Vinit Sambre's most precious investing lessons

Even after spending over two decades in the markets, I still feel like it is Day 1 in the market in terms of opportunities to learn. Let me share my important learnings which have helped me in my career.

Patience is the biggest virtue

I feel patience is a rare commodity in our markets and something which is rare is precious. With so much data available nowadays, there is a race to process every piece of information very quickly to remain ahead of the curve. However, I believe that the value of the company as measured by its business growth, cash flows, ROE, etc., does not change as quickly as the share price does.

We have seen so many times that stock price reacts disproportionately to events such as elections, credit policy, currency movements, etc. However, over time, good businesses have survived and thrived amid all major and minor events. In my career spanning 23 years, I have seen companies surviving the onslaught of major events like the dot-com bust, Lehman crisis, taper tantrum, high-interest rates of 13-14 per cent, and now the pandemic. Not to say that these factors do not affect the companies, but in the long cycles, these turn out to be momentary blips.

Disproportionate reaction to such events creates a wide disparity between the value of a business and the price.

Our long-term approach has allowed us to use these temporary disruptions to our advantage by playing the contrarian role. My experience has been that once we have identified a good company run by a capable management, the maximum wealth has been created by staying invested in these companies for long through their good and bad patches. We have faced challenges of underperformance in many of our investee companies during their low cycle. However, our long-term philosophy has not deterred us from staying the course and sustaining the pain for a short period. As an example, our investment in specialty chemicals back in 2012-13 hurt us during the raging bull market of 2017. However, we stayed the course and gained significantly during the period thereafter.

Look for positive management change

I have seen many businesses turning around after having seen a good management change. Many companies where positive management change took place have created a lot of value due to appropriate strategies being put in place and effective execution of the same. As an example, the largest listed biscuit manufacturer saw significant rerating since 2013 with the top management change.

Capital allocation

Businesses with sector-leading growth and superior ROEs (much higher than the cost of capital) are the two important factors that drive long-term wealth creation. Any company's capital-allocation decision determines whether the business will continue to deliver on the above metrics, and hence needs to be monitored closely. Capital misallocation is one of the key reasons for business failure and poor return.

Focus on history rather than predicting the future

I feel predictions have less value, and still, most time is spent doing that. I have rather found merit in looking at the long history of the company, which provides a good insight about the company's performance, both in good and bad times. This history has given us the confidence to stay invested and double down when businesses go through a bad phase.

(Originally published on ValueResearchOnline.com in Feb 2022)