Winning Investment Habits Sanjoy Bhattacharyya Masters At Work

TITLE: RLYrMmcg-2Q CHANNEL: Unknown DATE: ---TRANSCRIPT--- Before we start, I’d like to share a very anecdotal conversation. And I was coming in from Delhi yesterday and they were saying mit why are you going out you know weekend I said we are hosting the masters at work and he said boss why is the CFA society hosting an investment conference and I was like thinking yeah we’ve been doing it intuitively but why are we doing it and then it hit me and uh the objective of CFS society one of the prime objective is to facilitate exchange of information and opinion among people within the local investment community. Which means we are doing this because as society members, as charter holders and volunteers, we want to give back to the society and facilitate a very very high investments standards in this country. Um couple of more important things. Uh this is the fifth investment conference. We actually started in September if I remember correctly July or September 2019 and one of our finest speakers at that point of time and I distinctly remember this was the first that was the first we had Sanjay sir and he was such a hit such a hit we said we had to get him back. So Sanjay sir thank you so much for coming back to introduce Sanjay sir can I call upon the moderator Manish Bandari Manish G runs Valum Capital he’s a seasoned value investor and a portfolio manager with decades of disciplined market experience please Manish thank you so much

good morning everyone and thank you CFS society for calling me here and what a pleasure to moderate a session with Mr. Sanja Batacharia Mr. Mr. Patachara doesn’t need an introduction rightfully said but he needs an introduction for people who have not yet gone into the sellside grind. I started my career in 1999 and the gold standard was to give a presentation to Mr. Batachara who was a CIO of HDFC Mutual that point of time and I took that plunge of going to his office and uh giving an presentation to him and this is very important for everyone who has not been on a sell side and never had an opportunity to to be a trial of fire. So the first investment idea I gave it to him in my youthful bliss of age of 24 was a company called Mktads which got listed and which was a darling of the stock market at that point of time and after 25 minutes I think after that patient hearing Mr. Dr. Bhachara gave me of his piece of wisdom and which remained with me for long enough was and I will exactly quote what he said at that point of time to me. That was a tremor for me. It shook my investment thesis for long enough. It changed me as a person. Not that I grew enough wisdom in exactly in those 30 minutes or so. But at least it changed the standard the way I would think and I would become as a quality of of a research analyst over a period of time. So experiencing Mr. Bhachara itself was was a very heartening exercise for me in my lifetime quite which came quite early to me in my lifetime. So apart from his professional credentials let me tell you that it was a wonderful time for anyone who has been on the cell side to meet Mr. Batacharia and learn from him. Thank you Mr. Batachara for giving a new standard in the in the investment management to all of us. And let me please join your hands in welcoming Mr. Sanjay Batachara. [applause] Yeah Mr. So Bachara uh let me start uh asking you about a very pertinent question which is as mentioned in the age of disruption you’ve gone through cycles you’ve gone through years of trial by fire what is an endurance which one has to build where you can survive the disruptions the terminal values of those businesses the terminal values of many businesses which keeps on getting challenged and the way where we are in today at this point of time. So what is one endurance one has to build so one could see through those fog more clearly and you have seen enough of those cycles rotations and so and so forth. So what is that one thing but one should build at the future generation build on the investment side? I think it’s actually I’m going to deviate a bit from your question but the answer to that and unfortunately you know the number of prophet acolytes is huge in our country in line with our population. Everyone wants to be the next Buffett and everyone slightly both. Yeah. Everyone wants to be the next Buffett and everyone aspires to finding these great modes and you know doing all of that. I think the essence of what you asked goes back to understanding what you own. That’s the definition in my mind of risk. If you don’t know what you’re doing, you’re taking risk. And that is why so many people today are I would say you you you put it nicely in a fork about what the future holds. And uh part of the idea is that you know when you bought some of these stocks or you bought some of these businesses they looked very attractive. They had a bunch of characteristics which appealed to people you know growth, capital efficiency, uh very talented, thoughtful, skillful leaders and so on. But as an owner of that business, I don’t think we really understood what the business was about. And so today when we are faced with the challenge of deciphering what’s going on, it’s really a reflection on ourselves. If you own Britannia as an illustration, I don’t think you’d be going through these forms. But if you own like I do and I’m as guilty of exacting what you’re saying, Manish, but please don’t think I’m any exception. So I own a company called E Clerks which I have now owned for 18 years. 18 years. Yeah. I bought it at a very propitious moment. I bought it in 2008 May when they said e- clerks was going to fold up because they had one client layman brothers who was 80% of their business and layman had folded up. So I had this absolutely, you know, rose tinted spectacles on and I said, “E-loss won’t fold up for whatever reason.” And if I tell you this, you’ll be in splits, but it’s not my intention to get you to laugh. But one of my really funny reasons for buying this was the gentleman who used to run e- clerks who was the main one of the two Mr. Mundra. Mr. Mundra. Yeah. And I had a very dear friend in Kolkata also called Mundra. And he was an exceptional guy. exceptional intellect, really wonderful human being. And I said all mundas must belong to a higher level. I’m going to buy this company. [laughter] And that was the level of complete, you know, I had no understanding of what they did. And I bought it and I held it for 18 years and it’s worked out very well. And you know, it’s a funny thing. It’s multiplied actually more than 100 times in that 18 year period. But that’s not the point. The point is how well do I understand what e-clerks does as a business and I think in some regards I fall short of it. [clears throat] So it is purely about buying what you know I would say. So this brings me to a and sorry just to complete this. So for the buffet bucks over here, it’s this idea of the circle of competence and we all stray too often because I think it’s to do with human greed. We don’t have the patience to hang in there. We all want to get rich quick because everyone deres his success from his net worth. You got to disassociate the two. There are very smart people who may not have that higher net worth. Conversely, there are many people who have very high net worth who and this is truly what investing is about. You get lucky. Yeah. But never confuse the two. And the one who will travel the more enjoyable path will be the one who thinks about you know the journey and how he got there and how the joy is in understanding the business. The joy is not in making the money. So if you’re a true Buffett, what is Buffett’s greatness? He understands what he owns so so well. For instance, in 99 Buffett didn’t buy tech. Tech was all the rage. He was quoted on the cover of I think Fortune as saying, you know, his story is over and how he came back and he said it publicly. So I think that’s one part of it. The second part and this is a I think a less important answer to your question about how do we deal with you know these in these times of turbulence is and this is going to be very unpopular. So please excuse me upfront for saying this but I think as a group as a community our reading needs to be more diverse and more focused. is not enough to just read books on investing. We need to go beyond that. We need to think about what is currently you know of salience. So for instance I read this wonderful book about 6 months ago and certainly I got a much better feel. I won’t say I have you know I I won’t classify myself as a guy who really has a tremendous great deal of clarity but I read this book called what is intelligence? It’s written by the guy who heads Google’s efforts on the artificial intelligence business. It’s a small business. It’s for them it’s a small business. It’s $3 billion. But the kind of work that they have put in in progressing that business is amazing. And the insights, it’s a Spanish name. I can’t get the name exactly right, but the title of the book is what is intelligent. So once you read that you begin to understand the basics the bedrock principle of what is intelligence. How do you define at grassroots intelligence and then move on from there and once you start at the basics and move on I think at least for me life is a lot easier. You you have put a very high standards in front of everyone that you have to be Buffett as well as Charlie Monger. No I think you have to be yourself. In fact, this was something I wanted to say in my prepared remarks. Too many of us aspire to be someone we are not. Yeah. One of the keys to investing is to know yourself, to know who you are and to be comfortable with that and to orient all that you do, your methods, your approach, your thought process, your the companies you buy, how you sell, how you measure progress, how you monitor those businesses, all of that must relate to the person you are. What buffet is this means that a business is lot about isolation and introspection. Yeah, absolutely. Hugely. So I think you’re right. You have to it’s it’s a lonely journey. You can’t hope to be part of one large crowd going to Badrinat. That’s not what investing is about. It’s a lot of toil. It’s a lot of introspection. It’s thinking about what matters to you. Too many of us are wannabes because a generation has grown and is growing by reading a literature. So, so you should pick up all that he has to say. Manish, you all he has tremendous wisdom. He’s a f of wisdom but don’t imagine that you can be what he is because many of us don’t recognize he has exceptional intellect. Absolutely. He has an exceptional network, access to people and he has exceptional temperament and an architecture where he doesn’t need to risk. That’s right. And he has a partner who is one in a 100 million. So Mr. Patachar, let me ask you this which is which was weighing on my mind was if if you as a you as a practitioner would have heard [snorts] Satya Nadala or any of those guys and would have said okay Microsoft is going to do well. they they are the leaders or Mr. Naran Mortis of the world and they are the leaders who will navigate you through this method of disruption and they are getting disrupted maybe or so five year IT industry return zero TCS 5 year return zero what I would have picked up as a practitioner would have said what wisdom I would have had what wisdom all of us sitting here would have had and given you a idea No, I I don’t think IT services I don’t think that’s the appropriate response to this. But what I actually got really lucky in IT services. I mean I bought some of these companies in the mid90s and I I got really lucky. I don’t I don’t think it has anything to do with skill. You know luck plays a defining role in investment outcomes which many of us are not willing to acknowledge. And I think someone spoke of humility. Humility beggets us to understand that very often good outcomes are a function of good luck rather than preparation which is I I’m not belittling the role of preparation but you must also acknowledge the role of luck but now to come back to the IT services idea is one of my second pet peeves and you know Manish you’re one of the kindest guys all your questions are leading me to my pet theories very few people give me that opportunity So one of the things and this I find absolutely shocking in India uh is in India no one ever talks about selling. Selling is less than 2% of the time you spend in your mind you know thinking about what you need to do as an effort. Yeah. 98% of the time is spent on buying on figuring out where the market is, which is completely meaningless. It has no relevance to what you do. Okay? Unless you’re a futures trader uh or an options trader, the the real truth is and this is absolutely essential. I think this is one thing that I will emphasize for every investor regardless of at what stage of the journey he is. You must know when to sell before you buy. If you have no clue about you know when you’re going to sell before you buy the trouble has already started. You’re in deep waters. So Mr. Patachara let me let me take the challenge of challenging your please. Yeah. Yeah. Yeah. So if if I would have met Mr. Udai Kotak in 1997 he just completed 30 years of Udai Kotak uh of the Kotak Mandra Bank. Yes. got listed for 25 years. 40 years and 30 years of public market listed. Correct. I was lucky enough to meet him on a roadside at Mumbai and I said, “Oh, this is the guy. Let me put my one lakh rupees or this.” Right. Right. How would I know when to sell for no I have done the statistics in my mind. Uh Kotak Mandra Bank on four occasions 35% draw downs you you miss a heartbeat. Four years zero returns which has happened now. How do how can I prepare my mind to say this is it and you survived all these things and your 1 cr rupees became 350 cr rupees number how do I know when to sell what future I would have said this is a time to sell udot and come back again in udot can that mind work it in a such a razor sharp way or can the investment philosophy of endurance can build on a way buy udot sell udot I I wouldn’t do that I mean I don’t believe that when you buy stocks it is very important to have enlightened leadership. I think that’s a huge part of the outcome but I wouldn’t say I admire this individual hence I will buy the stock. I would never do that. I think that’s a complete no. But that’s for me different people. See like anything I go back to this idea what is religion? Religion for all of us or for most of us is achieving stillness of the mind. Yes. You want to be in a state where you’re completely able to remove all distractions and focus on the here and now. Right? And the idea is that there are multiple ways to reach that state. All religions have that same objective. Yet different methods are one guy says idol worship, one guy says unswerving belief in a master in in a person like Islam. Buddhism says that you got to understand the what what creates suffering and aim to mitigate suffering in the course of your life through your actions which is I I find remarkable. Sufiism Janism they’re completely different from each other. So there’s no one way in perfect way to say this is how I’m going to invest. But your approach I love the individual. He’s incredibly smart. I think he’ll do very well. I’ll buy his company. For me, that doesn’t work. But for you, it may well be a very good method of working. Now, let’s deal with the consequences of what you just said because that’s very important. It’s not how you invest alone. [snorts] When you say that this is how I’m going to invest, you have to set up a bunch of criteria or your method has to have measured has to have milestones because you are what you measure, right? If you have no way of knowing where you’re headed, you don’t know where the destination is. So you you are what you measure. Now it’s very interesting if you had that kind of mindset. You spoke about the you know 35% drop draw down and all of that. My question is if you buy saying yes Mr. Kotak is a wonderful banker I’ll I I have great faith in him. I think he’s going to lead us to the promised land. Now what are the metrics by by which you’re going to measure that because that’s what gets you into trouble. a lack of understanding of what you’re doing and any method works only if you have in place whatever your metrics are to say yes I’m still on track like George Soros he’s the ultimate trader so George Soros busted the bank of England because he said the Deutsche Bank will not permit the British bank the British central bank the Bank of England to remain in the European exchange rate mechanism. Yeah. Right. So once that he understood that he said I’m going to short the pound and it took a big bet. All these are important elements of investing position sizing the hypothesis testing the hypothesis against events and so on. But the day that the British pound was ejected from the erm, George Soros stopped his bet. He sold squared up, finished. He made 10 million $10 billion or $1 billion, I forget. I think a billion dollars, sorry, a billion. He made a billion dollars and stopped. And that emphasizes my point on selling. He knew what he was doing. He had a hypothesis. It was event driven. He measured. He had timelines on the event playing out because he had done it on leverage. Yeah. So he was paying the bank interest as he waited to make this unfold. The day it played out, the day he made his money, he knew when to sell. So the important part is aligning how you invest, how you want to invest to a set of methods that allow you to remain in control of what you think matters. So what you’re emphasizing is that you have a very high constant vigil on on every metrices on a very periodic way. You can’t just leave it to the managers to you certainly can’t. You need to have it. Yeah. Like I’m a very proic kind of investor. I mean when I meet many of you who are some of you are meaningfully younger than me. [snorts] I’m often I often marvel at the complexity and the depth at the level at which you invest. But you know what always makes me feel good at the end. At least I feel that I can still continue because I don’t think many of you given the complex methods that you have have put in place a way to ensure that those methods are being constantly monitored and measured so that you know what your final outcome is going to be. They’re there very often because you love the complexity. You think that the more complex your method the better your results. I’m sorry I don’t think it works that way. Yeah. So you you emphasized on two very important thing. The one is the role of luck in the investing huge and second also that you need to but those who are lucky in investing put your hands up. I’m right there. I think this is a gratitude for for for everything what I’ve done sir. And also second thing what you have emphasized is also on uh being a generalist not a specialist. I think I would just with your consent rephrase that a little. Yes. You don’t have to know too much. Yeah. But what you know, yeah, you have to know bloody well. Which is a there there can be no compromise which is a specialist job. It is. You may be a specialist in a very narrow thing. Yes. Yeah. But if you are a specialist, you better damn well make sure that you’re the best specialist in town. If you have lofty investment ambitions, make sure that you really are good at understanding what you’re focused on. There cannot be compromises on that. So, one of the things I used to say was I think I love businesses like a credit rating agency partly because I worked in one in two of them for six and a half years. But what does the asset test again let me come back to this understanding what you own. So if someone told me Sanjjoy not that anyone would in their sane minds ever do such a thing but if someone said to me Sanjay go and run Crystal for two years then the thing that you would measure is how well Crystal did in that period what are the milestones they achieved both financial and non-financial business metrics financial metrics and to do well in that regard to run a business you have to know the business but I can’t run too many other businesses because I don’t understand them as well as I do this one. Got it. So, I’m very happy. I strangely I’ve never owned cry in my entire life. I wish I had. In fact, I was the guy who designed their stock option plan in 1990 way back and it’s an irony that I never bought the share. Same with HDFC mutual fund. I mean, I designed the stock option plan initially in my first few years. Never owned a share. I I’ve said that mistake right now. I do own HDFC AMC as we speak today [snorts] and I own the company which Andrew works for. I own Nepon AMC. Nepon AMC. I think they’re both outstanding businesses with very well chartered out direction and you know lots to do lot lot further to go. Uh but to come back to this, it doesn’t matter what your core investment beliefs are as long as they are rational as long as they have a basis in your mind of what will produce good outcomes. The important thing is to remain in control to measure them to monitor them and to understand that when they go off track that you need to sell. So I I have a based on our conversation I have a two question nested into one that um the future lies in in bottom up approach of investing or top down and so is the case that when I look at the active versus passive both requires a different skill set all together very much there could be an investor who doesn’t want to do stock picking we have over over these we have just spoken so how to find a good stock how to find I I want to find a good industry buy those ETFs sit tight on it, make a lot of money and a bit. So, so where does the future lies you for for everyone who has been a Buffett fan for years and years, you applied all your energy in getting that bottom up one stock right and you would [clears throat] would miss the forest for the Woodso. So, where does the future lies? What does Buffett say about this? Well, he’s a purely bottomup guy. He says that 99% of the money I leave behind would go into the exchange ETFs or the index funds. You have your answer on the active versus passive debate. Yeah, you just don’t want to accept it. And I think that’s understandable. If you spend your whole life doing something and someone says do the other thing, it hurts you hugely. But the truth is that for 99% of us and myself included hugely in that camp, the sensible option is to look at lowcost investment vehicles which will track market returns. So there’s a friend of mine, he’s much smarter than me. We were together in IM. So he said, “But you’re a perpetual loser.” So I said, “A perpetual loser.” So he said, “I’ll track the market, but result can never be as good as the market. So you’re doomed to underperformance for your entire life at least which is a very befitting answer from the guys who are proponents of active management and I think there can be no decisive sort of winner in this argument but I think for the vast majority of us who don’t have the skill sets and capabilities to actually get into understanding businesses in the depth that we need to to come up with winning outcomes. More often than not, it takes a lot of effort. Investing is not easy money as many people tend to think. It’s really hard work. So Mr. Bachara, you are setting up a different standard altogether for the people who are many of them who are yet to make their career and marks in the life that they would be competing against the machines. they would be competing and the the the the the odds of successing in the active fund management as the passive grows in US 50% in India 13 to 14% much lower yeah but and maybe in five seven years we go to 50 so if you ask Andrew he’d have a different answer he think it’s going to get higher faster but that’s a different I I would also agree with that so so you mean to say the odds of succeeding as an active fund manager is going to go up substantially it’s already there in the US why has it gone to 50 in the us. You must ask yourself that it’s because the active fund managers have not been able to beat indices. Yeah. So if we are in if we are not in denial about reality then you begin to accept what to do next that throws up the answers. But this is not a value judgment on active investing. I think active investing has tremendous potential. And you were talking about investing against robots, right? So again I very recently I was reading about an article which said that you have what does automation do at one level. So automation allows tasks to be carried out in a certain way that lead to benefits of scale that leads to productivity efficiency and so on. And clearly automation requires that that the task that you’re automating can either be a task that requires high expertise or it requires very low expertise like inventory cls or accounting cls or something like that. Right? So if you let’s say the accounting cls are made redundant because now the robots can write those ledgers. They can fill in the opening inventory, closing inventory, purchases and so on. Then what are you doing? You’re removing the bottom end of the task. But the value of the guys who understand the top end of the task who have the expertise to deal with let’s say corporate finance and getting funding and doing loans for the company and structuring those loans in such a way that you or strategic value in those circumstances actually automation will have a very positive impact. Salaries will go up, wages will go up. There will be lesser opportunities because you’ll need greater expertise but the the the people who have that expertise will really thrive I suspect and let me tell you the other one when you have a AI or let’s say some form of automation taking away the really expert tasks and let’s say performing surgery Okay, that’s really complex and tough or doing some of the work that radiologists do. So you leave the radiologist only the administrative tasks many of the administrative task but the judgment on how to interpret the image is now done in a better way by an AI assisted machine or a object than you. Now there what happens their wages come down but employment expands because that work and that’s where Indian BO resides. Not that I’m trying to justify owning e- clerks actually I am but but it’s funny it’s a funny one. So depending on what domain you are serving, what industry you are serving and the characteristics of how that industry will be affected by AI, your futures will depend on that and would respond. Today the response of most people around the world seems to be one sizefits-all visav AI. One size does not fit all. That much is blindingly obvious. Sure. So you you In your professional career and even now uh you have you have gone through a chance of meeting not dozen maybe a many dozens of management. Yeah. And when you have a professional investor who get an opportunity sitting on on the table of of a mutual fund or any of the big institutions to meet those management versus someone sitting in Kolkata or the CFS society work who’s making and building up his career and may not get a chance to meet Mr. Naran Morti early in his life or so but look at it today’s context how important is to meet the management very important very important in my book given the type of investor I am yes that is rule number one I I I would never wish to own a business with you know great characteristics run by a pe bunch of people with mediocre integrity and a lack of respect for ethics never. And part of the reason I’ve done moderately well in my life is I have been unflinchingly true to that one rule. It’s not that I haven’t known. I have flirted very often with making small bets on companies run by people who are you know not not I’m not proud to mention their names but by and large I followed the Buffet rule. I have one daughter. Yeah I’m exaggerating it. I’m using the Buffet rule. Would I get my daughter married to the guy? if I wouldn’t don’t own his company. That’s an exaggeration. It makes a point very vividly. But the issue is at the end of the day, if you have a skill, if you have a crook who is intelligent and energetic, yeah, that’s the shest formula for disaster. He will finish you off. He’ll kill you. Whereas if you have an honest blundering idiot who is not very competent but who runs a great business, you’ll have no problems. I don’t want to. Oh, maybe I should. Well, I’m torn between my desire to help you guys understand this point and naming a company. But Gujarat N. That’s very different. That’s a flirtation. That’s not That’s not That’s very different. [snorts] Okay, I’ll I’ll name the company. You won’t know the period, so it’s still all right. Uh Hollix, it was called It was called something. It wasn’t called Hodix. The name of the company was Glacos Smithline Health, not healthcare. What? Consumer Glacumer. Correct. That’s what it was called. It was a wonderful company. They had one product. Bulk of the profits came from there. The CEO was a guy who wrote very proudly in that section 212 now that compensation thing remuneration thing. He said GCE O level. I went to meet that it had a Bengali finance director. So I asked him sir what innovations have you done in the last 10 15 years visav horics. He said you can have it with rum. It tastes wonderful. Amazing. So I said that’s really good. And I said, “Sir, can I meet the MD?” He said, “He’s gone to play golf at 12:00 in the afternoon.” The guy was a complete very nice human being. No goddamn interest in being in India. Probably a punishment posting for him. Good golfer. And I told when I came back to HDFC, I was in HDFC at the time. I said, “We got to own this business in a huge way because that gentleman will never get in the way of how good this business is. [laughter] The business will flourish. That gentleman will stay absolutely out of harm’s way. And these guys will never fix something that works. If their greatest innovation is mixing rum with coke, not with coke, with holics, you can be guaranteed that Hollix will continue to do bloody bloody well. So you know obviously I’m exaggerating to make the point but it’s very important to stick you can buy people of mediocre intelligence who are absolutely honest who run a business and won’t get in your way. I I must tell you about my my experience in this um whenever I have looked at company and over a period of time I’ve realized hard way is there are businesses which are run for employees there are businesses which are run for for shareholders HDFC is one which the business is run for the shareholders correct and that’s the reason they don’t own the real estate they would be an asset light and so and so forth or so and then with this mindset I you know initial part of my career I was lucky enough to I looked at one company called ILFS investment uh correct investment managers and that was the only listed private equity fund at that point of time correct and the India was growing and everything you will see good about uh India and the private equity business as soap but if you read the fine print the 80% of the profits was given back to the employees to the employees correct I also owned it Manisha I never owned it [laughter] I I was I owned it actually you owned it and then I realized that it is good to be the employee of the company not the shareholder of the company that’s so so every time now I wear this lens employ but it can’t be a shareholder of this company so you distinguish key shareholder there are companies which will run for the debt holders there will be someone correct so you have to circle around and say absolutely but the other thing with running companies where you don’t have management whom you you know when you go to when you put your head on the pillow at night and you don’t feel comfortable there’s another risk with them and what risk is that? What do you think I’m referring to? Any clue? No, I [snorts] can’t think what’s in their mind. So, the risk is when they allocate capital. Yes. When they have suppose the business is highly profitable, throwing off cash. Yes. In a big way. Yeah. The decisions that they will use, the metrics that they will use to determine how that capital gets used. Yeah. to grow the business in future those will be misaligned with the shareholders interests and a very large part of the Indian universe yes investment universe falls into this category growth for the sake of growth not for the sake of profitable growth there’s this man called Bruce Bruce Bruce Bruce it shows that I have approached my senelity Bruce Greenwald, thank God I didn’t make a fool of myself. Okay, so Bruce Greenwald wrote a book on this. He’s a professor at Columbia University and he came to India some years ago and he said that growth has value only if the incremental profitability of that growth is higher than what you can make right now. That’s right. But no one respects that notion in India. Yeah. Yeah, but the the problem is that you would get to know to that point only after 3 or 4 years when the capital investment has been done early often you know early on there’s history to guide universe data centers absolutely darling of the day of the day around the world what is The return on investment on data centers, the bestrun data centers in the world don’t give you even high singledigit return on capital. By their definition, they cannot because your output does not match the amount of capital and resources that you need to produce that output. The value add to that output doesn’t come from the data center. It comes from the guys who use the data centers. Analytics. Yeah, that’s right. But this is a new craze. We going to invest 10 billion. you invest in those companies that you’re in deep trouble four years down the line. You’re heading You’re heading for a deep trouble. Yeah. Four years down the line. Four year down the line. Yeah. But you still continue to invest. You have what I call the growth virus. Or maybe it suits the company which can borrow cheaply and still make a whack and a cost of capital and and and a return on capital employed maybe for 2%age point higher than that may not be. Yeah. But for Reliance Industries to every rupee absolutely is ally. If you can find someone who makes a 7% spread on cost of capital, why would you buy the guy who buys a 2% spread on return on capital and you know it and Reliance Industries could have a problem of plenty, I may not have a problem of you do not. That’s absolutely right. Absolutely. So uh Mr. Tachara, one thing I always wanted to ask you was um which profession all my mistakes I can tell. No no no no no. Maybe from your wisdom on many other occasions, many other ways uh which I also as a professional manager go go through is you have a three test of fire which a professional manager or maybe as an individual investor also goes through is one the first one is um stock selection which you spoke about on length and breadth and everything. Second thing is a sector selection and the third one is a market cycle selection. And I’m very I’m I’m very out of sync with a lot of the younger generation here because uh the the investment wisdom now that I get from the true greats the masters is that it is the amount of time spent in the market [laughter] not the timing of the market. And I’m one of the few remaining fddy duddies who willing to challenge that belief. I’ll tell you why. Let me just finish on this one and then Yeah. No, absolutely. Go ahead. So, you know, I I think first of all, there’s a lot of intellectual lack of intellectual integrity in what all these guys say. It is all about the amount of time you spend in the market. When I was out, so my results crash. So, I look like an idiot. better you remove the worst performing 10% of the days or suppose I was out of the market then results you only knock off one part of the curve absolutely and then you come to this conclusion so are you trying to make a monkey of me or of yourself is my question to you I accept that timing the market is incredibly ly difficult. I’m not fighting with that idea. Yes. What I’m saying is this kind of wisdom which is propagated nowadays is to my mind hypocrisy. So you what you’re saying is that you have to be in the market. You can’t be out of the market. An effort to understand context. A lot of investing is about understanding context. Let me give you for better or worse my jihhati con idea of where we stand today. Not that many will be interested in it and I’m actually quite happy with that. Today is not a time to be active. Today actually activity someone said it in their opening remarks that activity is not what brings you returns in the market. But today particularly the at the juncture at which we are is not a time to be going out you know hunting for your next skill. More likely you will wind up being the prey. Today is a time to sit back and soak up and try to expand your circle of competence for the simple reason and dare I say this in India. You know economic growth and GDP growth has an R square a correlation coefficient of close to zero with the investment returns over any extended time period. I don’t know why people keep on saying this ridiculous phrase India growth story. It’s like waving a red flag in front of me because the evidence is completely against it. China from 1991 to 2010 20 years 19 years they grew at a fantastic rate consistently. stock market returns were less than I mean low single digit even till 2023 recently yeah a decade zero yeah but China has been the ultimate growth engine of the world absolutely so bloody what it’s the same story the Bruce Greenwald story the growth needs to be profitable for economies for businesses for sectors okay but let’s come back to your question so the stock selection sector selection yeah that’s so but but A very important point you made uh here is that do do you think so in in from bottom of your heart that the incremental return what the economy has generated between 2014 to 2024 or so 25 6 20 maybe I I’m I’m looking at a 24 election election and the energy of the of the of this of the CEO of this country I’m just looking at the CEO of the country and do do you show that we are past are significant incremental return capital employed or best is yet to come and what are the what what what gives you that confidence what gives this confidence to all these guys to toil again for next 20 years and says okay I can be the next they enjoy doing they should do it regardless is my suggestion my honest suggestion to all of them it has nothing to do whether incremental ROC improves or our country becomes the greatest country on the planet or not if you love something if you’re passionate about something do it I I I to the best of your ability I I maybe after 25 30 years I would defer differ with you just take a chance to differ with you if I’m sitting in that crowd and if I think that the incremental return of this country is going down and I should then I would change I will make all the attempts to change my skill set no money just give me a minute just 30 second more what I would do I would apply all my energy on understanding international investing $30 billion of capital has gone out of India that capital has made money in Spain financials that capital has made in Argentinian financials that capital has made in some Thailand Korea wherever yeah Korea is up 75% or so it’s not that somehat I can see in morning and says okay dollar denominated capital okay there’s a skill set change so is is is that best the active fund management is getting challenged a by side my skill set has to go and I have a limited time everyone has a limited time on the planet. Correct. Correct. Correct. So what what what I would do where I will change my skill set. Two very simple comments. Is is my relevant question relevant? It’s a very good question and it’s a question I love answering because I think of it as a half poly on Lexump. You know what that is in cricket? No. An opportunity to hit a six. I get it very rarely. Most guys are much less kind to me than you are. [laughter] And for that I’m grateful. My my gratitude goes out to you. I have to go single piece to Bombay also. Sanjay, [laughter] no you’re you’re an And I don’t say this to flatter you. I think what you have achieved in setting up your business and the results you have delivered are testimony to your ability. I don’t need to [clears throat] say it others will say it. So that’s irrelevant but I like half on leg. Okay let’s come back to that. So the first question is and this is a very again you you you you have this habit of bringing up issues which are truly truly fundamental to investing the future is unknown but none of us knows the future is what Mark said prepare but don’t predict what is he saying he’s saying in effect that don’t worry about trying to guess where you are about where you’re going to be none of No, even old man Buffett can’t predict the future. No one can ever predict the future with any degree of utility. So give up that task. What has happened in Argentina or Spain or Brazil or is irrelevant. It is history. It is an opportunity to learn. It is an opportunity to think about macro variables, right? But it does not tell you what the future holds. Second, and this shows that now I’ve become really old and I think this will be my last invitation to the CFA society, but I’m going to risk it. I’m going to say it. If you are investing exclusively for the returns, you’ve got a problem. The problem is known, I’ll spell it out for you. G R E D. Greed. just suffering from that acutely. If that’s your solitary objective in life to become a full-time professional highquality investor and the only metric you use to measure success is your outcome. You’re in deep brother. Deep deep The aim actually of all of us who are serious and I’m just as serious as you. I may not be as skilled as you, but I’m just as serious as you. The aim is to every day to improve our capabilities. To wake up in the morning and say, “Yeah, why am I so happy today? I’ve learned something that I didn’t know yesterday. I’m moving ahead. I’m moving forward.” That’s the real joy of investing. The money is just a way of keeping score. And as all my friends tell me in the building where I live, we haven’t found a way to send it [laughter] [laughter] But the point is this, money is just a way of keeping score. And I can truly add to to to what Sanjay is saying is that Sanjay Patachara lives in Berley and he he very easily can cross that road to Bumond uh place and he never and he still remain truly to a Buffett style in very modest house with a one room of his reading room which I visited and had a good personal visiting one. So really really so so you really want but forget I think the question is all of us [snorts] must aspire to this idea that we’re going to learn that learning will build character that learning will instill values and that’s the endgame. So the day you go hopefully you’ll make an impact. You’ll leave a better person and those around you will be better people. Can I adjust this? Sorry. Those around you will be better people. That’s the aim of this investment community. Not only to enrich yourself but to enrich all those around you. Yeah. As I said in the beginning, Mr. is very generous with uh everyone I was who benefited. Not at all your wisdom. It’s just that I’m very blunt and outspoken. Yeah. But then bluntness is required because that’s why I said this is my last session of masters at work. I’m not going to come back here. No. No. Many many many more in around India and anywhere part of the world. So Mr. So would you pay any kind of attention to the political transition possibly can happen and would you and this was this would scare you or make you more confident or how would you place yourself in what all is going on the political transition which is very important from the future equity or asset classes returns in India. So one thing I we’ve got to recognize is going forward we can’t just be single asset class investors. We’ve got to widen you know and look at a broader set of opportunities. Second, I think there’s this famous Belgian painter called Renee McGreet. He said something very profound which applies to your question. The more things change, the more they remain the same. And that’s absolutely true of the question you asked. So there is this massive threat that someone may go and invade some other country that we have you know this geopolitical flux and that causes a huge amount of nervousness and anxiety and markets sort of overreact to it and all of that. By the end of the day, depending on your time horizon and your inner temperament to handle what you call draw downs or volatility or whatever you want to call it, whatever phrase you want to use, that’s opportunity. And you won’t get those opportunities often. You know, I’ve been privileged. I was there in 1992. I was there in 2000. I was there in 20078. I was there in 20. Yeah. The bulk of the money you make, if you look at a lifetime, I’ve now been in this racket for 42 years. Yeah. The bulk of the money you make in your life will be at turning points. It’ll not be what you do every day of your life. One stock in my portfolio has accounted for 36% of my total returns throughout my life. Infosys which I held for 17 + 5 for 22 years. 22 years. Yeah. Two 1995 to 2017. And you didn’t sold on the top of I did. I did. I sold peanuts. I mean here there. Yeah. But bulk of it was remaining. I’d say 90% of it was with me for the 22 years. And this was this was after having a 70 80% draw down. 1999 the market cap came back again in 97 99 2007 or 2008. Yeah. Yeah. And it didn’t it didn’t perturb you. It didn’t give you a because for me it’s not about how much money I’m worth in emphasis. It was my ability to sleep well. So this is exactly you have positioned yourself at what Krishna said to Arjuna dispassionately go beyond money but we we we are here to get that one [laughter] I I but I I I don’t I don’t say this in a pretentious manner. I think the joy of investing is the joy of becoming a better person. And you said that you have to be dispassionate about money. Absolutely. money is just and I I I actually feel nervous nowadays when I see young people taking loans to buy BMWs. That is such a bad sign or the way people buy art in India. They’re not bothered about what the guys painted. They bothered about the signature. I mean, if I removed that signature, they wouldn’t pay 100 the price. I don’t want to mention an artist who is very very legendary. I once told my wife who’s sitting here that if we gave my daughter some toothpaste and a brush and a canvas and she knows geometric shapes and we allowed her to run right on the canvas, we’d have a masterpiece worth crores. Of course, my wife being my wife said, “Why are you bothered where it’s whether it’s worth crores or not worth crores? Do we want to look at that every day?” And so I said, “You’re right. We will not let my daughter paint on this canvas with the toothpaste.” This reminds me an very important observation uh which uh uh a legendary uh gentleman like Mr. Rod Kotak made on two or three occasions and I think he was alluding to something very important that the second generation is more interested in family offices less on running a business and I was thinking that why he said so and he he he he rhymed it on a two or three occasion and uh uh and so I I’m just wondering that yeah so I’m sure that the India needs uh less it resonates with me that idea resonates with me. Yeah. Yeah. Yeah. Yeah. It’s about being the best possible person you can be. It’s not about and I repeat this endlessly and I I must sound like a broken record. The net worth metric, the percentage returns metric, the risk adjusted return, no one looks at in India tragically, but you should. But all those metrics suggest, you know, on National Highway 8, the markers, but they’re not the destination. I must I must add this to what Sanjay is saying about a book which I was reading current I’m reading currently is about uh the billionaire who wasn’t absolutely what a fabulous book what a fabulous book I I must tell to audience also if you get a chance to lay your hands on is by a gentleman called Chuck Feny who by today’s net worth donated $86 billion and all anomously and uh and he went down to the history uh to to give the largest checks in He in the in his living time in his in his uh in his lifetime and he died. He actually died almost bankrupt. Yeah. In a one single room apartment in San Francisco. Correct. And uh he sold his company to LVMH. And and there’s a follow-up to that book called Die with Zero. Oh, is it so? Okay. Okay. And that’s another guy. But he he he inspired everyone around from including Mr. Warren Buffett to give back uh in their lifetime. So what you said I think is very philosophically in direction to how do you become a better person in life. Uh you thank you Sanjay it’s it’s all I owe you I owe you and all of you [laughter] such a delight can we do one thing if if there’s still five seven minutes can we have questions from the audience if anyone received here on so I just try to submit everything but if there anything which is left and maybe two questions we can take any gentlemen who want to please please identify yourself and very in a very brief what you want to ask through Sanjay no googies no yorkers Yeah, everything else is allowed. Um, good morning sir. I’m Jay. Yeah, right in front of you. I’m 21 and uh I don’t know a lot while going deeper into management. So that’s what my question goes to. What’s a better indicator for a good investment? Is it a management that focuses on customers or shareholders? Oh, any day. I think you can’t do with one or the other. You need both. In fact, good businesses have multiple audiences. So they this is the challenge of running a high-quality business. You have regulators, you have employees, you have customers, you have shareholders, you have suppliers. If I may sum it up very quickly. And you can’t succeed one at the expense of the other. If you don’t have happy customers, if you don’t have, you know, suppliers who want to do business with you, if you don’t have a regulator who has trust in you, you’re not going to take the business forward. They they all are nested together. Yeah. Absolutely. I don’t know if I’ve made sense to you. Yeah. And I can add that uh in any business, you are as strong as your weakest link. That’s right. So, 100% right. I But I don’t know whether I have managed to relate to what you asked me. I I hope I have. you did. I can give you an example of a company incidentally which I think has done a fabulous job of achieving it and I I was blessed and fortunate to own it for a period of time. It’s called Marico. Mr. Mariala Hush Marala I think did a remarkable job in this regard. So that that that’s an illustration which I hope answers your question. Any last question here? Yeah. My name is So I just wanted to ask you sounded uh quite bullish on it as compared to others and you said you made 36% of your net worth in Infosys. So how did you apply your selling framework and why did you actually sell in 17? Why you I wasn’t that smart. I wasn’t that smart. You see I also all these things are the benefit of hindsight. Chalukia. So I thought that I when I bought India I knew when I’m going to sell it. So so let’s I don’t want to dramatize my own valor. So what what has been said over these course of our last 1 hour is that everyone learns through the journey. So Sanjay also has and that’s not the wisdom of I’m still learning. Yeah. Yeah. Every one of us. So it’s a it’s a part of learning that I wish I would have sold but I kept the faith and that that got rewarded over a period of time that doesn’t mean that I wish have not not sold. Okay. Let me let me answer your question more bluntly because the one thing I’m famous for is being blunt. So let me not go away from my strength. So [laughter] you’re right that’s that’s part of the plot. So in 2000 if I had sold in fee bought in December 94 sold in March 2000 suppose I had sold my infeeds of that sale in March 2000 into a fixed deposit at the post office for 15 years my end result in 2017 in 2015 would have been better than what I actually achieved. It tells you something about the maths of compounding, a 70% draw down and a bunch of other things. Lack of volatility, preservation of capital, huge number of lessons in this one. And don’t get me wrong, I I think this is the trouble with being straight or talking in a you know uh because obviously there is a context today where makes people think differently. I’m not bullish on it. First of all, I’m never bullish on sectors on economies. I am bullish on where I think the opportunity is shifting where one set of like I like for me what AI will do to create more opportunities. Actually, if you think about automation more rationally, what is automation? It’s a redistribution of opportunity. That’s really what it is. So I’m very upbeat on how the opportunities will be redistributed. So a large number of companies will tend to benefit from that redistribution and I gave the example of how wages and employment move as you remove tasks due to automation. So I don’t know whether that made sense to you immediately. You mean to say it’s not a battle of labor versus capital any? Not at all. Not at all. It is labor with capital. Both will survive. both will do well. It’s a question of who will do what. So fear sells well and that’s the reason I think absolutely and most of us have not focused enough on building temperament rather than on building technique. Today we have some investors with incredibly good technique. I had never seen a 60page Excel model on a company in my life till about 3 years ago. 60 page. Yeah. because he had modeled in everything that that company had done in the last 10 years. There’s nothing left to model. Even the company wouldn’t have known many of the things this guy knew. But what did I tell myself? And that’s when I came back to my savior at all times, Guru Buffett. The guy doesn’t have a threeline model. What is worth knowing? He knows in his head. He puts on the computer much like me to play bridge. That’s the only thing I can think in common with Buffett. Both of us use the computer very valuable resource to play bridge. I I had a good fortune of meeting my hero Amir Khan once and I asked him that how do you do it? You are so different and and he mentioned to me Peter Lynch put this differently. Peter Lynn said, “If you can’t explain a business to your grandmother on a single page with a cartoon, then that business isn’t worth understanding. It’s too complex. Leave it alone.” Same story. Thank you. Thanks a lot. Uh yeah, thank you. Maybe we’ll take it offline, but uh thank you Sanjay for Not at all. Thank you, Manish. No, that’s my pleasure for on on it’s a lot of heartfelt gratitude from all of people who have come here and including myself for you to it was a pleasure to have this energy to give back to this uh and been so generous with your time in each and every master class and many more don’t say it’s last exciting it’s it’s a series a dozen of more this is the Hindi movie line [laughter] thank you thanks a lot opening right honestly speaking I can tell you that I was so could I just have you over here for a couple of minutes? I was waiting session. So to please present a momento to Sanjay sir. Can I call upon Ashini Damani and to Manish sir Nipun Kimka. [applause]