Eicher Motors - The Compounding Machine - Chart Of The Day 24 April 2017 - Equitymaster

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Eicher Motors - The Compounding Machine
Apr 24, 2017

I wrote to you on the merits of cloning a super investor. Warren Buffett.

The results were clear. The cloned group of stocks outperformed the benchmark indices over a time horizon of 15 years.

We learnt that stock picks of these smart minds available in public domain could act as a basic yet effective first level filter that would help in identifying quality businesses.

Chris Mayer is of the belief that one needs to hold on to quality businesses once you own them.

    Stick to businesses where time is your friend. There will be lots of ups and downs, but if you buy quality assets that you think are a near cinch to be worth a lot more money in 5 years or ten years, you'll be fine.

Unfortunately, for us, in India, we don't have such an individual disclosure as is available in the US.

However, there is a silver lining.

The regulations require companies to report any public shareholding that is more than 1% to be mandatorily reported every quarter.

Mind you, tracking all these company disclosures is not an easy thing. However, doing this provides you with an access of what these super investors are investing.

Kunal and I believe cloning India's Super Investors could be a great source of idea generation.

This disclosure has some limitations. The companies update their shareholdings only every quarter. Generally, there is a huge time gap between time a super investor may have bought in a stock versus the actual disclosure.

However, there is another potentially rewarding tool available with us to help track these super investors.

Enter: Bulk and Block Deals

Both the exchanges are mandated to report deals that are over a certain set threshold daily.

On an everyday basis, the exchanges release the data for all the bulk and block deals that have happened on its exchanges.

While, over 90-95% of these are mostly noise.

Sifting through the wheat from the chaff could be potentially hugely rewarding for the curious mind.

Let me walk you through an example.

Now, we spoke in detail about Akash Prakash, co-founder of Amansa Capital. A Fund manager who walks the less trodden path.

    Akash prefers companies that are well managed and financially disciplined, with a strong growth potential that can be held for multiple years and trade at a reasonable price.

If you have a similar investment philosophy of Amansa Capital and track the firm's activities.

On 15th Oct 2008, one would have found a bulk deal wherein, Amansa bought a 0.56% of a stake in Eicher motors at a price of Rs 201.

Date Client Name Deal Quantity Price
15-Oct-08 Amansa Capital Buy 156,727 201

Imagine this, if fundamentals of Eicher Motors at the time passed your earnings quality checks and you stayed invested in the company.

Every Re 1 invested in the company then would have multiplied by 128 times in April-2017.

That's a whopping compounded annual return of over 77%.

Well, Amansa Capital has stayed put and rode on this multibagger the whole way.

According to the Top 10 shareholders list provided in the Annual Report of Eicher Motors in 2016. Amansa continued to hold around 0.73% of the company.

Now, there are plenty of other examples, wherein tracking such bulk/block deals could have been resulted in huge wealth creation.

The critical aspect here again is to go beyond the stock picks of the smart money and understand their thought process behind buying them.

Our research co-head Rahul Shah often says, "it is all about exploring unrecognized simplicities."

There is another simple yet powerful way to identify promising companies. This person has the best view of what is happening to the business. He proverbially is in the driver's seat of the car.

Kunal has all the details. Watch this space tomorrow.

Data source: Ace Equity

This Chart Of The Day was published in The 5 Minute WrapUp - A Little Known Way to Clone India's Super Investors

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