In this edition of LEARNING OF THE WEEK, we will cover the investment philosophy of Mr. Rajashekar Iyer.
“Doing well in the markets means making money consistently, and you can do that only if you want to do it, think you can do it, and figure out how to do it yourself. This means motivation, self-confidence, and the ability to work hard on learning and practices.” Mr. Rajashekar Iyer (Promoter and Director of Securities Investment Management Private Limited)
Mr. Rajashekar Iyer, qualified as a Chartered Accountant and has over 30 years of experience in the field of equity research, advisory & investment management. During 1996-2000 he worked with Kotak Securities Limited as Head of Research and later as Head of its Institutional Broking business. He also worked as a Senior Executive with Reliance Capital Limited in their management team to develop strategies for their web-based initiatives during 2000-2003.
So, here are 7 key learnings from Mr. Rajashekar Iyer.
1. Finding Ideas through elimination
Probably the most important aspect in finding good ideas is to eliminate bad ideas fairly quickly. If you are able to look at 100 companies faster than others, you can find the two good companies which are really interesting. If you are slow in rejecting, you will only be able to look at 10 companies.
2. Buying Strategy
You have to devise a strategy of deciding how much to invest and where to set the stop loss. So long as you know how much you can lose, and that is acceptable in terms of overall strategy, you can buy anything that you find attractive.
3. Thoughts on Technical Analysis
Unlike fundamental analysis, technical analysis requires more judgment because it can give you an idea of what other players in the market are doing or are likely to do, and all the situations are unique.
4. Important Criteria for Stock Rejection
i) Weak ROE – It’s useful to see if the company has generated any meaningful ROE over the past 10 years or not. If the company has delivered good numbers for the past two quarters, it may not be very interesting. But if the company in the past used to make a 30% ROE, which has now fallen down to 15% and is now recovering, then something might be happening.
ii) Lack of Scalability – The business of the company should be scalable significantly. There must be a market opportunity.
iii) Poor Quality of Management – Quality must be looked at from the point of view of the management’s ability to think strategically, execution skills, and approach towards minority shareholders.
5. High Performing Stocks
i) Strong earnings growth after you buy the stock.
ii) Low P/E that turns to high P/E after you buy.
iii) Stock starts moving fairly quickly after you have bought it.
In my experience, the best investments have been in stocks, which start moving almost immediately after I invested. It means just a little bit of information was left for the people to make a decision to buy that stock.
6. How to Value a Company?
Three variables determine a business’s value: a) how much it grows its sales, b) how much profit it can make, and c) what kind of capital it needs to generate those sales. Of course, the additional variable is d) how it treats minority shareholders.
7. Importance of Capital Allocation
Good capital allocation is key to long-term returns. When we value a business, we value its cash flows, but strong cash flows are useless if they are misallocated.
So, the investor’s view on how good the company is at allocating cash is very important, and has to be largely based on the historic track record of the company’s management.
(Source: Masterclass with Super-Investors)
Happy Investing!
Disclaimer: These insights are based on our observations and interpretations, which might not be complete or accurate. Bastion Research and its associates do not have any stake in companies mentioned. This newsletter is for educational purposes only and is not intended to provide any kind of investment advice. Please conduct your own research and consult your financial advisor before making any investment decisions based on the information shared in this newsletter.
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