Amit is a SEBI registered Investment Advisor and an avid reader who regularly shares his wisdom through blog posts and twitter handle @midcap_mantra.
Let’s get some insights about his investing journey, philosophy, and the ideas that really changed his life.
Dhruv Girdhar, RichifyMeClub: First of all, I would like to thank you Amit for doing the 1st installment of this interview series, Behind the Curtains while sharing the acumens of your investing journey. I am sure that the readers will benefit immensely through your words of wisdom and knowledge. Please share some insights about your background.
Amit Gadre, Midcap Mantra: I come from a modest middle-class background. I am originally from Kolhapur, Maharashtra, Mechanical Engineer and MBA by education. Professionally, I have worked with German Engineering MNC Giant Siemens for 13 years in supply chain management related departments. I had to extensively interact with suppliers and partners on a day to day basis right from the line operators to the CEOs of those companies. This stint helped me to understand business insights in great details and have actually complimented my passion for investing.
Dhruv Girdhar, RichifyMeClub: What made you interested in stocks? When did you start your investing journey?
Amit Gadre, Midcap Mantra: My father and the Grandmother are the basic reason behind my stock market interest. When I was in my teens, I used to see the physical share certificates and the dividend checks being mailed at home. The interaction between my father and his friends about stocks like Gujarat Ambuja, EIH, Colgate etc….
I yet remember those days crystal clear as the memories are fascinating. I didn’t understand anything about it at all but it actually triggered the curiosity about the stock market in my mind. Both my father and grandmother were ultra-long-term investors, the strategy which I understand now when I look back. I didn’t understand the importance of long-term investing then.
Now I can correlate many things, only in hindsight. Unfortunately, when I was in Engineering (3rd year), my father passed away. I was young, naive, and unaware of the intricacies of the world. The impact was huge on our family and me. I was originally planning to move out to the US as I had scored well in GRE and TOEFL examinations. Because of the tragedy, I decided to stay back in India with my family. Now I feel blessed with not taking a decision to move out to the US. Had I opted out for that, I would have been just another brick in the wall.
Luckily enough, I had read “Rich dad poor dad” during my 1st year of Engineering. I didn’t have an iota of an idea that this book would change the course of my life going forward. I just got amazed that how simply Robert Kiyosaki explained the difference between assets and liabilities and how small set of right decisions make a huge difference in future. Investing in assets and creating a passive income stream were very important key takeaways from the book.
My investing started much earlier before I graduated. The first shares that I had bought in my life were the 2 shares of Infosys in the year 2003 through a paltry sum of scholarship money I had received 🙂 I didn’t know any fundamentals or something, just knew Infosys name as it used to come for our campus placement and had heard about it as a good company.
After I started getting my salaries at Siemens, real and serious investing started. I was a nibbler in the markets for the first few years. Never focusing on fundamentals, just buying on tips and friends’ recommendations, moving with the flow, predominant small cap oriented portfolio used to be my investing strategy.
In the 2008 market crash, I understood that money making is not simple. I had paid hefty fees to the market while observing my portfolio getting smaller and smaller day by day due to the poor quality of scrips in my portfolio. It was a brutal shock to me as a youngster who didn’t have any other savings other than equity as an asset class. I was humbled by Mr. Market. It was my sheer ignorance to ignore the risks.
Acceptance of the wrongdoing was the first and the most important thing I had learned in those days. I understood that I was doing something wrong and needed to introspect. After introspection, I realized that I didn’t really know what I was doing. The best thing to learn is to read and I started doing exactly the same. Started reading voraciously investment related books. And this habit introduced me to an amazing world of the value investing. Reading books on Investing legends like Benjamin Graham, Warren Buffett, Charlie Munger, Phil Fisher gave me different perspective altogether.
Investment classics like “The Intelligent Investor”, “Security Analysis”, “Common Stocks and Uncommon Profits” actually have a deep impact on my thought process.
After this phase, I started studying the underlying businesses and as a consequence, the returns from the portfolio started improving drastically. The major change was a sharp improvement in the quality of major portfolio holdings. Not that I never dabbled in some fewer quality scrips, but their allocation to portfolio and impact on returns was negligible.
Over the years, the fewer quality scrips got eliminated while comfortably remaining invested in a CORE portfolio which is chosen out of top 100 companies in India. I sincerely believe that betting on proven winners improves the odds of success to a great extent. Rest other things are taken care of by the magic of compounding wand.
Dhruv Girdhar, RichifyMeClub: Wow, what an amazing journey. I also happen to know that you are an avid reader. What type of subjects and books do you read? How do you retain all those stuff in your memory? What books do you recommend to the budding investors?
Amit Gadre, Midcap Mantra: I am a voracious reader right from my school days. I like to read all kinds of books, be it fiction, non-fiction, spiritual or Marathi and English Literature. This habit is an inherent blessing from my father. He was a voracious reader and I grew up watching him. In English Literature, I have extensively read books from authors George Orwell, Agatha Christie, Paulo Coelho, Jeffrey Archer to name a few.
From Marathi Literature, I love reading the masterpieces of Kusumagraj, Ranjit Desai, Va Pu Kale, Venkatesh Madgulkar, and PL Deshpande.
About Investment related books, I have enlisted some great reads over the link below. One can choose and read as per the convenience.
Retention of stuff in memory is really difficult. There is a very powerful idea taught to me by a great elder friend in past, which has turned out to be very effective for me:
- First, read a book
- Summarize it, in your own words in 10-12 lines. It should consist of key takeaways from the book
- Read the book again after a short duration, say 6-8 months.
- Revise your notes. This revision actually is important as in the next reading, you are skipping through trash parts and concentrating more on gist part of the book.
- Afterward, even if you re-read the revised summary notes, it’s almost equivalent to re-reading the book, you can feel the aroma. Bingo!
Dhruv Girdhar, RichifyMeClub: That’s great. I too write down the important ideas in a notepad and save it for future reference. Moving ahead, I know that you have exited out of the rat race. How did you make it possible? And what advice would you like to give to the readers who want to start following their passion?
Amit Gadre, Midcap Mantra: Working at Siemens was a wonderful thing which really shaped my personality. It gave me a different perspective to observe the world in a German way. Germans are extremely methodical and absolutely strict on processes. They believe in the fact that if the process is right the outcome has to be right. And it has been my thinking in this investment world too. I focus on analyzing the businesses, stick on to the few chosen quality compounders and let them work in my favor over time.
Saving aggressively and investing prudently is the only way to success in equities.
I have covered the topic of financial independence in these attached articles and podcast extensively.
Following passion is the best way to live your life. We have a limited amount of time on this earth. If we are not working in the area of our passion then we are really wasting our time. When you start working in your area of passion, work doesn’t feel like “WORK” at all… It’s just an exhilarating experience. And I hope everyone always wants to work in their area of passion one day or other. Experience it on your own!!!
Dhruv Girdhar, RichifyMeClub: That’s nice. So, how do you manage your day? What else do you do apart from investing?
Amit Gadre, Midcap Mantra: My lifestyle has now few elements embedded. I have made walking, 4 km up-down twice a day, a compulsory part of my daily routine. It is my time well spent with myself that helps me a lot to rejuvenate. Being independent gives me the most important thing: Time freedom. I get to enjoy most part of my day with my family, most importantly with my baby angel, Mugdha. In the evening, I have a telephonic conversation with my dear friends Naman and FI, for investment ideas, themes, etc. I interact with my existing and prospective clients on their queries, if any.
Most importantly, I am not into day trading. So, I am not bound to stick against the computer throughout the trading session. At times, I prefer working from home. This freedom actually gives me an immense personal satisfaction. Due to this passion, I have come across different eminent personalities in different parts of the country and world, which I couldn’t have thought of otherwise. I now have my own identity and many people across the globe know me. This feeling itself is really nice.
Dhruv Girdhar, RichifyMeClub: That’s great. Please share one big idea that really changed your entire life.
Amit Gadre, Midcap Mantra: “Realization that high market-cap companies can also give multibagger returns in a much safer and better way” actually changed my investment career. As Warren Buffett has always said – “If you find out certainty, bet big”. I understood the concept in later part of the evolution of investor but better late than never.
Now, I try to identify bigger companies who have the opportunities to grow much bigger in the coming decades. Staying with the winners who have weathered different cycles, crashes, and good-and-bad times helps a lot. They have evolved during the adverse period by becoming better versions of themselves. They offer great protection from downside, resilience, they can maneuver through adverse times much better than their smaller peers.
This realization has made my investment life much better and in turn has positively affected my entire life.
My tagline mentions “Don’t work for money, Let money work for you”. This is actually an evolved one from Robert Kiyosaki, who says “Make” money work for you. In our case as investors, we don’t even need to make it work 🙂 Management of great businesses anyway make it work for us 🙂
Dhruv Girdhar, RichifyMeClub: Nice thought, Amit. Please share one investing decision which you are really proud of. And the one which you really regret taking.
Amit Gadre, Midcap Mantra: The best investment decision I have ever made is by marrying my better half – Prachi. We have been knowing each other right from the childhood days and that friendship evolved in love over a period of time and we got married eventually. Having a right partner who is ready to understand your passion and actively supporting you to achieve it is just amazing. I take this opportunity to thank her from the bottom of my heart. She has always stood by me like a rock. In order to have better fortune in future (I have covered it extensively in ‘delaying-gratification-how-cliché’ article), we need to resist many short-term temptations and she has also played an equal and much important role in it.
Regret: I have made many mistakes in my investing career. I can summarize them in the following order:
A) Selling scrips much early. After selling, they grew multifold. I failed to exercise my conviction on them in the earlier part of my career. Now, I don’t sell any of the scrips so easily and think 100-times before I take that decision. I have understood over years that selling decisions are in reality much tougher than buying decisions.
B) Indulging in low liquidity scrips. I had made fortunes (notionally) but couldn’t get out at all… During 2008 days, before the market crash, I had bought the shares of IKF Technologies at Rs.12 which went on touching Rs.24 just to go down to drain at lower circuits…I couldn’t sell it as couldn’t control my greed and eventually sold it out at Rs.4 per share 🙂
This is the biggest lesson I think I can give it to the new retail investors. Stay away from circuit junkies.
C) Indulging in Future and Options derivatives. Warren Buffett has been always vocal about derivatives “Derivatives are weapons of mass destruction”. I learned it a hard way by paying hefty fees to Mr. Market.
Dhruv Girdhar, RichifyMeClub: Any advice you would like to offer to our readers on how to find a quality stock among a huge stockpile of companies.
Amit Gadre, Midcap Mantra: Stock picking is more of an Art than Science. With experience, the skill set starts getting improved over a period of time in the market. I urge retail investors not to focus on small ideas to make big money. Luck plays a more important role in it.
Whenever I pick stocks, I first try to understand the future earning visibility of the sector clearly. The companies we choose need to have a good business model. It should be a cash making (positive cash flow) company, have a DNA to share the returns with shareholders (High ROE businesses), with growth visibility and longevity. It should have a decent set of management to run it efficiently. Debt-averse managements are best in class. If you find companies which actually complete their CAPEX through internal accruals, they actually can tackle adverse environments in a much better way.
Dhruv Girdhar, RichifyMeClub: That’s nice. I am sure this advice of yours will surely help investors to choose good companies. Moving ahead, what’s your investing strategy? Have you changed your investing strategy in recent years? How have you evolved as an investor?
Amit Gadre, Midcap Mantra: Evolution is natural for any investor. I am not the exception. Over years, I have understood the importance of partnering with great compounding machines and now I don’t want to part them away easily with few deviations in some quarterly surprises.
My current investment strategy is summarized in the below mail that I had sent as a memo to my clients.
Thank you all for showing faith in my abilities by following the investment advice given by me without an iota of doubt. I really mean it.
Most difficult part of Investment Advisory business is setting up clients’ expectations.
So let’s be very clear, Equities as an asset class are wonderful ONLY if we stick to a disciplined investment process and adhere to it in both good and bad times.
The CAGR returns you get is often misunderstood by many. Many real estate proponents say that property prices have moved up 40000 times in the last 100 years. If you sit back and calculate it’s just over 10% compounding return. An important thing to remember here is that compounded annual growth rate in equities is not fixed yearly return.
So it is the number of years root to the actual return you got in those years. E.g. If you get double returns in 3 years then its cube root of 2= 1.26 means you got 26% CAGR returns over 3 years. That doesn’t mean you should get 26% return every year. One year may be flat, second down and third-year bonanza (Rs.100 value at year 1 end =100, year 2 end= 80, year 3 end=200).
As investors, we need to see things clearly, identify right long-term opportunities to invest, stick with the opportunities in good and bad times and let the saplings grow to become trees. Our job as investors is to always look for the margin of safety at the time of buying, to follow the right investment strategy diligently. If the process is right, the outcome has to be right in the long run.
See the illustration below which is self-explanatory. The more you fall down by % of your portfolio in the downturn; more difficult it gets for you to come back to your original capital itself.
I sincerely believe that in current market conditions we should be in large caps to take the brunt of possible weather changes in markets.
1) They offer wonderful safety net and protection from the downfall in sever market corrections
2) Liquidity at the time of Exit
3) The companies are already proven winners, they have weathered many storms coming to the stature they are at today.
4) These companies (of course chosen few) are wonderful compounding machines which grow wealth in a steady but definite manner
5) We can enjoy one of the most precious things in our life, sound sleep
Let Mr. Market do its idiosyncratic things. We as investors can control our habits and approach towards wealth creation. Let us focus on that. We can control our saving methodology. We can keep a tab on our expenses, and control our behavior by not succumbing to the irrational pessimism and optimism.
I sincerely believe that nobody can Time the Market. One can’t and one doesn’t need to. Time in the market (Number of years you stay invested) is a much more important thing in compounding equation than the gains you try to achieve by timing the market.
A year gone by was a wonderful year for the market. Earnings have not picked up yet. I believe, the upcoming years – FY19 and FY20 – will bring out real earnings growth to the markets which have been elusive for quite a while.
I am absolutely convinced on the superb outlook on themes we are betting on, which are a combination of contra play (IT, Pharma), Infrastructure (Infra, Power, Power financiers), Private banking space, Affordable housing space, Rural inclusion (Microfinance, FMCG plays)
Last but not the least, investing in the wonderful companies tests patience at times, but they give right returns in the long run.
I would like to bring in one humorous story (Source: WhatsApp Forward)
“Recently, I attended a party with a gathering of around 300 people. I made myself settled in the front row.
A lady started distributing snacks in the back row and unfortunately, by the time she arrived at the front, she was left with no snacks in the bowl that she was carrying in her hands.
Another lady started handing over the drinks to the people sitting in the front row. But, by then, I had already moved to the back row. By the time she arrived at the back, she was left with no drinks in here kitty. Eventually, I didn’t get the drinks too.
I was irritated at that moment. While I stood up and started to leave, I saw three ladies with a big bowl in their hands. This time, I tried to be a little wise and made myself settled in the middle row. One of the ladies started distributing the Manchurian Dry at the front and the second lady started at the back. I was hopeful of tasting it this time. And when they got to the middle row where I was seated, they were left with empty bowls!
Feeling frustrated, I bent my head down while covering my face with my hands.
All of a sudden, to my amazement, the 3rd lady tapped me and offered her bowl. I stretched out my hand and guess what I found in the bowl?
Moral of the story: Don’t try to position yourself and time the markets. If you are disciplined and patient, sooner or later, the market will surely reward you with good returns.
Otherwise, you will wrongfully position yourself and get the Toothpicks only!!!!”
The message is loud and clear, I hope 🙂
Dhruv Girdhar, RichifyMeClub: That’s really hilarious and thought-provoking too. A lot of people find it really difficult to sell. Any advice on how to do the desired decision making?
Amit Gadre, Midcap Mantra: On selling part I go by what Phil Fischer says: If your buying decision is right in first place, you only sell a scrip:
A) If the management is “di-worsifying”. By saying that, what I really mean is that the management of business tries to move out from their core competency area to non-core competency businesses.
B) If the scrip price runs much ahead of the fundamentals or the intrinsic value of the business.
C) If you find such a great idea that you need to sell-off a scrip in your existing portfolio for the possible entry of new scrip due to the limitation of capital.
Dhruv Girdhar, RichifyMeClub: How can an investor improve his/her decision-making skills when it comes to investing?
Amit Gadre, Midcap Mantra: Improvement comes from experience and vicarious learning. We too have many great investment gurus in India. I follow Prof. Sanjay Bakshi a lot. Though I have not studied under him at MDI, Gurugram, I treat him like my virtual guru. I have learned a lot from his articles available freely on his website
I have benefited immensely from reading the books authored and recommended by the investment legends. This list is available at the link given below
For the improvement of decision making, my advice will be, be in touch with long-term oriented people. The benefit is, the association has an induction effect on you. If you constantly remain in the company of people with the trading mentality, you will also try to time the market. Time and again it has been proven that timing in the market is much more important than timing the market.
ASSOCIATION with the right set of people is one part. The next and important part comes from READING books and articles. Read a lot, start developing your independent thinking. Investment is art, don’t try to kill it by the excessive use of spreadsheets. As Charlie Munger and Warren Buffett say it often – It’s better to be approximately right than being precisely wrong.
“You don’t have to be brilliant, only a little bit wiser than the other guys, on average, for a long, long time.” ~ Charlie Munger
Next important thing is ALLOCATION. Allocation is the key to successful investing. If you find great business and don’t allocate a sufficient percentage of the portfolio to it, the returns you get in the long run by owning that business will not be great at the portfolio level. If you have high certainty and high conviction, allocate big.
Understand the thing that money making is not an easy task. Your IQ has a much lesser role in your investment success than your EQ. Work on your behavioral traits to become a better investor.
Dhruv Girdhar, RichifyMeClub: Wonderful, Amit! Thanks a lot for being candid about your investing journey and sharing the insights. I wish you all the best in your future endeavors.
Amit Gadre, Midcap Mantra: Thank you, Dhruv! Thank you for coming up with this amazing initiative. I am sure that I’ll get to read many interesting stories through your initiative.
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