Shagun Jain is a CA and an MBA Professional in Finance from Jamnalal Bajaj Institute, Mumbai. In this conversation, he candidly shares how he lost 90% of his wealth from the core holding in his portfolio. He talks about his fascination with turn-around companies and how he picks them up for investment. On top of that, he actively shares his wisdom on how to tackle volatility and take advantage of such situations. He also writes his blog posts at Liberated Soul and tweets actively at @liberatedsoul3.
Let’s get some deep insights from his investing career.
Dhruv Girdhar, RichifyMeClub: Hi Shagun! First of all, thanks a lot for taking your time out of the busy schedule and agreeing to this conversation. I am sure that the readers will grasp a lot of lessons from your investing acumen, style, and experience. Please tell us how has been your investing practice so far?
Shagun Jain, Liberated Soul: Thank you, Dhruv! Well, it’s been a pretty exciting journey over the past few years. I entered the Indian equity markets in 2003 when bulls were confidently charged. Those were the times when the financial crisis was shaping up into a big picture which would eventually unfold in the year 2008.
Having attended the lectures of famed Professor, Mr. Mankekar, I had learned how to visualize a big picture in a true sense. How to pick an industry that would dominate the entire economy and the best stories that would unfurl as a consequence. Prof. had taught me how to choose the best stock which would seize the substantial part of the opportunity.
As a youngster, I had stepped freshly into the market. I was really excited to beat the market and legendary investors in terms of returns. As a consequence, I decided to take unnecessary risks and placed my bets where the chances of returns were huge with minimum loss of capital.
During the years 2003 and 2004, the Retail sector was evolving as a big picture and there were not many listed players in the market. I picked up the market leader, Pantaloon India Retail Limited which was into all the formats of Retail – Departmental Stores, Groceries, Books & Stationery, Fashion, and what not.
Without worrying much about the management and how the financials were being deployed, I kept on accumulating the shares for the next 4 years. The company grew at the rate greater than 30% CAGR. But I didn’t even consider how this growth was being financed. During these 4 years, while the debt of the company ballooned 6-times, the revenue went up by just 3-times.
Fortunately, this balloon of debt didn’t burst in 2008-Depression but the price went down by 80%. In 2009-2010, due to a slowdown in the economy, the consumer spending fell down sharply. The company found it really hard to service its debt levels. Ironically, this was one of the largest and most sought-after company in the Retail segment. The company was about to go bust.
I totally ignored the cash flows of the company. I thought that just one investment could be a game changer for my investing career. But it was further from the truth. I continued believing that the company would come out of this holocaust. It didn’t happen. In 2010-11, the management started selling the businesses to stay afloat.
During this whole journey, my investments went through a lot of turbulence. I had started buying in 2005 at Rs.100 a share which went up till Rs.800 in 2008. I averaged more. Then, 2008-Crisis happened. It fell down by 80%. Due to the slowdown in the economy, it fell down even more in 2009-10. Finally, I lost my patience and exited my position at Rs.60-65 a share.
Dhruv Girdhar, RichifyMeClub: That’s one heck of a journey, Shagun. I understand that it must have been extremely hard for you to stay invested during the turbulent times. But investing is hard. What happened next?
Shagun Jain, Liberated Soul: Well, I quit the equity market in 2010 post this debacle. The belief that one investment can be a game changer left a hidden scar deep down inside my veins. For the next 3-4 years, I stayed out of the equities. Then I rebooted and entered afresh in the market.
Dhruv Girdhar, RichifyMeClub: Indeed, a great lesson for the investors. What have been your key learnings while practicing investing? And what’s your current investing style?
Shagun Jain, Liberated Soul: I have tried my hands at different styles of investing. After I zeroed upon Growth Investing, I picked up Value Investing. Post that, I ventured into Momentum Investing. Then I started looking into Turnaround Stories and Mispriced Stocks.
But now, I just focus on a strategy which fulfills the below parameters in my checklist:
- Operating Cash Flows
- Low or Zero Debt Levels
- Return on Equity > 20%
- Growth > 15%
- No Corporate Governance Issues
Dhruv Girdhar, RichifyMeClub: Certainly, it’s a comprehensive checklist that can help investors to screen the good stocks and avoid the junk. I happen to understand that the turnaround companies fascinate you a lot. Please share your thoughts.
Shagun Jain, Liberated Soul: The turnaround companies do test the patience of the investors as well as the management. There are numerous stories around. The brands which used to do well and had great value in the market, are getting weakened due to actions taken by the management or promoters. Intentionally or unintentionally, their efforts have not been in the best interests of the company.
The realization of the management and corrective actions being taken in bringing the company back on track become visible only after looking at the numbers. Besides, it requires a little bit of scuttlebutt approach too.
Only 1 out of 10 companies manage to finally turnaround as per the satisfaction in terms of business performance as well as appreciation in stock price.
It’s purely a game of patience, luck & hope.
Dhruv Girdhar, RichifyMeClub: That’s right. Investing in turnaround companies demands patience and skills. The year 2018 has been extremely volatile. In fact, the recent carnage in the market has created a lot of panic among investors. What is the apt advice you have for our readers?
Shagun Jain, Liberated Soul: I’ll share what I personally follow in my investing practice:
- Have a stomach to digest the bear run in the stocks
- Increase your horizon to ride at least 2 cycles of Bear and Bull runs
- Stick to the companies that you can really understand
- Look for the companies that have good corporate governance as bear markets are the times when Pandora’s box usually opens
Dhruv Girdhar, RichifyMeClub: Indeed a good investing lesson. Before we wrap up, I would like to ask: What is it that you love doing the most, if not investing?
Shagun Jain, Liberated Soul: Books are my best companions. I do read a wide range of books across various disciplines. The ones that have truly influenced my investing thought process are:
- Intelligent Investor
- One Up on Wall Street
- You Too Can be a Stock Market Genius
Dhruv Girdhar, RichifyMeClub: Wonderful picks, Shagun. And thanks a lot for sharing your wisdom with all of us. Certainly, a lot to learn from your investing journey. I wish you all the luck in your future endeavors. Keep guiding and sharing your learnings.
Shagun Jain, Liberated Soul: Thank you, Dhruv!
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