franchise situation so in a franchise situation in the united states at least a lot of in the united states at least a lot of the real estate the real estate is owned by the mcdonald's corporation is owned by the mcdonald's corporation and the rent the rent that is charged to and the rent the rent that is charged to the franchisee is a percentage of sales like maybe is a percentage of sales like maybe around four percent of sales is the rent around four percent of sales is the rent so if you think about the rent so if you think about the rent
Questionerso if you think about the rent that mcdonald's charges its franchisees it's kind of automatically inflation indexed you know just goes up with inflation they also charge a franchise fee you know for the right to use the brand etc that might be another four percent or so and then the franchisees also buy a lot of the products they need from mcdonald's and usually on mcdonald's and a lot of the other franchise type operations will do is they tend not to focus on making money on the products uh they tend to focus on you know passing that through but you have the two main engines of the franchise fees and the rent which might be something like seven eight percent off the top line so if you look at it from the mcdonald corporation's point of view a typical mcdonald's in the u.s might have something like two or three million in annual sales
Todd Combsin annual sales andandand the mcdonald's corporation might getthe mcdonald's corporation might getthe mcdonald's corporation might get something like you know 150 200 000 asomething like you know 150 200 000 asomething like you know 150 200 000 a yearyearyear from thatfrom thatfrom that from that locationfrom that locationfrom that location the capital they have to put up againstthe capital they have to put up againstthe capital they have to put up against thatthatthat is almost non-existent because it's theis almost non-existent because it's theis almost non-existent because it's the entrepreneur who's you knowentrepreneur who's you knowentrepreneur who's you know paying for all the capex and thepaying for all the capex and thepaying for all the capex and the maintenance capex and all of that somaintenance capex and all of that somaintenance capex and all of that so it's a very capital lightit's a very capital lightit's a very capital light businessbusinessbusiness sososo thethethe the threethe threethe three legs that we needlegs that we needlegs that we need you know i think chuck akery called ityou know i think chuck akery called ityou know i think chuck akery called it the three-legged stoolthe three-legged stoolthe three-legged stool the three legs that we need for thesethe three legs that we need for thesethe three legs that we need for these long multibaggerslong multibaggerslong multibaggers is first of all theis first of all theis first of all the core economics of the businesscore economics of the businesscore economics of the business should have very high returns onshould have very high returns onshould have very high returns on invested capitalinvested capitalinvested capital ideally without the use of use of debtideally without the use of use of debtideally without the use of use of debt right so you basicallyright so you basicallyright so you basically make like mcdonald's doesn't need tomake like mcdonald's doesn't need tomake like mcdonald's doesn't need to borrow money to make a lot of moneyborrow money to make a lot of moneyborrow money to make a lot of money the second is that we want very highthe second is that we want very highthe second is that we want very high integrity managementintegrity managementintegrity management and we want insider ownership you knowand we want insider ownership you knowand we want insider ownership you know kind of alignment of interest where
Todd Combskind of alignment of interest where there's a smart entrepreneur or someone or insiders who own it so they've got incentives and the third is that we want a very long runway so where we can see that this thing can go on for a very long time and i think that when we you know if you were to pick up the annual report of let's say walmart for example walmart went public i think in 1972 or something it's like been public for like 50 years if you picked up the annual report of walmart let's say in 1980 for example a few years seven eight years after they went public you would see that they've got very superior economics at the store level that they generate high returns on equity it's it's a business that does well very very rapid turnover inventory and so on and you would also see that it was embryonic in the sense that large portions of the united states at
Questionerlarge portions of the united states at that time 1980 still did not have a walmart for most people you could not get to a walmart within you know 10-15 kilometers of your home so you could see that basically this business could actually if we just looked at it in north america there was a lot of room to grow and what we've seen with mcdonald's is that it our walmart is that it wasn't just a u.s story you know it was a global story so walmart has you know opened up in other countries and done well and you know we could look at other other businesses like let's say the coca-cola company you know the cocoa company was formed about a hundred and years ago and that moat is still growing after 130 years and again the unit economics are extremely attractive because the coca-cola company typically doesn't do bottling they sell the syrup so they have you know these plants
Questionersyrup so they have you know these plants which sell they don't even sell the syrup they sell syrup concentrate so basically it's almost like a software business where you know if you're if you're spending five or ten rupees on a on a coke coca-cola company might get like eight percent of that and they don't have very little cost against that so again it's it's very similar to mcdonald's in terms of uh in terms of economics so basically there are there are businesses different kinds of businesses you can look at a business like mastercard or visa or american express and they or visa or american express and they have similar attributes where have similar attributes where you have very high returns on invested you have very high returns on invested capital you have a very long runway capital you have a very long runway and you have high integrity management and you have high integrity management inside ownership and so on so if one inside ownership and so on so if one pursues these now pursues these now you know the nature of capitalism is you know the nature of capitalism is that everyone wants to own these kinds that everyone wants to own these kinds
Questionerthat everyone wants to own these kinds of businesses once these kind of moats and you know runways etc are well known the businesses get priced to perfection and they may not be available at a cheap price and so for example if we look at a business in india like dmart for example and dmart you know similar model to costco and aldi outside india and dmard is very embryonic today there's very few dmarch stores in india relative to what could possibly be their penetrations in 10 20 or 30 years but the market recognizes that and so dmr trades at you know huge multiples uh it doesn't appear optically cheap but the interesting thing is that if the runways are really long and they actually end up being runways that go on for you know several decades then even an expensive looking price can end up being a great value investment but but i think that as as value investors you know we have to
Questioneras value investors you know we have to also have a good dose of skepticism in how we approach these things so we can't always assume that you know everything's going to go to the moon in terms of terms of size and growth and the nature of capitalism is that there will be a lot of competition that will try to go up against those modes but but i think that i think that if you know there's a uh there's a quote from the upanishads which goes something like this as is your wish so is your will as is your will so is your deed and as is your deed so is your destiny and then kind of the punchline is your deepest desire is your destiny so so going back you know to what i started with you know if you said i want to focus on 50 cent dollar bills and that's your deepest desire you will find those if it's if you say i want 20 cent dollar bills you will find those two
Questioneryou will find those two if you say that i only want to invest in businesses that can go up 100 times in value in 10 20 30 years you can find those too so it's a matter of what you choose to focus on and as long as you're willing to put in the work to sift through company after company you know with the framework that you're interested in so in in the case of the multibagger framework there are just three things that matter and then the fourth is the price obviously so if a business doesn't generate high returns of equity you're done you don't need to spend any time on that if the business needs a lot of debt to to grow and generate higher returns and equity you would also be done you don't even need those if management quality or ethics is a question you're also done you don't need those either and so and so and so just just if you look at the businesses
Otherjust just if you look at the businesses that generate high returns and equitythat generate high returns and equitythat generate high returns and equity that alone would wipe out large swathsthat alone would wipe out large swathsthat alone would wipe out large swaths of businessesof businessesof businesses and then you know you get to the runwayand then you know you get to the runwayand then you know you get to the runway right soright soright so dmartdmartdmart will be a lot larger in 10 or 15 15will be a lot larger in 10 or 15 15will be a lot larger in 10 or 15 15 years than it is todayyears than it is todayyears than it is today i think that's a pretty easy bet to makei think that's a pretty easy bet to makei think that's a pretty easy bet to make that the statistically i think the oddsthat the statistically i think the oddsthat the statistically i think the odds are high that something like dmart mightare high that something like dmart mightare high that something like dmart might do well we could make that statementdo well we could make that statementdo well we could make that statement about private sector banks in indiaabout private sector banks in indiaabout private sector banks in india you know private sector banks in indiayou know private sector banks in indiayou know private sector banks in india might be likemight be likemight be like a third of thea third of thea third of the banking piebanking piebanking pie in india today and maybe in 10 or 20in india today and maybe in 10 or 20in india today and maybe in 10 or 20 years it might beyears it might beyears it might be half or two thirds of the pie forhalf or two thirds of the pie forhalf or two thirds of the pie for example and the pie itself would haveexample and the pie itself would haveexample and the pie itself would have grown sogrown sogrown so there are there are things thatthere are there are things thatthere are there are things that we couldwe couldwe could hang our hat on and then kind of take ithang our hat on and then kind of take ithang our hat on and then kind of take it from therefrom therefrom there sososo basically i think that if you if you gobasically i think that if you if you gobasically i think that if you if you go down this path which is the multibaggerdown this path which is the multibaggerdown this path which is the multibagger pathpathpath the interesting thing is that
Questionerthe interesting thing is that and and all all value investing and and all all value investing and and all all value investing there are a couple of data points you there are a couple of data points you there are a couple of data points you know john templeton used to say that the know john templeton used to say that the know john templeton used to say that the very best value investor or analyst very best value investor or analyst very best value investor or analyst will be wrong one out of three times will be wrong one out of three times will be wrong one out of three times like like like 33 error rate 33 error rate 33 error rate is the lowest error rate for the very is the lowest error rate for the very is the lowest error rate for the very best best best practitioner of the art practitioner of the art practitioner of the art if you were a kind of brain surgeon if you were a kind of brain surgeon if you were a kind of brain surgeon and you had even a three percent error and you had even a three percent error and you had even a three percent error rate there might not be too many people rate there might not be too many people rate there might not be too many people coming to you for brain surgery but i coming to you for brain surgery but i coming to you for brain surgery but i think in terms of value investing think in terms of value investing think in terms of value investing you could be wrong half the time you could be wrong half the time you could be wrong half the time and i think i've probably been wrong and i think i've probably been wrong and i think i've probably been wrong close to half the time close to half the time close to half the time and still end up with a phenomenal track and still end up with a phenomenal track and still end up with a phenomenal track record record record so so so and especially if you focus on the and especially if you focus on the and especially if you focus on the multibaggers multibaggers multibaggers you know companies that would go up 10x you know companies that would go up 10x you know companies that would go up 10x or 100x or 100x or 100x basically in a lifetime of investing basically in a lifetime of investing basically in a lifetime of investing if you end up ended up finding just two if you end up ended up finding just two if you end up ended up finding just two or three or four or three or four or three or four hundred baggers hundred baggers hundred baggers
Questionerhundred baggers at the age that you're at right now
Otherat the age that you're at right now
Otherat the age that you're at right now that's all you need
Otherthat's all you need
Otherthat's all you need in many cases if you just found one
Otherin many cases if you just found one
Otherin many cases if you just found one that might be all you need
Otherthat might be all you need
Otherthat might be all you need and so we have all this time
Otherand so we have all this time
Otherand so we have all this time and on the other end we just need to
Otherand on the other end we just need to
Otherand on the other end we just need to find
Otherfind
Otherfind things
Otherthings
Otherthings just once
Otherjust once
Otherjust once don't even need to find them that many
Otherdon't even need to find them that many
Otherdon't even need to find them that many times
Othertimes
Othertimes when i started investing
Otherwhen i started investing
Otherwhen i started investing started my journey value investing
Otherstarted my journey value investing
Otherstarted my journey value investing about 27 years ago 94 95.
Otherabout 27 years ago 94 95.
Otherabout 27 years ago 94 95. in the first in the first five years
Otherin the first in the first five years
Otherin the first in the first five years when i was not running my funds i was
Otherwhen i was not running my funds i was
Otherwhen i was not running my funds i was just running
Otherjust running
Otherjust running my own money i started with about one
Othermy own money i started with about one
Othermy own money i started with about one million dollars
Othermillion dollars
Othermillion dollars in 95.
Otherin 95.
Otherin 95. by the time
Otherby the time
Otherby the time in the first five years
Otherin the first five years
Otherin the first five years i had had uh
Otheri had had uh
Otheri had had uh 200 baggers
Other200 baggers
Other200 baggers in the first five years itself
Otherin the first five years itself
Otherin the first five years itself and then i think from
Otherand then i think from
Otherand then i think from 2000 to
Other2000 to
Other2000 to 2022 now
Other2022 now
Other2022 now i haven't had any 100
Otheri haven't had any 100
Otheri haven't had any 100 but i think that there might be some
Otherbut i think that there might be some
Otherbut i think that there might be some more
Othermore
Othermore in the future some that are kind of you
Otherin the future some that are kind of you
Otherin the future some that are kind of you know still
Otherknow still
Otherknow still hopefully going through their their
Otherhopefully going through their their
Otherhopefully going through their their their journey
Othertheir journey
Othertheir journey so so you don't need
Otherso so you don't need
Otherso so you don't need you don't need very many of them
Otheryou don't need very many of them
Questioneryou don't need very many of them uh a few of them can get you to the promised land and i've had i would say i've had when i look back a rather sloppy journey as an investor because i was trying all these different things if i think if in 94 or 95 had done what i am telling you to do now or suggesting what you should do now i think i would have done a lot better than how i've done so if i had purely focused 10 or 100 baggers i think i think the results would be vastly better i remember in 95 january 95 when i had the one million dollars i'd mostly invested in the u.s markets but i had a interest in the indian markets as well and i thought there were two or three areas where it could do well and i decided to put 20 000 out of the one million dollars just just two percent of the portfolio into india at that time and i opened a uh brokerage account uh
Questioneruh brokerage account uhuh brokerage account uh and so just my own monies opened nreand so just my own monies opened nreand so just my own monies opened nre brokerage account with kotakbrokerage account with kotakbrokerage account with kotak i decided to put half that money teni decided to put half that money teni decided to put half that money ten thousand dollars in one stock which wasthousand dollars in one stock which wasthousand dollars in one stock which was a it companya it companya it company and i was in the i was in the i.tand i was in the i was in the i.tand i was in the i was in the i.t services business at the time so i knowservices business at the time so i knowservices business at the time so i know i knew this business really well satyami knew this business really well satyami knew this business really well satyam computers which at that time actuallycomputers which at that time actuallycomputers which at that time actually was a pretty honest company theywas a pretty honest company theywas a pretty honest company they kind of went wayward i think in terms ofkind of went wayward i think in terms ofkind of went wayward i think in terms of their ethics about 10-12 years aftertheir ethics about 10-12 years aftertheir ethics about 10-12 years after thatthatthat but in 95 they were a clean companybut in 95 they were a clean companybut in 95 they were a clean company so i put 10 000 to satyam and uh in 95so i put 10 000 to satyam and uh in 95so i put 10 000 to satyam and uh in 95 and i think by the time it was 2000and i think by the time it was 2000and i think by the time it was 2000 it had gone upit had gone upit had gone up 150x the 10 000 would become one and a150x the 10 000 would become one and a150x the 10 000 would become one and a half million dollars approximately 1.4half million dollars approximately 1.4half million dollars approximately 1.4 million or somethingmillion or somethingmillion or something and then the remaining 10 000and then the remaining 10 000and then the remaining 10 000 iii put into three other stocksput into three other stocksput into three other stocks i bought two of the courier companiesi bought two of the courier companiesi bought two of the courier companies that were listed in india at the timethat were listed in india at the timethat were listed in india at the time blue dart and skypac courierblue dart and skypac courier
Questionerblue dart and skypac courier because my perspective was that the indian postal service was just host and if you really wanted to get a package from point a to point b in india you really had to rely on private people to get it for you i don't think the postal service was reliable and so i thought that these businesses that were focused on that would do quite well
Questionerso i was just going to make three investments actually uh half and satyam and then half in these other two and then at the last minute i was also very impressed with kotak because i was just very impressed in dealing with their people and so i decided to split the other ten thousand three ways you know one about thirty two thirty three hundred in kotak and thirty three hundred to the other two businesses
Questionerso when this 10 000 became 1.4 million or whatever uh in 2000 the other three businesses
Questioneruh in 2000 the other three businessesuh in 2000 the other three businesses had done nothinghad done nothinghad done nothing for five years it was pretty muchfor five years it was pretty muchfor five years it was pretty much sittingsittingsitting close to what i had paid for them likeclose to what i had paid for them likeclose to what i had paid for them like no movement for the most partno movement for the most partno movement for the most part it is notit is notit is not realistic to think thatrealistic to think thatrealistic to think that if you put 20 000 in the indian marketif you put 20 000 in the indian marketif you put 20 000 in the indian market and you getand you getand you get you knowyou knowyou know 1.4 million something like a 70x1.4 million something like a 70x1.4 million something like a 70x that you there's still some meat on thatthat you there's still some meat on thatthat you there's still some meat on that bone and there's stint some juice to bebone and there's stint some juice to bebone and there's stint some juice to be extracted if you will so i said this isextracted if you will so i said this isextracted if you will so i said this is a pretty good resulta pretty good resulta pretty good result and for no really good reasonand for no really good reasonand for no really good reason in 2000 i sold the other three stocksin 2000 i sold the other three stocksin 2000 i sold the other three stocks and i told kotak you know sell theseand i told kotak you know sell theseand i told kotak you know sell these stocks and just send me thestocks and just send me thestocks and just send me the money back i basically liquidated themoney back i basically liquidated themoney back i basically liquidated the entire indian portfolio in 2000. thereentire indian portfolio in 2000. thereentire indian portfolio in 2000. there was no there was no really good reasonwas no there was no really good reasonwas no there was no really good reason to sell blue dart or skype or kotato sell blue dart or skype or kotato sell blue dart or skype or kota no particular reason that uhno particular reason that uhno particular reason that uh i had to do thati had to do thati had to do that kotak from 2000 till nowkotak from 2000 till nowkotak from 2000 till now is about a 500xis about a 500xis about a 500x blue dot is about a 300 xblue dot is about a 300 xblue dot is about a 300 x sky pack went kind of backwards i think
Questionersky pack went kind of backwards i think eventually went bankrupt but it was down like 90 or something so basically there were massive home runs there were two massive home runs which like i said i there was no reason to kind of make that decision to sell but that's what happened and you know i missed those two rides but even with these sloppy nature and kind of stupid analysis that i did in those cell decisions the end result was fine and the remaining 980 000 that had invested in the us over the next four five years by 99 2000 it was about 13 million or so so that had gone up quite a bit because one of those one of those bets had gone up 100 x 100 000 became about 10 million or so so anyway the thing is that even with a lot of sloppiness what i'm saying is that basically what what when you look at that investing that took place then
Otherthat took place then just the two bets just the two bets that were 100 bagger that were 100 bagger were responsible for like 80 90 of the were responsible for like 80 90 of the returns it didn't matter the rest didn't matter if it all went to zero the results were still been great results were still been great and so that's the nature of this multi-bagger type investing is that it can tolerate a very high error rate and of course your your objective as an analyst should be to try to keep the error rate as low as possible in 2019 i was visiting istanbul for the second time and turkish market actually i think is the cheapest market in the world because they've got just a lot of crazy macro things going on in the country very high inflation and weird policies and everyone's exited and so on in fact turkey reminds me of the indian markets maybe in the early 90s or so on and i ran into this business on my second trip in 2019 where the
Otherwhere the market cap was 20 million dollars and the liquidation value was more than six or seven hundred million dollars it was actually a dollar bill trading for three cents which i don't think it never happened to me before then so in the previous 24 years of investing that never happened and i think till i leave planet hurt i don't think it will happen again but basically you know if i look at this business which i bought at you know three cents on the dollar like the 20 million market cap i i was surprised with the volumes obry funds owns one third of that business and we pretty much got one third of the business for like eight million dollars or something if the business did not increase in value at all but it got to fair value at some point we would have a 30x return 30 or 33x or something but now we want the business for what
Questionerbut now we want the business for what three years they've actually increased three years they've actually increased three years they've actually increased value of the business quite a bit in the value of the business quite a bit in the value of the business quite a bit in the last three years and it's run by last three years and it's run by last three years and it's run by phenomenal people really good capital phenomenal people really good capital phenomenal people really good capital allocators allocators allocators and i think they will increase the value and i think they will increase the value and i think they will increase the value of the business quite significantly in of the business quite significantly in of the business quite significantly in the years ahead the years ahead the years ahead so so so having learned my lesson from kotak and having learned my lesson from kotak and having learned my lesson from kotak and blue dart and so on blue dart and so on blue dart and so on the only thing i need to do with this the only thing i need to do with this the only thing i need to do with this business business business is do nothing is do nothing is do nothing just sit there just sit there just sit there and spend time talking to students like and spend time talking to students like and spend time talking to students like you you you so that the time is used up and not used so that the time is used up and not used so that the time is used up and not used to sell things to sell things to sell things hopefully 20 years from now hopefully 20 years from now hopefully 20 years from now we still own that business so we still own that business so we still own that business so if that business if that business if that business tripled tripled tripled in what it's worth the value like you in what it's worth the value like you in what it's worth the value like you know was 600 billion million or know was 600 billion million or know was 600 billion million or something let's say it became 2 billion something let's say it became 2 billion something let's say it became 2 billion we would have 100 we would have 100 we would have 100 and i think it can it can triple its and i think it can it can triple its and i think it can it can triple its value in value in value in maybe maybe maybe five or ten years five or ten years five or ten years and and and it can keep going after that i mean the it can keep going after that i mean the it can keep going after that i mean the the two people running it they're not
Todd Combsthe two people running it they're not that old so i think they could they could keep compounding for a while and so when i look at kind of that particular business and it's it's a small part of the portfolio today it's gone up i think in the last three years it's gone up like five six x or so so it's gradually moving towards its its value and so on but i'm just saying that the nature of these hundred daggers is that this one business could become bigger than everything else in the portfolio even though we made such a small bet with it so with that i think i'll stop there
Questionerwould love to hear what you have on your mind we can talk about what i just talked about or stuff that isn't related so thank you uh thank you sir for the insightful session it was so interesting to listen uh listen to you uh now we will open the flow for questions from
Otherwill open the flow for questions from the audience those who want to ask thatthe audience those who want to ask thatthe audience those who want to ask that question can raise their hand uh okayquestion can raise their hand uh okayquestion can raise their hand uh okay sonia you may go firstsonia you may go firstsonia you may go first
Questionerokay uhokay uhokay uh uh thank you for this insightful sessionuh thank you for this insightful sessionuh thank you for this insightful session uh souh souh so in this uh today we always listen a lotin this uh today we always listen a lotin this uh today we always listen a lot that uh the value of anything is addedthat uh the value of anything is addedthat uh the value of anything is added in the modern world so what is yourin the modern world so what is yourin the modern world so what is your opinion on thisopinion on thisopinion on this
Warrenwell you know all intelligent investingwell you know all intelligent investingwell you know all intelligent investing is value investing because we haveis value investing because we haveis value investing because we have so many stocks around the world andso many stocks around the world andso many stocks around the world and because there are so many things goingbecause there are so many things goingbecause there are so many things going on with different companies around theon with different companies around theon with different companies around the worldworldworld thatthatthat you know like this news anchor uh jimyou know like this news anchor uh jimyou know like this news anchor uh jim cramer says there's a bull always a bullcramer says there's a bull always a bullcramer says there's a bull always a bull market somewheremarket somewheremarket somewhere sososo i think that if one is a investmenti think that if one is a investmenti think that if one is a investment analyst and you knowanalyst and you knowanalyst and you know picks through stuffpicks through stuffpicks through stuff you will you will find that there areyou will you will find that there areyou will you will find that there are some parts of the markets and some partssome parts of the markets and some partssome parts of the markets and some parts of theof theof the of the ecosystem that isof the ecosystem that isof the ecosystem that is appears very overvaluedappears very overvaluedappears very overvalued but you'll also find that there's lots
Questionerbut you'll also find that there's lots of things that are hated and unloved and like for example you know turkey is hated and unloved so there are always in in it's in the nature of auction driven markets that they will overshoot and undershoot i mean one one simple data point you can look at is look at the price of any stock on the nsc or bse and look at the 52-week range on that stock you know it might be 50 to 150 or 100 to 200 or 500 to 1000. it's a like a 50 100 swing in one year for almost every stock like all 5000 stocks right but if you look at for example the cost of an apartment in mumbai for example you know apartment in bandra or some place and you have a friend who's a broker or an agent and you go to him every day and say what is my flat word he'll say your flat is worth three crores and then you go to him the next day and say what is my flat work now he'll say
Othersay what is my flat work now he'll saysay what is my flat work now he'll say it's still three croresit's still three croresit's still three crores and then you go to him after one weekand then you go to him after one weekand then you go to him after one week and you ask him again what is my flatand you ask him again what is my flatand you ask him again what is my flat word he'll say listen idiotword he'll say listen idiotword he'll say listen idiot it's still three croresit's still three croresit's still three crores and you keep bothering this guy everyand you keep bothering this guy everyand you keep bothering this guy every day and then maybe after three months heday and then maybe after three months heday and then maybe after three months he might say you know it's actuallymight say you know it's actuallymight say you know it's actually 3.1 crores3.1 crores3.1 crores you know it has moved a little bit 3.1you know it has moved a little bit 3.1you know it has moved a little bit 3.1 crore now i can get you 3.1 crorescrore now i can get you 3.1 crorescrore now i can get you 3.1 crores and then maybe in six months or eightand then maybe in six months or eightand then maybe in six months or eight months if you keep bothering him andmonths if you keep bothering him andmonths if you keep bothering him and he's still your friendhe's still your friendhe's still your friend every dayevery dayevery day maybe it becomesmaybe it becomesmaybe it becomes three point three crores you know in athree point three crores you know in athree point three crores you know in a year or somethingyear or somethingyear or something okay possible maybe three and a halfokay possible maybe three and a halfokay possible maybe three and a half or might go to two and a half you knowor might go to two and a half you knowor might go to two and a half you know the fluctuation rate of that flatthe fluctuation rate of that flatthe fluctuation rate of that flat is not going to range between three andis not going to range between three andis not going to range between three and six crores in a yearsix crores in a yearsix crores in a year it's going to be like 2.7 to 3.3 croreit's going to be like 2.7 to 3.3 croreit's going to be like 2.7 to 3.3 crore in a very tight bandin a very tight bandin a very tight band becausebecausebecause that price is not being setthat price is not being setthat price is not being set in an auction format
Questionerin an auction format it is being set with an intelligent buyer facing an intelligent seller and when you have intelligent buyers facing intelligence sellers you get great practice price discovery but when you have these you know auction driven markets which is the nsc or bse or new york stock exchange you will get much wider swings and so if you're in a in in the business of investing where you are dealing with auction driven markets just this phenomena of the 50 swing means at some point the stock is mispriced it has to be at one it has to be either under price at some point overpriced at some point because the real value of the business cannot change 50 in a year for most businesses so hence we have proved that there is always value in investments and markets thank you sir
Otherokay we you can ask a question thanks for the like my question is essentially
Questionerfor the like my question is essentially around specifically to india we have a lot of corporate governance issues within india so when you are picking companies how are you filtering out these companies which have uh significant corporate governance issues which an hour later for example that had massive issues later on so what kind of filters do you use when you're investing or picking
Questioneryeah so i think i think that yeah i think your filters need to be stronger investing in india than i would have in the us i think that if i were to invest only in the new york stock exchange type businesses the odds that i would lose money because of fraud approaches zero you know i would say if i make 10 investments all in the new york exchange and i have a lifetime of investing i do just in that market maybe out of you know 50 investments i make in a
Other50 investments i make in a 40-50 year period at the most one might be fraudulent something like that it would be pretty low number in india if i did the same thing i think the number would be higher but i think the that given that we already know that that the ethos levels of let's say managers or managements in india may be somewhat lower than the ethos level of a typical nyc comp listed company we can adjust for that so there are plenty of businesses in india where one can reach a fairly decent conclusion that the ethics and ethos of the business and the owners is high and there may be a lot of businesses where we may not be able to make that determination so if we either know that ethics is low or governance has issues or we're not able to figure it out you just take a pass on those businesses just like you would take a pass on a low return equity business
Questionerreturn equity business you know it could be very ethical but return equity is low because there's 5 000 listed companies you still end up in a decent universe to look at so i think i think if you if you set up rigorous filters for ethics it may not be foolproof but you can reduce the error rate
Otherokay but you can ask your question
Questionerthank you for your great session uh myself uh my question is that how what is your strategy in identifying and valuing a company and how do you identify your first talk is overvalued or undervalued
Questioneryeah so i think that i think if a business is within your circle of competence i mean let's let's let's take uh the example of a business like dmart for example and let's say i have not looked at dmart recently but let's say for example a trailing pe basis is trading at 100 times earnings which you know it used to trade it or
Questionerwhich you know it used to trade it or maybe still trading it something like that if one understood the business and one had a good view of what the cash flows of the business are over the next 10 or 20 years you can discount those cash flows back and then that would tell you whether the business is overvalued or undervalued it would just be a straight math exercise so and if you are not able to estimate those cash flows then i think there's no basis on which you could make an investment like that so you would take a pass in that particular case the first question to ask yourself is do i understand the business and is the business within my circle of competence and if you understand the business and the business is within your circle of competence then by definition you know with some boundaries what the future of the business is likely to look like
Otherthe business is likely to look like and what the trajectory is like to lookand what the trajectory is like to lookand what the trajectory is like to look at what the cash flows are like likelyat what the cash flows are like likelyat what the cash flows are like likely to look like and i think if you can putto look like and i think if you can putto look like and i think if you can put some boundaries around thatsome boundaries around thatsome boundaries around that then you have a basis to make anthen you have a basis to make anthen you have a basis to make an investmentinvestmentinvestment ininin in 2015in 2015in 2015 an indian guy living in vancouver canadaan indian guy living in vancouver canadaan indian guy living in vancouver canada his name is parry pasrichahis name is parry pasrichahis name is parry pasricha he had sent me i didn't know himhe had sent me i didn't know himhe had sent me i didn't know him he sent me a write-uphe sent me a write-uphe sent me a write-up of a company based in hyderabad calledof a company based in hyderabad calledof a company based in hyderabad called rain industriesrain industriesrain industries andandand basically at that timebasically at that timebasically at that time uh you know the extremely well-writtenuh you know the extremely well-writtenuh you know the extremely well-written write-up like 20-page pdf it's actuallywrite-up like 20-page pdf it's actuallywrite-up like 20-page pdf it's actually i think that write-up is floating on thei think that write-up is floating on thei think that write-up is floating on the internet so i think if you if you justinternet so i think if you if you justinternet so i think if you if you just google like very persuasion industrygoogle like very persuasion industrygoogle like very persuasion industry probably that pdf will pull upprobably that pdf will pull upprobably that pdf will pull up there's another guy luca franca who hadthere's another guy luca franca who hadthere's another guy luca franca who had done adone adone a report on reign and i think that's alsoreport on reign and i think that's alsoreport on reign and i think that's also in the internet somewhere that was donein the internet somewhere that was donein the internet somewhere that was done before perry did his report butbefore perry did his report butbefore perry did his report but basically thebasically thebasically the situation that
Questionersituation that perry was bringing up in that report was that rain was trading at i think 35 rupees a share at that time about a you know 170 or 180 million market cap at that time with about two billion dollars in revenue it was trading at about one tenth of sales the price to sales ratio was 0.1 uh it seemed very likely that in the next four or five years in a single year rain's earnings would be over 35 rupees a share so
Questionerwhen i looked at rain it's a very cyclical business it has a lot of gyrations a lot of issues with it but it was extremely cheap in effect it was trading at a future peo one i couldn't find anything wrong with it so
Questioneri made i made a bet on rain industries and as a foreign investor we could only buy 9.99 and so we bought 9.99 percent of the business for i think 20 million dollars by less than three years after we bought
Todd Combsby less than three years after we bought in early 2018 late 2017in early 2018 late 2017in early 2018 late 2017 it was trading at over 400 rupees ait was trading at over 400 rupees ait was trading at over 400 rupees a shareshareshare so my my thesis when i originallyso my my thesis when i originallyso my my thesis when i originally invested was that i think i thoughtinvested was that i think i thoughtinvested was that i think i thought i just want to own this business wheni just want to own this business wheni just want to own this business when the earnings are 35 rupeesthe earnings are 35 rupeesthe earnings are 35 rupees and i just want to see what the marketand i just want to see what the marketand i just want to see what the market would do with the price of the stockwould do with the price of the stockwould do with the price of the stock when the earnings are 35 rupees a sharewhen the earnings are 35 rupees a sharewhen the earnings are 35 rupees a share i just want to see if it actually sitsi just want to see if it actually sitsi just want to see if it actually sits at 35 rupees at that pointat 35 rupees at that pointat 35 rupees at that point and which i didn't think was possibleand which i didn't think was possibleand which i didn't think was possible but i just wanted to see what happenedbut i just wanted to see what happenedbut i just wanted to see what happened so this was just a pure math gameso this was just a pure math gameso this was just a pure math game and of course when the earnings i thinkand of course when the earnings i thinkand of course when the earnings i think their earnings were coming to close totheir earnings were coming to close totheir earnings were coming to close to 10 rupees a quarter when they were10 rupees a quarter when they were10 rupees a quarter when they were approachingapproachingapproaching 9 or 10 rupees a quarter the stock went9 or 10 rupees a quarter the stock went9 or 10 rupees a quarter the stock went to like 440 rupeesto like 440 rupeesto like 440 rupees and of course by that time i had fallenand of course by that time i had fallenand of course by that time i had fallen madly in love with rain and it's greatmadly in love with rain and it's greatmadly in love with rain and it's great management andmanagement andmanagement and they're very high ethics andthey're very high ethics andthey're very high ethics and very very
Questionervery veryvery very honest competent operators i said nohonest competent operators i said nohonest competent operators i said no this is a this is a far better businessthis is a this is a far better businessthis is a this is a far better business than i thought it is and you know wethan i thought it is and you know wethan i thought it is and you know we shouldn'tshouldn'tshouldn't get off the bus so quickly you know allget off the bus so quickly you know allget off the bus so quickly you know all most of the time i probably didn't getmost of the time i probably didn't getmost of the time i probably didn't get off the bus too quicklyoff the bus too quicklyoff the bus too quickly sososo rain went from 35 rupees in 2015rain went from 35 rupees in 2015rain went from 35 rupees in 2015 to 440 rupees in early 2018to 440 rupees in early 2018to 440 rupees in early 2018 to 60 rupees into 60 rupees into 60 rupees in march of 2020 when covet hitmarch of 2020 when covet hitmarch of 2020 when covet hit to aboutto aboutto about 160 or 170 rupees currently160 or 170 rupees currently160 or 170 rupees currently okayokayokay and we still own itand we still own itand we still own it rightrightright but even if you take the currentbut even if you take the currentbut even if you take the current situation you know with a 160 orsituation you know with a 160 orsituation you know with a 160 or something in in rupees it's like asomething in in rupees it's like asomething in in rupees it's like a 4x in seven years for example4x in seven years for example4x in seven years for example andandand you know we think it'll do better and beyou know we think it'll do better and beyou know we think it'll do better and be worth more in the future so i think inworth more in the future so i think inworth more in the future so i think in that case you know like i saidthat case you know like i saidthat case you know like i said it's it's like we i couldn't i don't iit's it's like we i couldn't i don't iit's it's like we i couldn't i don't i still don't have a crystal ballstill don't have a crystal ballstill don't have a crystal ball on reign of whaton reign of whaton reign of what next 10 years of cash flows would benext 10 years of cash flows would benext 10 years of cash flows would be that's i think impossible to estimatethat's i think impossible to estimatethat's i think impossible to estimate but i think the fact that we would make
Warrenbut i think the fact that we would make money on that investment was a very high probability uh certain interest of time
Othercan we take two or three more questions
Othersure yeah keep going
Otheryeah rajat you may ask your question first
Questionerthank you sir for sharing your wisdom on value investing in public auction markets uh my question digresses a bit it is for the private markets venture capital in particular i want to understand what parameters will you employ for investing in early stage startups from a value investing lens in the context of a where price discovery as you mentioned is ambiguous b given the current news of funding winter and the capital drying up
Warrenyeah i mean i think that i'm probably not the right person to ask that question to i think the the closer you go towards the formation date of a business uh and then try to extrapolate the future of that business the more murky it becomes
Questionerbusiness the more murky it becomes so the the venture capital game is a very different game in the sense that you are expecting most of your returns to come from one or two bets in the fund for example and you're expecting 80 90 of the fund may a lot of those investments may go by the wayside or may not do much long term so basically it's a very different game i think it's very hard to get downside protection in the venture game and i think it's very hard to do these future cash flow projections and all of that because we just don't have the trademarks we don't have the the historical trend mark so it's it's not something that i think i have expertise and the other thing about the venture business is that if we look at the statistics you know so in in silicon valley which has had a very long history of venture capital the venture funds that have let's say
Questionerthe venture funds that have let's say the top 10 percent you know their annualized returns and the top 10 percent of venture funds their returns are multiples of so you know the top quartile funds have done much much better than the bottom quartile funds and if you do the same thing with bond funds for example the difference between a top quartile bond fund and a bottom quartile bond fund may be almost non-existent might be like 100 basis points or 200 basis points would be a very very small difference so what i'm saying is that the ability to add alpha in a bond fund is very limited and if we if we look at a if we look at a fund like you know sequoyah fund or andreessen arovitz or y combinator etc they have an advantage they have multiple advantages but one of the big advantages they have is deal flow so i have some friends and you know some of
Questioneri have some friends and you know some of my investors are venture capitalists in silicon valley they say to me that if we had access to the trash can of sequoia our returns would be 3x what they are so if he said if we could just look at every deal that sequoia turned down we would do 3x better because they said we just don't get to see you know so deal flow so one of the one of the things about the public markets is is is the small investor actually has a huge advantage over the institutional advantage over the institutional investor investor investor an institutional investor with you know an institutional investor with you know an institutional investor with you know hundreds of millions or billions of hundreds of millions or billions of hundreds of millions or billions of dollars dollars dollars cannot look at small investments cannot look at small investments cannot look at small investments they just they have to put large amounts they just they have to put large amounts they just they have to put large amounts of money to work at a time a small of money to work at a time a small of money to work at a time a small investor having investor having investor having you know five crores to invest or you know five crores to invest or you know five crores to invest or 50 lakhs to invest 50 lakhs to invest 50 lakhs to invest 10 lakhs to invest can look at 10 lakhs to invest can look at 10 lakhs to invest can look at everything you can look at nano caps can everything you can look at nano caps can everything you can look at nano caps can look at everything look at everything
Questionerlook at everything and so their universe is much wider andand so their universe is much wider andand so their universe is much wider and they can be a lot more picky in terms ofthey can be a lot more picky in terms ofthey can be a lot more picky in terms of where they put their moneywhere they put their moneywhere they put their money sososo in the public markets the small investorin the public markets the small investorin the public markets the small investor has a huge advantagehas a huge advantagehas a huge advantage in the venture market a small investorin the venture market a small investorin the venture market a small investor or an unknown investor with noor an unknown investor with noor an unknown investor with no no access to real deal flowno access to real deal flowno access to real deal flow is at a huge disadvantageis at a huge disadvantageis at a huge disadvantage sososo my conclusion when i look at all of thatmy conclusion when i look at all of thatmy conclusion when i look at all of that is it's not a game where the odds are inis it's not a game where the odds are inis it's not a game where the odds are in my favormy favormy favor and so i have chosenand so i have chosenand so i have chosen not to play in that area and i think thenot to play in that area and i think thenot to play in that area and i think the kinds of questions you're askingkinds of questions you're askingkinds of questions you're asking i think are very difficult questions toi think are very difficult questions toi think are very difficult questions to answeransweranswer thank youthank youthank you
Otherin the interest of time we will takein the interest of time we will takein the interest of time we will take only last two questions uh beyonce youonly last two questions uh beyonce youonly last two questions uh beyonce you may go you may go you can go first imay go you may go you can go first imay go you may go you can go first i don't know if the others can hear you ordon't know if the others can hear you ordon't know if the others can hear you or not but i can barely hear you butnot but i can barely hear you butnot but i can barely hear you but okay go ahead will try i put my questionokay go ahead will try i put my questionokay go ahead will try i put my question in the chat box if that will happenin the chat box if that will happenin the chat box if that will happen yeah i think i think for a know nothing
Warrenyeah i think i think for a know nothing investor passive index investing is a great way to go especially if you have you know many decades of time and you're young and so on i think index investing does well the frictional costs are low and such if you have a view and you understand certain businesses you understand they're undervalued and and so on then i think you could actually you know pick stocks and so on but i would say starting baseline being a passive investor is certainly a great way to go for most people
Othernext
Questionersure sure thank you thank you sir for an insightful session so my question is very simple so when we look at value investing which was being propagated by say the likes of ben graham we did not have the modern situation right and a of a negative usual reach for a longer period of time but then liquidity both absolute and relative so do you think that probably sticking to
Questionerdo you think that probably sticking todo you think that probably sticking to that value investingthat value investingthat value investing may result in uh risking probablymay result in uh risking probablymay result in uh risking probably figuring out who the future winnersfiguring out who the future winnersfiguring out who the future winners could be or simply put uh probably whatcould be or simply put uh probably whatcould be or simply put uh probably what would you changewould you changewould you change in value investing which has been taughtin value investing which has been taughtin value investing which has been taught or which has beenor which has beenor which has been learned to something which would be morelearned to something which would be morelearned to something which would be more relevant in a current contextrelevant in a current contextrelevant in a current context
Todd Combsyeah i think it's a good question so iyeah i think it's a good question so iyeah i think it's a good question so i think that most investors would bethink that most investors would bethink that most investors would be better offbetter offbetter off completely ignored everything macrocompletely ignored everything macrocompletely ignored everything macro so for exampleso for exampleso for example if if i had a viewpointif if i had a viewpointif if i had a viewpoint ofofof kind ofkind ofkind of what would happen to starbuckswhat would happen to starbuckswhat would happen to starbucks 20 years ago20 years ago20 years ago it really doesn't matter what the ratesit really doesn't matter what the ratesit really doesn't matter what the rates are and the fed is doing and what youare and the fed is doing and what youare and the fed is doing and what you know whatknow whatknow what financial crisis is happening orfinancial crisis is happening orfinancial crisis is happening or whatever else has happened at the corewhatever else has happened at the corewhatever else has happened at the core the starbucks business is such that whenthe starbucks business is such that whenthe starbucks business is such that when they open a store in the u.sthey open a store in the u.sthey open a store in the u.s they get their money back in two yearsthey get their money back in two yearsthey get their money back in two years 35 return on capital35 return on capital35 return on capital they don't franchise any stores
Questionerthey don't franchise any stores and when they open a store in china they get their money back in 15 months like something like 70 return on capital and i mean they have found for example that if they have one store in manhattan in a particular intersection and they put another store diagonal from that store it doesn't even cannibalize the first store when the second store is so close and such so it's an it's an incredible business so i think that if one focuses on understanding the business and is able to identify great businesses that should be where the focus is when i made the investment in turkey in this business it was completely irrelevant to me what was happening on the macro front i mean turkey inflation rates are crazy and the way they deal with the currency is crazy but i was i could look at that business and see that these things would
Questionerbusiness and see that these things would not really matter in terms of our returns and basically when i made the investment in that business one dollar was five lira you know five leader could get you one dollar now it is almost 18 lira to get one dollar so i have suffered incredible devaluation but in dollar terms we are up for x in lira terms we are up infinite x but who cares about that so what i'm saying is that we had extreme headwinds uh macro headwinds when we went in didn't care about it and it didn't matter so i think it's very important to be right on the business if you were early on mcdonald's and walmart or any of these you know mastercard visa whatever uh coke and so on i think the thing is that you know some of these you know long runways they will transcend everything that's the key is can you find these great businesses can you find them early
Questionerbusinesses can you find them early enough can you buy them at decent prices and then can you be patient through thick and thin
Othersure that's that's why there's a there's a investment bank in nariman point enam most of you will be familiar with imam you know they took infosys public and when they took infosys public they were having difficulty placing the stock you know they were the underwriter they were left with stock that nobody was willing to buy enam kept the stock for themselves until pretty recently they kept most of those shares i think they may have they may have reduced or eliminated the position now or it's a small much smaller position but basically it doesn't matter what else inarm did in the last 30 years it's irrelevant what they did in the last 30 years 90 percent of the value of that firm was based on whether or not they kept
Otherwas based on whether or not they kept that infosys stock that nobody wanted and so it's a good business they're great people and they're smart people but one decision you know trumps all the other decisions and if they had sold infosys or they had found a lot of people willing to buy it i think inam would be a shadow of itself where it is today so you know it's just small small things like that create huge deltas in where things end up
Questionerthank you thank you so much sir
Othercan we take up one last question by pawn if time permits you
Questionerof course yes but when you can ask your question uh thank you so much sir and thanks a lot for your wisdom sir today so my question is regarding multibaggers as we discussed so during our holding period of say 10 15 20 odd years we see drawdowns of over north of like 50 percent sometimes even 90 percent during the 10 year investment 10 years so how
Questionerthe 10 year investment 10 years so how do you deal with that situation and it often arises when you are holding for such a long period of time especially for multivitamins
Questioneryeah so conviction is really important and how do you get conviction i mean i think i think you get conviction because you have a very strong understanding of the business so if i if i go back to the business in turkey for example basically you know that business has a number of different business lines but the one that has the most value today is they have 12 million square feet of prime warehouse space in turkey it is mostly in istanbul and that 12 million square feet has a value today you know you could go to a broker he will tell you that you can sell the whole thing and you will probably get a billion dollars for it something like that billion billion two or something
Othertwo or somethingtwo or something there's only about 100 million 80there's only about 100 million 80there's only about 100 million 80 million of debtmillion of debtmillion of debt so if you just liquidate that entireso if you just liquidate that entireso if you just liquidate that entire position you'll get about maybe 900position you'll get about maybe 900position you'll get about maybe 900 million dollars or somethingmillion dollars or somethingmillion dollars or something andandand you know soyou know soyou know so what is the warehousewhat is the warehousewhat is the warehouse so warehouse is land concreteso warehouse is land concreteso warehouse is land concrete steelsteelsteel some 20 is refrigerated so you have somesome 20 is refrigerated so you have somesome 20 is refrigerated so you have some refrigerated units and all thatrefrigerated units and all thatrefrigerated units and all that all of these things areall of these things areall of these things are going to increase in value if you havegoing to increase in value if you havegoing to increase in value if you have inflationinflationinflation so steel price is going to go up becauseso steel price is going to go up becauseso steel price is going to go up because it's going toit's going toit's going to it's going toit's going toit's going to track international steel pricestrack international steel pricestrack international steel prices concrete and cement prices will trackconcrete and cement prices will trackconcrete and cement prices will track international concrete and ceramicinternational concrete and ceramicinternational concrete and ceramic prices and land also has prime land andprices and land also has prime land andprices and land also has prime land and a prime you know major city in the worlda prime you know major city in the worlda prime you know major city in the world has a valuehas a valuehas a value and soand soand so when i invested the value per squarewhen i invested the value per squarewhen i invested the value per square foot was about eighty dollars a squarefoot was about eighty dollars a squarefoot was about eighty dollars a square foot for land andfoot for land andfoot for land and improvementsimprovementsimprovements and i don't think that 80 is goingand i don't think that 80 is goingand i don't think that 80 is going anywhere you knowanywhere you knowanywhere you know it it may be 200 a square foot at some
Questionerit it may be 200 a square foot at some point but it will not go to 30 square foot that won't happen so i don't care about anything else that's going on that is the piece that is the most important it's 99 lease it's 10 years inflation index leases and all of that so conviction is really important right so if you if you invested in starbucks you would have two or three things that you understand you would understand the unit economics that when they open a store they get their money back in one or two years you would understand that if that suddenly changed where it was taking five years or ten years to get your money back when you open a new store something has changed right that's a significant change if that looks like a secular permanent change the thesis has changed but if you if it continues to be very high returns on capital
Todd Combshigh returns on capital the second is you would have had some perspective on the runway where you say okay it has 5000 stores around the world for example it probably has more than that right now but at 20 years from now i think it can easily be 25 000 stores for example and if you have conviction on that then you know you the two pieces that really matter is that what are the unit economics and what is the store count you know and those are really the pieces that matter and so when you make an investment in a stock you should be able to explain the thesis of that investor investment in five or ten sentences to a ten-year-old without a spreadsheet and without anything okay and this is why this makes sense and that gives you the conviction if you have to go look at a spreadsheet or look at something to then you know when price drop 50 to to understand what is going on
Otherunderstand what is going on you have not done your homework you have not done your homework you have not done your homework so so so it needs to get down when you've done it needs to get down when you've done it needs to get down when you've done all the work to simplicity all the work to simplicity all the work to simplicity you know it can take a long time to get you know it can take a long time to get you know it can take a long time to get to those essence to those essence to those essence of these businesses of these businesses of these businesses but it needs to get to the essence of but it needs to get to the essence of but it needs to get to the essence of those businesses so you have to get to those businesses so you have to get to those businesses so you have to get to understanding understanding understanding why is this business resilient why will why is this business resilient why will why is this business resilient why will it be around 10 years from now it be around 10 years from now it be around 10 years from now and why will the and why will the and why will the economics and the return on equity and economics and the return on equity and economics and the return on equity and all of that still be high all of that still be high all of that still be high why will all those things be true why will all those things be true why will all those things be true so we aren't particularly concerned with so we aren't particularly concerned with so we aren't particularly concerned with price movements price movements price movements we are concerned with we are concerned with we are concerned with the the the expansion or shrinkage of the moon expansion or shrinkage of the moon expansion or shrinkage of the moon if the mote goes through a secular if the mote goes through a secular if the mote goes through a secular decline we have a problem decline we have a problem decline we have a problem the quoted price changing is not the quoted price changing is not the quoted price changing is not relevant
Questionersir thank you so sir thank you so sir thank you so much thank you so much sir for your much thank you so much sir for your much thank you so much sir for your insights before we conclude this amazing insights before we conclude this amazing insights before we conclude this amazing session sbm nmims would like to extend a session sbm nmims would like to extend a session sbm nmims would like to extend a heartfelt thanks to mr monis fabry for
Otherheartfelt thanks to mr monis fabry for sparing his valuable time to grace this event and enlighten us with some really practical and usable words of wisdom we would also like to extend our gratitude to all the attendees for their unabated attention to our event and for some really good questions we definitely have something to take back home what was more intriguing for us was how you identify stocks whether it is through chalk acres three-legged stool which can become multibagger for example mcdonald's coca-cola etc and i'm very sure if we replicate this approach we can make money for ourselves if knowledge is power then curiosity is the muscle let's keep up this curiosity forever on the on that note we reached the end of the session have a great day everyone thank you and i would just uh i would just like to say that i think you guys
Warrenjust like to say that i think you guys are the cream of the crop of india you are the cream of the crop of india you are the cream of the crop of india you are the future of india you're at a great the future of india you're at a great the future of india you're at a great institution institution institution and you guys will do and you guys will do and you guys will do really well in the decades ahead really well in the decades ahead really well in the decades ahead in whatever becomes your in whatever becomes your in whatever becomes your eventual you know career pursuit eventual you know career pursuit eventual you know career pursuit so uh i think you already kind of won so uh i think you already kind of won so uh i think you already kind of won the lottery if you will the lottery if you will the lottery if you will so the world is your oyster and so the world is your oyster and so the world is your oyster and congratulations congratulations congratulations
Questionerthank you sir thank you sir thank you sir
Otherall right [Music]