8 Lessons Warren Buffet Did not Teach Me!

Today marks the 10th anniversary of the day when my portfolio had breached the negative 50% mark. In next 30 days it went further red to negative 77%.

What did I learn from this carnage in my portfolio:

1. Never invest in an IPO

I had “invested” in most of the IPO between 2005 to 2007. I lost money in almost all of them. I was in my first year of MBA. All the companies vanished from the placement season. I saw 23-24 year old people cry when they missed out on the 1-2 companies that did come. It gave me so much perspective in my life

Lesson: Invest in businesses and management who have a proven track record. Managing a company when it is private vs when it is public are 2 different things.

2. Always watch for beta

I caught Jai Corp before it hit 33 straight upper circuits. I had Unitech before it had split 3 times. I had SESA Goa at cheap valuations. I made a killing in RPL and RNRL. I lost everything in March of 2008 and then in Sep 2008.

Lesson: Today I follow the beta of my stock like it is a laxman rekha.

3. Return of capital is more important than return on the capital

I wanted returns and fast. Market gave me both. And then took away everything.

Lesson: Risk management is way more important than return management.

4. Equity is not everything

Every building must be built on a strong and rock solid foundation. I was 100% in equity because they told me young people should invest in equities (I was 23yrs old).

Lesson: Today my target is more to find a decent fixed income product over an exciting stock. PPF, Bank FD, and NCD - I want them to be my base.

5. PE sucks

High PE means the market is giving a premium to the future earning

Lesson: Never ever look at a PE ratio. It is for suckers.

6. Profit is the key. I want to see the bottom line

I always looked at the Year-on-Year Sales growth and profit growth. If this number beats the estimate, it is a buy.

Lesson: I bought the book by Damodaran. Learnt valuation. Learnt financial statement. And most importantly learnt how to read the notes. I attend almost all the analyst calls. I talk to store managers at grocery shops on sales. I talk to moms and cooks of what they like to use in kitchen and why (this is how I got into TTK in 2011). Never watch CNBC TV18.

7. What is the most important thing in a company?

Profit? Cash flow? Business model? Market share? Valuation? I was told it is something on these lines

Lesson: The most important thing is management. Ethical, honest, smart and hard working management beats every other metrics by a mile. Find a company with good management and you are set on your retirement.

8. The best trade advice will come from real people, not experts

Never underestimate the knowledge a simple store owner can give you. I was shopping for my underwears in Delhi. I asked the owner why Hanes stock is kept behind and jockey in front. He told me “sabko jockey hi chaiye”. I had no idea Jockey’s parent was listed. I bought page industries just because I had a chat with this shop owner in 2016.

Lesson: I prefer to shop from a small shop and not from big stores. Small shop owners open up to the ideas that are selling in the market.

Have these lessons helped me ace the markets?

No. I have under-performed the index for straight 3yrs now. I still buy garbage. My portfolio is not even close to perfection. But I now respect the market. I don’t ever think it will give me return because Indian economy is growing. I am an eternal student now.

Some books I recommend to those who have been in similar situations are listed below.

1.Principles: Life and Work
2. Zero to One: Note on Start Ups, or How to Build the Future
3. The Intelligent Investor (English) Paperback – 2013