15 Key Lessons from Mr. Vijay Kedia

“The first rule in the market is to survive; the second is to make money” -

Mr. @VijayKedia1

Here are the 15 key lessons from the legend, highlighting the challenges and triumphs of the stock market.

Source: Masterclass with Super-Investors.

1. Return Filter for Investment: It should be a multi-bagger. If the economy is growing, the company should grow. If I just see a doubler in three years, I won’t invest. It should have the possibility of being a 10-bagger. It may or may not happen, but on a portfolio of 10 stocks, the process would work well.

2. Idea Generation: Mostly by reading. I don’t run screens. I just focus on understanding which sectors will do well, and which companies are good in that sector…Also, the size of the market has to be big. One should identify a fish in the ocean and not a crocodile in a pond.

3. How He Acquire Knowledge: My approach is pretty simple - I observe what is happening around. I give a lot of importance to the company’s management’s talk on TV, in newspaper, or on social media. In my view, listening to an hour of such interaction is equivalent to reading many books.

4. On Evaluating Managements: I look for three things - honesty, hunger, and smartness.

a. Honesty, so that he not only creates value for himself and his children but also for shareholders.

b. Hungry, so that he does not get complacent after growing his company from Rs. 200 cr to Rs. 800 cr. The simple rule is, that if the management does not become a billionaire, you won’t become a millionaire.

c. Smartness, he should be smart enough to know how to manoeuvre the company when a crisis or an opportunity comes.

5. On High P/E Vs Low P/E Stocks: I normally don’t buy stocks quoting at high valuations. I normally buy sub 10 P/E stocks. Sometimes when I buy a high P/E stock, I do so with the expectation that I won’t make money for one-and-a-half to two years. That’s the main difference between high and low P/E stocks.

6. On Buying Growth Stocks: The ultimate weapon is stocks having reasonable cash flows but low valuations. But low valuation without growth is like a dead body, there is no value. Even if you buy a growth stock at a slightly high price, it will have some value….I would want at least 20-25% growth in my stock.

7. The SMILE Approach: I like companies on the SMILE principle: Small in Size, Medium in experience, Large in aspirations, and Extra-large in market potential. If I can find all these attributes in one company, then I can invest in that company at the right valuation.

8. On When to Sell: a. When management changes focus. b. When the value is exorbitant. c. Liquidity of the stock. If I have to buy or sell a large quantity, I need enough volumes to sell. So, I will sell regardless of price. d. If I think a bear market is coming.

9. On Portfolio Structure: I have 10-15 major stocks and 20 stocks with smaller allocations. The largest position will be less than 10% of the portfolio. This is the risk I am willing to take with a single stock.

10. One Common Thread Between Successful Stocks: The main reason why my stocks succeed is that most people have not heard about them. The pattern is the same across my life - unknown/ unpopular company, capable management, good business, and illiquid stock.

11. On Market Extremes: I think it’s easy to sense an extreme bear or bull market. The problem happens when the market extremes continue for another year or two, during this time, patience is the only key. You can’t exactly time it. But if you have a vision of 10-15 years, you don’t need to think about it too much.

12. Stock Market Is a Place of Regret: Regrets are like a lifestyle disease in the stock market. If you buy a share and the stock price falls, you will regret not having waited. If you buy and the price increases, then you will regret not having bought more! So there are always going to be regrets in the market. But these regrets affect your next decisions.

13. Advice to New Investors: He/She should read a lot of broker reports, see management interviews, and learn about various industries and companies.

14. On Courage: Without courage, you can’t bet big. Even if you are the best in reading balance sheets, you will only buy 500 shares, or you won’t be able to hold shares in the bear markets.

15. Key to Creating Wealth: Make bear markets your friend. History tells us that people have made big money by buying stocks in the bear markets. Nobody makes big money by investing in bull markets. Being successful is one thing; creating wealth is different.

Many thanks to Mr. Saurabh Basrar and Mr. Vishal Mittal for putting together this exceptional piece of work and making a valuable contribution to the Indian investing community.