The One Percent Almanack

Wit and Wisdom on Investing, Business, and Life

SuperInvestor: Philip Fisher

In the first part of this series to highlight the biggest ideas from the world’s best investors, I present the ideas from
the legendary Philip Fisher. If you want to become a successful investor, you cannot ignore what Fisher suggests.

If you are a Warren Buffett fan, chances are slim that you haven’t heard of Philip Fisher. He belongs to the league of those very few super investors who have shaped Buffett’s investing style.

In his 2013 letter to investors, Buffett rankedFisher’s book next to Ben Graham’s books –

 …Phil Fisher put it wonderfully 54 years ago in Chapter7 of his Common Stocks and Uncommon Profits, a book that ranks behind only The Intelligent Investor and the1940 edition of Security Analysis in the all-time-best list
for the serious investor.

Despite being considered as a super investor, Philip Fisher was little known to general public and rarely interviewed. He is widely respected and admired in the value investing circles all over the world. He is also known for his ‘scuttlebutt’ approach, which simply means seeking information from competitors, customers, and suppliers, all of whom have a vested interest in the company.

He wasn’t among those who made decisions just by reading annual reports. He believed in getting first hand information about the company from various sources.

 

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Benefits to VIA Members
 
  • Spotlight: Big ideas from Value Investing and why applying them in your investment decision making will be a great deal
  • InvestorInsights: Interviews with experienced value investors, learners, and deep thinkers
  • StockTalk: Thorough analysis of business models of companies (without any recommendations)
  • Behaviouronomics: Deep analysis of human behaviour and how it impacts investment decision making
  • BookWorm: Reviews of the best books on Value Investing and related subjects
  • Free Course – Financial Statement Analysis for Smart People (otherwise priced at Rs 5,900)
  • Archives: Instant access to our huge archive from the past three years
Become a VIA Member. Click to Subscribe

How to Get Smarter:A Guide to Reading for Investors

‘What to read’ is a key question a lot of investors ask, given that there’s so much to read and so little time (or so it seems). In this post, I try to answer the question in some way, and with a lot of help from Prof. Sanjay Bakshi.

I do not take a single newspaper, nor read one a month, and I feel myself infinitely the happier for it. The man who reads nothing at all is better informed than the man who reads nothing but newspapers.~ Thomas Jefferson

Long time readers of Safal Niveshak blog and attendees to my investing workshops know my dislike for reading newspapers. The dislike is so deep that I’ve not had a newspaper subscription at my home for the past six years now, and neither do I consume news via electronic media. This also holds true of business television which I watch very occasionally and only when I want to get a hearty laugh and there’s nothing else that’s as funny on television at that time.

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Want to Read More? This content is exclusive for members of Value Investing Almanack. Login to read if you are a member. Else, click here to subscribe.

Benefits to VIA Members
 
  • Spotlight: Big ideas from Value Investing and why applying them in your investment decision making will be a great deal
  • InvestorInsights: Interviews with experienced value investors, learners, and deep thinkers
  • StockTalk: Thorough analysis of business models of companies (without any recommendations)
  • Behaviouronomics: Deep analysis of human behaviour and how it impacts investment decision making
  • BookWorm: Reviews of the best books on Value Investing and related subjects
  • Free Course – Financial Statement Analysis for Smart People (otherwise priced at Rs 5,900)
  • Archives: Instant access to our huge archive from the past three years
Become a VIA Member. Click to Subscribe

Life 2.0: Staying Active

I acknowledge how clichéd the title sounds. I mean who doesn’t know that being active is a good thing? But when I heard the following five words, it got my attention immediately – “Sitting is the new smoking.”

Whosoever came up with this line, understood the power of inversion.

In last seven years, I have tried four different gyms, two swimming pool memberships and started preparing for numerous marathons. Every time the initial motivation lasted only for few weeks and then life (career, family, friends, IPL) got in the way.

I am sure many of you have had the same experience. You make a plan and commit yourself to it but soon life’s randomness and uncertainties throw you off. The randomness of life, its uncertainties – I call it “the chaos monkey”.

The gym operators understand this and you would be surprised to know that they plan their capacity taking this into account. So if the gym can accommodate 50 people at a time, they would actually sign up 100 people because they know that 50% of them will just give up after some time.

I soon realized that the solution wasn’t to reduce or control the randomness of life but to come up with a system which works in spite of the uncertainty of our environment and to certain extent thrives on that uncertainty – a true anti-fragile approach. If you aren’t familiar with the concept of anti-fragility, I would strongly recommend Nassim Taleb’s book Antifragile.
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Corporate Governance: How They Pay Themselves

The organizers of a tennis tournament needed money. They approached the CEO of a big company and asked him to sponsor the tournament.

“How much?” asked the CEO.

“One million,” said the organizer.

“That is too much money,” said the CEO.

“Not if you consider the fact that you personally can play one match, sit at the honorary stand next to a member of the presidential family and be the one that hands over the prize,” said the organizer.

“Where do I sign?” said the CEO.

That’s the power of incentives, you see. People do what they perceive as in their best interest and are biased by incentives.

Look at the brokerage business. Stock brokers have a strong incentive to get us to trade. They advise us what to buy and sell. Volume creates commissions. Investment bankers encourage overpriced acquisitions to generate fees. Investment bankers have every incentive to get initial public offerings (IPO) deals done, regardless of the company’s quality. Their compensation is tied to the revenues the deal brings in. Analysts are rewarded for helping sell the IPO. Brokers want to move the stock.

What did Groucho Marx say? “I made a killing on Wall Street a few years ago…I shot my broker.”

Similarly, in the medical field, some psychologists ensure themselves future income by telling their patients that another visit is required. And they don’t talk about the limits of their knowledge. Their careers are at stake. As American actor Walther Matthau said, “My doctor gave me six months to live. When I told him I couldn’t pay the bill, he gave me six more months.”
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InvestorInsights: Shyam Sekhar

Highly experienced investor Shyam Sekhar shares his invaluable insights on the process and philosophy of sensible, long-term investing.

Be brave. Take risks. Nothing can substitute experience.” The words of Paul Coelho aptly summaries the journey of Shyam Sekhar. Tossing up between studying economics and engineering, he reluctantly took on the second. After completing engineering, his earlier calling returned. The hunger and curiosity of economics and business took over. Hanging around with fellow investors who shared the same passion, he spent the next few years thinking economics and stocks every waking hour. Equity research in India was an evolving discipline in the early nineties and setting up a research desk was the logical next. But, what made it unique was that he never sold his research. Research was proprietary and used by a small group of investors with shared beliefs and values.

Being an independent thinker with set values and beliefs, Shyam took a conscious decision never to work in any company. Knowing that it made sense not to work in an environment where the values mismatched, he dreamt of building a clean consulting business in investment strategy on his own. But, the nineties were early days. That left him with investing as the only option. So building a proprietary portfolio was the way to go. Researching businesses, spotting opportunities and building portfolios was all he did for a decade.

The dream of building an investment strategy business got anchored in 2003. He started Smartvalue Equisearch private limited as an investment strategy firm. Over the next eight years, he built a professional research and strategy firm with domain expertise in equity research, investment strategy, fund research and investment analytics. The firm is poised to break new ground with ithought, its wealth management division that rolled in 2008 just when the markets bottomed. The dream of building an investor centric business of scale and substance is now playing out.

In this interview with Safal Niveshak, Shyam lays bare his investment philosophy and practices and his big learning and mistakes over the past two decades.

Safal Niveshak (SN): I’ll start with a very regular question about your background, how you got interested in investing and how you evolved over time as an investor.

Shyam Sekhar (SS): I am a graduate in chemical engineering. My family had a small business in chemicals. We used to make paints. We still make paints. After my graduation, I used to spend some time with my neighbour. He was a renowned chartered accountant, M. K. Sudarshan. He got me interested in the stock market. Those days, the stock market wasn’t like these days, when you get live quotes. None of this was there. Stock market was conducted in isolation, just like the courts function. Nobody knew what was happening inside. So at the end of the day’s trade at 3:15 PM, there would be a radio bulletin which gave you the closing prices of the day. That’s all you heard. And the next morning, you had to see the papers which would give you some marker rates. No averages, no volumes, nothing. It gave you a set of trade rates/quotes which would include the low the high and two more sample rates. We got only the rate of Chennai those days. Bombay rates would come one day later, when we went and bought a financial paper which was published out of Bombay. In 1990, Chennai didn’t have a business edition of any newspaper. So we would go and buy, because my neighbour (Mr. Sudarshan) was an avid investor, and everyday he would go and buy a Bombay edition of a paper. So we would board a bus and go to some part in the CBD where these papers would be sold by just one newspaper vendor. I would accompany him during these travels because it was my vacation and I had nothing to do. During these journeys I used to pick his brains about the working of the stock market.

Mr. Sudarshan was not only a Chartered Accountant but he also understood businesses very well. So his investing was based on the understanding of the future of businesses and how it would perform. And he was an avid investor who bought and never sold. This is a rare quality. The more I am in the market, the more I realise that the quality of an investor who buys and never sells is rarest of rare.

To me, at that time, it was very amusing that he never sold actually. And even to this day, when he is no more, most of his shares are still there. His family is still retaining those shares.

Anyways, he used to explain me what each business was and what it did. This created a lot of interest in me. I was reading lot of newspapers those days and that helped me become an avid reader from a very young age. Newspaper reading was one habit which I had acquired because of my interest in politics, and in the stock market.
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