There is a strict set of principles that I follow while making my own investment decisions and while building portfolios for my subscribers. These principles are the result of extensive research and experience and these are the main ground-rules that are followed by the best investors in the world like Warren Buffet, Charlie Munger, George Soros, Peter Lynch etc. I make sure I adhere to these principles at all times without making any exceptions. The focal points of my investment philosophy are enumerated below with a view to enlighten my current and potential subscribers.

1. I Believe in Long-term Approach

Have a look at the table below:

Company1st March 20131st March 20185 year % growth
Avanti Feeds7.87810.4010197.33
Thirumalai Chemicals99.951993.651894.65
Can Fin Homes27.59537.401847.81
Ceat93.251578.051592.28
Hester Bio115.001699.251377.61
Motilal Oswal84.051154.001272.99
OCL India147.901276.70763.22
Ajanta Pharma164.801398.05748.33
Vinati Organics104.60818.95682.93
Heritage Foods106.43686.40544.93

This is what I aim for – multiple times returns. Imagine if you had invested Rs. 100,000 in Avanti Feeds on 1st March 2013, it would have turned into Rs. 1.03 crores as on 1st March 2018. I aim to make my subscribers rich and not their brokers. Brokers earn their bread by making their clients enter multiple trades through which the former earns brokerage. They provide ‘tips’ to their clients and lure them into intraday and short-term trades, which results in losses most of the time. Predicting the price movements of a stock for the next hour, day or week is as much possible as predicting someone’s horoscope for a particular day. It may work a few times, but the chances of them working consistently are slim (and this is the reason over 90% of investors lose money in stock markets).

I do not treat stock markets as a casino, where you might win a few bets but may lose everything in a single bet. Instead, I believe in INVESTING (as opposed to Trading) in QUALITY COMPANIES (as opposed to Stocks) which will undoubtedly result in wealth creation for the investors. Now, this takes time and patience and instant gratification does not happen. The thrill of intraday trading would be missing. The prices can even move in the opposite direction once we buy the stocks. But this is the way real wealth is created. Warren Buffet’s partner Charlie Munger once said, “The big money is not in the buying and the selling…but in the waiting”. The famous investor George Soros said, “If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.” This is the reason why not one of the greatest and richest investors have been day-traders – not one – be it Benjamin Graham, Warren Buffet, Charlie Munger, George Soros or Peter Lynch.

So I don’t worry about short-term price fluctuations. Instead, I find great companies which are expected to do exceptionally well in the coming years and advise my clients to invest in them. Also, I believe in holding these stocks for a considerably long period of time, ideally for several years (if the fundamentals remain intact). Finding a gem and holding it till it shines is the way to create wealth in stock markets – not to buy and sell stocks for trivial gains.

2. I Believe in Deep Research

I believe that the stock price of a company is the by-product of the performance of that company. This seems obvious of course. But how many investors/traders consider this fact? Sadly, very few. Most of them hear some flashy news on television or read something about a company in the newspaper or on the internet and decide to invest in it, without doing any further research. Even worse, many investors rely on ‘tips’ to invest their hard-earned money. Lack of proper research is the primary reason why most investors lose money in stock markets, even when the markets give exceptional returns. I am obsessed with protecting the capital. So, I make sure I study each and every aspect of a particular company before putting in my own money or advising my subscribers to put their money into it. I study the financials, do industry research, do management analysis, research about the products of the company, study its valuations, analyze various ratios, analyze its competitive advantages and disadvantages and do a lot of due diligence and only after satisfying myself in all respects consider investing in a particular company.

3. I Believe in Portfolios

Portfolio of great, undervalued companies is what I believe protects an investor’s capital and helps in managing risks. I build portfolios comprising of companies from different industries so that even if a particular industry or company does not perform as per expectations, another company in the portfolio can give spectacular returns and thus optimize the overall risk and returns for an investor. Individual companies, no matter how much one believes in its story, always carry some amount of inherent risk. A well researched and diversified portfolio comprising of 12 to 25 companies (depending on the size of the portfolio) is the only way to manage this risk and maximize the chances of exceptional returns. This is the kind of portfolio I focus on building for my subscribers.

4. I Believe in Fundamental Analysis

I am a Fundamental Analyst and invest on the basis of a company’s fundamentals. I don’t rely on charts that claim to measure the emotions of investors and price trends. Technical Analysis is for short-term traders who are not concerned about what the company sells, how it operates and what are its future prospects. It simply aims at predicting the next movement in the price of a company. Although technical analysis may work sometimes, it is not the ideal way to invest in stock markets. A much more reliable method is to study a company’s fundamentals and then make investment decisions. This helps in managing risks as we know the exact reason why we own a particular stock. No well-known investor uses technical analysis as they know that it can help to make small profits every now and then, but cannot make one rich. Technical Analysis is just a way to make your brokers richer, and not you. In the end, it is the earnings of a company which decides its share price, not its charts.

5. I Believe in Value Investing

Investment guru Benjamin Graham said, “If you are shopping for common stocks, choose them the way you would buy groceries, not the way you would buy perfume.” What he meant was one should never overpay for a stock. In other words, a stock of is not worth buying at all prices. There is a maximum price that an investor should pay to buy a stock of a particular company. This price is called the Fair Value. The job of an investor is to buy a stock which is trading at a price which is well below its fair value and sell it when it starts trading at its fair value. That is all one has to do to become successful as an investor. Now, ‘fair value’ is not easy to calculate and a lot of experience, research and analysis go into its calculation. And that is where an investment adviser or research analyst is needed.

6. I Believe in Mid-Caps and Small-Caps

I aim to find HIDDEN GEMS. Mid-caps and Small-caps are where the most money is made in the stock markets. Yet there are many investors who just want to have blue-chips in their portfolios – stocks like HDFC Bank, ONGC, SBI, Reliance, Tata Motors. Investors have faith in these companies and their reputation and that is what encourages them to buy their stocks. But it is a fact that the stocks of most of such large-cap companies are already trading at or above their fair values. This makes it very difficult for an investor to make any substantial gains by buying these stocks at such high prices. But some opportunities always exist in the mid and small-cap segments. New companies get listed which nobody cares about from an investment perspective. They are out-of-favor and hence trade much below their fair prices. But when they do well, they attract attention. Their prices thus start increasing and in a few years time, it reaches the fair price which is often several times the prices the investor initially paid for them. And this is what I focus on – finding the mid and small-cap companies that can give us returns several times their current prices. One should note that although my primary focus is on mid-caps and small-caps I always consider including a few large-cap stocks into my (and my subscribers’) portfolio to guard the portfolio against sudden downfalls.

7. I Believe in Equity

Equity is where one should be putting his/her money if one expects to earn exceptional returns (like the ones in the table above). Please note that the above table consists of just a few of the stocks that have given such unbelievable returns. There are hundreds of such examples which can prove that there is no investment option that can match equity. (Of course, not all stocks give positive returns. But that is where the research saves us.) Mutual Funds have never given such exceptional returns and I don’t expect them to do that in the future either. The main reason for this is that Mutual Funds have a lot of regulations to follow, which do not allow them to invest in stocks which are not in the limelight today. Real Estate has taken a beating in the last few years as well. Moreover, real estate is not nearly as liquid and affordable as equity. The other options like forex, commodities, and cryptocurrency are mostly meant for speculation and hedging and are not really great investment options. They are very risky as well and are not ideal for retail investors as such. Fixed income instruments like Fixed Deposits carry the least risk, but their returns could hardly cover inflation. Equity is the clearly the best choice we have to build long-term wealth.

I hope you have got an idea of what and how I think when it comes to equity investing. My philosophy in mutual fund investing is also based on the same lines as described above. These points are at the core of my own as well as my subscribers’ success as investors, and I strive and resolve to adhere to these ground-rules at all times.

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