In this edition of LEARNING OF THE WEEK, we will cover the investment philosophy of Mr. Siddhartha Bhaiya.
“I am a firm believer of ‘in the long run, its the reversion to the mean’.” – Mr. Siddhartha Bhaiya (Founder, MD, & CIO of Aequitas Investment Consultancy)
If you combine the philosophy of buying undervalued stocks with a focus on companies that have strong growth potential and apply this strategy consistently over the long term, you could achieve extraordinary results. This approach has helped Mr. Siddhartha Bhaiya, deliver a remarkable 34% CAGR over 11 years, translating into 28x returns. However, achieving such results requires discipline, patience, and the ability to stick to your convictions even during periods of underperformance.
Mr. Siddhartha’s success stems from his contrarian investment style, which emphasizes protecting downside risks while seeking high returns. For instance, during the market rally of late 2023 and early 2024, when small- and mid-cap stocks were surging, Mr. Siddhartha identified these valuations as unsustainable. By April 2024, his firm, Aequitas Investment Consultancy, had stopped accepting new investments and began increasing its cash position. By December 2024, over 85% of the portfolio was in cash or equivalents, with only 14% in equities. This proactive shift protected his portfolio from the significant losses experienced during the subsequent market correction.
So, here are 7 key learnings from Mr. Siddhartha Bhaiya.
1. Three Pillars to Identify Multi-baggers:
Value – The most important tenet of investing is value. Buy businesses at a significant discount to its intrinsic value. If you build a portfolio of value stocks that are spread across the sectors, then there is a very low probability that in the long run, you don’t make money in the stock market.
Future Growth – The second pillar is the growth. Here, future growth is more important as historical growth is already priced in and has no relevance. Future growth is important and it gets rewarded. As earnings grow, the P/E multiple expands. Multi-baggers are a combination of earnings growth and P/E expansion.
Contrarian Approach – Don’t invest in a hot stock. Buy something that is out of favour. However, a contrarian approach doesn’t mean doing the opposite of others. It means doing things differently from others.
A combination of these three will help you find multi-baggers.
2. How an Industry Cycle Functions:
An industry cycle starts with a genuine need. There is a genuine vacuum and the companies there start doing well. Over a period of time as the companies start doing well, the stocks start doing well and people get attracted to it. Then newer competition comes in. Then, at the peak, the industry margins are so high that everybody wants to get into that business. That’s when you have excess capacity and an industry reaches its peak.
3. Identifying Sectoral Peak:
When the most inefficient player starts making money that means the sector has peaked out. When the most efficient player starts losing money, that means the sector has bottomed out.
4. Exit Point in Mid & Small Cap:
You exit a stock when:
a. You don’t find value anymore.
b. When the stock is becoming extremely popular.
5. Recent Bull Market in India:
“A lot of money has come to the stock market in the last 6-7 years which have not seen a bear market. The kind of P/E multiples that I see in India right now, I have never seen anything like that in history, neither in India nor anywhere else in the world for such a prolonged period. Stocks are quoting at 50-60-70x multiple for a sustained period of 2-3 years. I don’t think these valuations are sustainable.”
6. Rationale behind moving to 25% in cash:
“It’s the madness of the crowd. IPOs, QIPs, the amount of money promoters are raising where funds raised are higher than what they have earned in the last 10-15 years from (business) operations. Our PMS should be able to perform well with the 75% portfolio invested in this environment and if there is a correction, we have enough dry powder to take advantage of it.”
7. Following Promoters:
“An exercise followed at Aequitas: Do as the promoters do. If there is a buyback or if the insiders are buying, then buy the stock. If the promoters are doing QIP, OFS, or IPO, sell the stocks first and ask questions later. The only reason why a promoter will sell their stock is if they are getting good value for it. No one will sell it at a cheap price.”
Mr. Siddhartha’s work highlights an important truth: the actions you take may make you unpopular in the short term, but if you’ve done your research and have strong conviction, you will be rewarded in the long run.
MEME OF THE WEEK
