I Take this Lady's Views on Investing in Quality Stocks Very Seriously

Oct 24, 2019

Rahul Shah, Editor, Profit Hunter

In the fledgling years of my research career, I loved to go inside the minds of successful value investors.

The moment I came across an in-depth interview of a stock market guru, I used to drop everything and immerse myself in it. I would pore through every minute detail.

My goal was to read as many of these interviews as I could. I wanted to pick up some big insights along the way.

I would attribute a lot of what I know about value investing today, to these fascinating interviews.

For example, a very important component of my stock picking process, traces its roots to an interview I read of noted value investor Richard Pzena.

Pzena is a dyed in the wool moat investor. He loves companies with strong competitive advantages that are beaten down for temporary reasons.

You may think there's nothing unique about this. A lot of investors follow the same strategy.

Yes, indeed. However, it is the last step in his research process that really stood out for me.

For every stock he was bullish on and wanted to buy, he used to invite a Wall Street analyst to come and make a pitch for the same stock...but with a big twist. This Wall Street analyst was a bear and had a negative view on the stock.

Yes, you read that right. Pzena didn't invite someone who would come and validate his bullish view on the stock. He invited someone who had an opposite view so he could identify holes in his own thesis.

Pzena wanted his bullish view on the stock to be as watertight as possible. If he had even the slightest doubt the Wall Street analyst's views had any merit - and therefore his own view had a flaw - he would drop the stock from his buy list.

Fascinating, isn't it?

I believe the importance of having this component in one's stock picking process cannot be emphasised enough.

One of the biggest reasons investors end up investing in sub-standard stocks is because they don't have someone wise and experienced enough to challenge their deeply held views. Someone who could ask the right questions. Someone who isn't afraid of calling a spade a spade.

Luckily for me, I don't have to rely on stock market analysts from outside to get thorough answers to these questions. I can simply turn to my colleague and Co-Head of the research team, Tanushree Banerjee.

Tanushree and I have spent roughly the same number of years at Equitymaster. We've been exposed to the same research process.

And we have been mentored by the same mentors. Yet, our paths have diverged when it comes to our investing philosophies.

While both of us are still hard-core value investors, Tanushree's emphasis on quality first and mine on valuations first, lie at the heart of this divergence.

Of course, this doesn't mean I turn a blind eye to quality. Neither is Tanushree fine with recommending quality stocks at crazy valuations.

But everything else remaining constant, I will most likely gravitate towards cheaper stocks and she would make a dash for stocks with high quality fundamentals.

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Her track record in managing StockSelect and ValuePro all these years is proof she has indeed developed a great eye for quality.

It is as if she has a sixth sense where by merely looking at historical numbers and meeting the management, she can conclude whether the stock exudes quality or not.

Of course, we can't expect her to be right every single time. However, she has been more right than wrong by a margin big enough to make her subscribers earn market beating returns.

Not to forget a good number of value traps she has warned me about and which ultimately have ended up destroying shareholder wealth.

In fact, I am regretting not listening to her about one of my recommendations. My subscribers have taken a huge hit and chances of a recovery are fading with each passing day.

Anyway, I am much wiser from this experience. I've begun to consider her point of view even more seriously.

And I believe even you need to do the same.

In fact, why not start today?

You can start at this very moment by following her recommendations in what she believes is her most ambitious project yet - The Rebirth of India.

Tanushree has identified 7 high quality stocks that could benefit the most in the coming Indian decade.

These are the stocks she believes can create new profit records and in turn, create a lot of wealth for their shareholders.

Honestly, I haven't seen her this optimistic in quite some time. I would listen to what she has to say if I were you.

Besides, if its Tanushree, you can rest assured all these 7 stocks would be high quality names. Therefore, you have very little to lose and a lot to gain in my view.

Read more about this great opportunity here.

Warm regards,

Rahul Shah
Rahul Shah
Editor and Research Analyst, Profit Hunter

PS: The Rebirth of India is a once-in-a-lifetime phenomenon and smart investors can use it to amass wealth which could potentially last generations. Read more about it here.

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