Smart Money Secrets and My Mission to Create Wealth for You - The 5 Minute WrapUp by Equitymaster
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Smart Money Secrets and My Mission to Create Wealth for You

Dec 27, 2018

Sarvajeet Bodas, Research analyst, The 5 Minute Wrapup

  • 'If you can't figure out your purpose, figure out your passion. For your passion will lead you right into your purpose.' - Bishop T.D. Jakes

Well, that's me.

I was trying to figure out my passion in college.

After completing my MBA in 2010, I started working in the shipping industry.

The shipping industry?

Well, yeah. The only reason I took this job because it was just 5 minutes away from my home. This is a luxury for any Mumbaikar.

How did that go?

Well, at the start, it was like someone threw me in to the deep end.

I had to figure it out everything from scratch.

How the industry works.

How departments coordinate with each other.

How to negotiate with clients.

How to bid for projects.

How to work out pricing and commercial offers.

How to solve operational issues.

But it was a great learning experience.

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Now when I look back, I realise, how capital allocation, work culture, ethics, are critical factors for success for any organisation.

I learnt firsthand about these things.

But it wasn't my passion.

At the end of the day, everyone wants a challenge.

We all look to go beyond your comfort zone after a point.

I found my challenge in 2014: Equity research.

By equity research I don't mean burying myself in excel sheets.

I got on my bike drove to an automobile dealer in Navi Mumbai.

Why?

I wanted information about the company I was analysing: Atul Auto.

That wasn't the only company I was interested in...

I met the VP-Finance of Shipping Corporation of India (SCI) as an individual investor to know more about SCI's operations.

I analysed GE Shipping (one of my favorite companies) and wrote a detailed report on it.

I knew I was following my passion.

At that time, I came across Prof. Sanjay Bakshi. He is one of the super investors we track in Smart Money Secrets. I absorbed as much of his knowledge as I could.

My Recommendations at Equitymaster

In 2015, I joined Equitymaster. I believe my passion for research played a huge role.

The entire research team at Equitymaster had a refined approach to thinking about companies, business models, valuations, and even the psychology of investing.

As they say, you become like the people you spend time with.

This is true in my case.

When I began my journey with equitymaster, I came across a wonderful book - Capital Returns.

My initial successful recommendations - Hindalco (up 118% in 6 months) and GE Shipping (up 36% in 9 months) was based on the approach described in this book.

I highly recommend it. It had a great influence on me and my stock picking style.

Other books I recommend are - Understanding Michael Porter, The Sleuth Investor, Thinking Fast and Slow, Competition Demystified, and Financial Shenanigans.

That last one, in particular, inspired me to write several articles in the premium edition of The 5 Minute WrapUp...

This is what I wrote about Inox Wind in July 2016:

  • What's cooking in the books of Inox Wind?

    Companies can manipulate profit and loss by showing aggressive sales-to-book profits. However, book profits do not translate into free cash flow (FCF). So checking the cash flow statement will help determine if the profits are being converted to operating cash flow.

    Forget free cash flow, Inox Wind is generating negative cash flow. While revenues have shown healthy growth, Inox Wind's cash flows have not seen similar growth. In fact, they have deteriorated. This is because of an increase in working capital.

Inox Wind was trading at about Rs 230 at that time. Today it trades below Rs 80 (down 66%).

About VA Tech Wabag, I concluded:

  • Wabag is the market leader of the Indian water treatment industry, and the potential to grow in terms of market size and opportunity is huge.

    However, it is also important to look through the accounting lens to understand the true picture of the company. And from this perspective, things are not progressing well for the company.

The stock was trading at about Rs 600 at that time. Today it's around Rs 250 (down 57%).

About Cox and Kings' acquisition led strategy, I wrote in October 2016:

  • There is nothing wrong with acquisition-led growth. But often the acquiring company overpays, and that can be a major drag on future financial performance.

    The Impact of Aggressive Acquisition

    Key Ratios Before Aggressive Acquisition (FY10) After Aggressive Acquisition (FY16)
    Adjusted EPS (Rs) 10.64 3.19
    PAT Margin (%) 33.77 -0.20
    ROE (%) 26.20 -0.19
    ROCE (%) 22.62 6.32
    Total Debt/Equity(x) 0.63 1.72
    Interest Coverage 7.91 1.61
    Source: Ace Equity

    It is important to look at the source of growth (organic or otherwise) and determine if it's sustainable going forward. An acquisition-led growth strategy has limitations. One cannot indefinitely use debt to acquire companies at a premium.

The stock is down about 29% since then.

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Smart Money Secrets

I joined the Smart Money Secrets team in 2017.

Smart Money Secrets is Equitymaster's premium stock recommendation service based on following the smart money, i.e. the market activities of the very best investors in India.

The best part of this service is I get to pick the most lucrative stocks, bought by these market gurus, using Equitymaster's Smart Money ScoreTM.

You see, there are several instances where these gurus bought a stock, but it wasn't a good fit for the aam investor.

We never recommended those stocks because they did not pass the Smart Money Score.

As you may be aware, there were several corporate governance issues that cropped up this year involving various companies.

How many of those stocks did we recommend in Smart Money Secrets?

None.

As I take over from Kunal Thanvi as Co-editor of Smart Money Secrets, along with Radhika Pandit, I'm fully confident of our stock picking process.

With the recent market correction, Radhika and I have many good quality stocks on our radar. We will meet several company managements in coming days.

You can expect our recommendation in a few weeks.

Subscribers can access the latest recommendation here.

I believe, those who buy high quality stocks today and hold on for the long-term, will not only beat the market easily, but also create huge wealth for themselves.

I'm confident and excited to start this new journey.

My passion for equity research has given me a new purpose...a new mission.

A mission to guide you, dear reader, on your journey to create long-term wealth for yourself.

Wish me luck!

You will hear from Radhika tomorrow...

Regards,
Sarvajeet Bodas
Sarvajeet Bodas (Research Analyst)
Co-editor, Smart Money Secrets

PS: Sarvajeet Bodas and Radhika Pandit, Co-editors of Smart Money Secrets, are getting ready to recommend their first stock in just a few weeks. Subscribers will receive the full details of this company in their recommendation report. If you haven't subscribed to Smart Money Secrets yet... you can do so here.

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