Back in 2018, In my very first professional role, I had the opportunity to meet Mr. Vijay Kedia. He had visited the office to meet my boss and I got the chance to sit down & interact with him.
It was a surreal experience given that it was just few months of me taking up my first job in the markets and I was interacting with one of the most renowned investors in India.
During our interaction, Mr. Kedia gave two very important investing advice which at that time I could not grasp the importance of, given that I was too naïve at that time when it came to markets & investing.
But over these years, when I look back I realize how important those two lessons were-
The very first lesson came from my very first question to him on how he finds these multibagger stocks? His answer to this was something most people do not talk about when it comes to stock screening/discovery; he said “HE OBSERVES”
I vaguely remember he telling me that his investment in Atul Auto (his biggest winner) was an outcome of he observing the company & its promoters for ~10-years before investing.
At that time, I could not grasp anything what he said, because every newbie in the markets (like me at that time) is full of bookish & most commonly talked practices; which in this case would be running a screen on screener or looking for stocks at 52 weeks high or lows.
But over these years, I have realized the wisdom in this lesson he gave me. I have realized that stock discovery is most unstructured process, wherein one has to use & combine many different ways and turn as many ideas as possible to get some promising ideas for research (with some pinch of luck).
And observation as a screening tool is the most useful one in this process. I have shared my thoughts on using observation as a stock discovery tool in one of my recent tweets and in a recent podcast-
Podcast- watch from 9:55 mins onwards
The second lesson he gave me was in context of me asking him about his investment in Vaibhav Global. Vaibhav at that time has just recovered from the setback of promoter’s arrest in some customs case. Most of the known investors like Professor Sanjay Bakshi had exited the stock during that period, while Mr. Vijay Kedia had bought his position during that period. And I asked him why he bought into such a stock with such issues.
His answer to this was that when he invests, he is investing with a view to not get a double or triple, he wants 10-20-30-50x returns. And this kind of returns are extremely difficult purely based on earnings growth and thus re-rating potential is very important for him. And one of the ways to get this re-rating potential is to buy a stock when it is into distress due to some reason or the other.
His recent re-entry in Auto Auto after selling his majority stake in late 2014 is another testament of the same. Auto Auto has been facing business challenges over last many years and the stock is now down by 2/3rds from its highs in 2014-2015.
I think every investor who has had multi-baggers would agree that, most of them are a result of a combination of earnings growth + re-rating; rarely is it that one gets 5-10x growth in earnings.
Both these investment learnings are something that he readily gave me, but to truly realize the wisdom in them took me years of own investing experience in the markets.
And herein lies another important lesson that, no matter how much we read or hear about something, true learnings always come from practical experiences.
That’s it for this week, new insight coming up next week. So stayed tuned!
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Atul Auto- No Investment. Not Traded in last 30 days. Not an active recommendation in Research Service.