Presentation in Bangalore Stock exchange on 26th July 2015 on - "Investing under current market conditions". I share my views on Definition of Rich and how to select Mutual funds and Stocks in Indian markets and when to exit an investment.

1. Investing
under
current
market
Scenario
26th
July 2015

2. RichRich
RetireRetire

3. Most of us don’tMost of us don’t
get richget rich
as we do not haveas we do not have
a clear definitiona clear definition
of the wordof the word
“Rich”“Rich”

4. Robert Kiyosaki

5. You are richYou are rich
when you canwhen you can
maintain yourmaintain your
lifestyle, even iflifestyle, even if
you stopyou stop
working for everworking for ever

6. Definition of “rich”
YouMonthly Cash Inflow
Cash outflow /
Monthly expenses
Savings
= Assets
Returns from assets
Capital
appreciation

7. Definition of “rich”
YouMonthly Cash Inflow
Cash outflow /
Monthly expenses
Savings
= Assets
You are “rich” when your monthly income from assets
exceeds your monthly expenses
Returns from assets
Capital
appreciation

8. The key to becoming rich –
focus on ROI
YouMonthly Cash Inflow
Cash outflow /
Monthly expenses
Savings
= Assets
Capital
appreciation
You have to beat inflationYou have to beat inflation
by a good marginby a good margin
to become richto become rich
ROIROI

9. The key to becoming rich –
focus on ROI
YouMonthly Cash Inflow
Cash outflow /
Monthly expenses
Savings
= Assets
Capital
appreciation
If you can get a 15-20% ROIIf you can get a 15-20% ROI
consistently, then you canconsistently, then you can
get rich in 7-10 yearsget rich in 7-10 years
ROIROI

10. PassivePassive incomeincome

11. Passive incomePassive income
is incomeis income
received on areceived on a
regular basis,regular basis,
with little effortwith little effort
required torequired to
maintain it.maintain it.

12. The secret ofThe secret of
those who arethose who are
rich:rich:
they have multiplethey have multiple
sources ofsources of
passive incomespassive incomes

13. YouMonthly Cash Inflow
Cash outflow /
Monthly expenses
Savings
= Assets
Passive incomes
Capital
appreciation
The rich haveThe rich have
multiple sources ofmultiple sources of
passive incomespassive incomes

14. How doesHow does
one getone get
“rich”?“rich”?

15. The GET RICH planThe GET RICH plan
• Between the ages of 20 and 30 – focus on
building active income and saving. In this period
–learn investing so that you can get a 15-20%
ROI.
• Between ages 30 and 40 – build up financial
assets and focus on building passive income.
Active income will also automatically grow.
• By the age of 40 – you would have enough
passive income to call yourself RICH and follow
your passions.

16. Your definition of richYour definition of rich ::
• By year ____ , I will haveBy year ____ , I will have
assets worth Rs ____,assets worth Rs ____,
• giving me a ROI of x% ,giving me a ROI of x% ,
• giving me capitalgiving me capital
appreciation of Rs____ and aappreciation of Rs____ and a
passive income of Rs_____passive income of Rs_____

17. What are theWhat are the
financialfinancial
assets I canassets I can
build to getbuild to get
rich?rich?

18. Various asset buildingVarious asset building
optionsoptions
• Debt based asset building options
– when should I go for fixed deposits?
• Insurance
– which insurance I must buy and which scheme I
must avoid?
• Commodity based asset building options
– Investing in Gold and Silver?

19. Various asset buildingVarious asset building
optionsoptions
• Real estate based asset building options
– the various options and what should I do?
• Equity based asset building options
– Should I invest in stocks and if yes, how do I pick
stocks?
• Mutual funds based asset building options
– the various kinds of MF’s and how to identify the
MF that I must invest in?

20. Various asset buildingVarious asset building
optionsoptions
• Real estate based asset building options
– the various options and what should I do?
• Equity based asset building options
– Should I invest in stocks and if yes, how do I pick
stocks?
• Mutual funds based asset building options
– the various kinds of MF’s and how to identify the
MF that I must invest in?

21. EQUITY BASED ASSET OPTIONS

22. Let me understand you better
• How many of you invest in equity markets
through direct stocks and equity MF’s
• How many of you have more money invested
in equity MF’s than direct stocks?

23. My stock portfolio performance as
of 24th
July 2015

24. My MF portfolio performance as of
24th
July 2015

25. Today I will share the following
• How do I select an equity Mutual fund?
• How do I shortlist a stock - my checklist
• At what price do I invest in the stock –some
details will be discussed – more details are in
my book
• Decision on amount of money that I put in
each stock
• My views on exiting an investment ( Stocks or
MF’s or even Real estate or Gold)

26. How do I select an equity Mutual
Fund?

27. Mutual Fund OperationMutual Fund Operation
Flow ChartFlow Chart

28. How do I select an equity Mutual
fund?
• My knowledge of MF market comes from Peter
Lynch
• Peter Lynch managed the Magellan Fund for
Fidelity between 1977 and 1990
• His fund averaged a 29.2% annual returns and
was the best performing Mutual fund
• The Assets under management of his fund grew
from $18 M to $14,000 M under his stewardship

29. How do I select an equity Mutual
fund?

30. As per Peter Lynch
• Most MF managers have to have a short term
focus as investors measure them almost daily
• The better the returns, the more thay are able
to attract investor money
• The more the money they manage, the higher
their own ranking in the MF industry
• Equity investing needs a 3 plus year timeframe –
unfortunately MF fund managers look at
monthly and quarterly ROI’s.

31. Kenneth Andrade – Chief
Investment Officer at IDFC MF

32. Kenneth Andrade – Chief
Investment Officer at IDFC MF
• Kenneth is considered one of the best fund
managers in India
• Forbes called him the “mid cap Mogul” in 2011
• He managed IDFC Premier Equity fund and IDFC
Equity opportunities fund – managing appx Rs
7700 crores of AUM
• IDFC Premier Equity fund gave 19.33% annually
for the past seven years vis a vis 8% of BSE 500

33. Kenneth Andrade – Chief
Investment Officer at IDFC MF
• He quit his role recently and this is what he
told Forbes -
– There is always pressure on the fund manager to
beat the index
– I wish that it was more about buying businesses
than buying stocks.
– Most investors stay with a mutual fund only for 18
month
– Amongst the various options -he is also looking at
venture capital / private equity space

34. How do I select an equity Mutual
fund?
• First filter - I look at the fund house – the
larger the operation, the better.

35. The top ten fund houses as of
30/6/2015 (based on AUM)

36. How do I select an equity Mutual
fund?
• First filter - I look at the fund house – the
larger the operation, the better.
• Second filter – I decide which type of fund I
want to invest. --
• Equity Vs Debt funds
• Large cap vs Small and mid cap
• Mix of equity and debt
• Sector funds

37. Equity vs Debt funds
• Equity funds are for long term, inflation
beating, capital appreciation where as Debt
funds are for short term parking of funds
• Long term means 2 years and above

38. Large cap vs Small and mid cap
HDFC Top 200 fund HDFC mid cap opportunities fund

39. Sector funds
• Sector funds are available focussed on
– Infra sector;
– Banking sector;
– FMCG sector;
– Pharma Sector;
– Technology sector; etc

40. Sector funds

41. Sector funds

42. Sector funds

43. How do I select an equity Mutual
fund?
• First filter - I look at the fund house – the
larger the operation, the better.
• Second filter – I decide which type of fund I
want to invest.
• Look at the top two funds (based on AUM) in
the category that I want to invest
• Decide based on the returns (more than one
year), fund manager between these two funds

44. Selecting a mid cap fund

45. Investing through direct equities

46. Some basic learnings
• Both long term and short term investment
strategies work.
• Levels of activity /inactivity and holding period
depends on your style.
• Chose what you are comfortable with and stick
to it

47. Some basic learnings
• I am a long term investor.
• I buy and hold.
• If I like the stock – I buy more in subsequent
years and hold.
• Long term for me, right now, is 5 years.
• Ideally I would like to grow beyond this 5 years
and go to ten or more years

48. Some basic learnings
• In financial markets, money always flows from
mediocre, under performing companies to
stable, growing, high return on capital
companies.

49. Some basic learnings
• The best companies to invest in are companies
with
– high ROCE /ROE,
– low debt,
– high growth prospects and
– which can reinvest it’s earnings and generate high
returns on the money reinvested
• These are what I search for – these are
COMPOUND INTEREST MACHINES

50. Some basic learnings
• We have to have clarity in what ROI we are
aiming at.
• I aim at a 20% per annum ROI.
• I believe that as long as the company is growing
its top line and bottom line at 20% CAGR - the
share price will also go up by 20% CAGR (over a
long term)

51. An example
HDFC Bank – a compound interest machine

52. An example
HDFC Bank – a compound interest machine
Date HDFC share price 12 month ROI
10 July 2000 57
10 July 2001 42 -26.32%
10 July 2002 42 0.00%
10 July 2003 58 38.10%
10 July 2004 74 27.59%
10 July 2005 131 77.03%
10 July 2006 158 20.61%
10 July 2007 229 44.94%
10 July 2008 209 -8.73%
10 July 2009 276 32.06%
10 July 2010 391 41.67%
10 July 2011 498 27.37%
10 July 2012 581 16.67%
10 July 2013 672 15.66%
10 July 2014 826 22.92%
10 July 2015 1076 30.27%
Average Annual ROI 23.99%
CAGR of 21.63% per annum
Data from Moneycontrol.com

53. How do I short list companies for
study
• Large caps and mid caps – I take up
industries/ companies based on market news
and I study them through public data available
• Small caps – through my friends in the equity
analyst industry and reports available through
them
• Small caps - Following well known investors
through data from - http://rakesh-
jhunjhunwala.in/ -----

54. My checklist as I study companies
• I have broadly followed Warren Buffet’s checklist
that is publicly available
• Business –
– Do you understand the business?
– Does the company have consistent operating history?
I look at operating margins for the past 10 years
– Does the company have favourable long term
prospects? I look at product lifecycle

55. My checklist as I study companies
• Business –
– Does the company have strong pricing power? As
India has inflation around 10%, if Net profit margins
are maintained over 10 years, it means it has pricing
power
– Does the company have moats? –I study as to how it
manages it’s market share and grow it

56. My checklist as I study companies
• Management –
– Is the management trust worthy –I look at past 5
years chairman’s statement and Management
discussion for action plans and see if they have
followed up these with actions in subsequent
years
– Are the managers following extravagant and lavish
lifestyles? Salary drawn, press reports about the
CEO etc throws some light

57. My checklist as I study companies
• Financials –
– Does the company have high ROE and ROCE
– Does the company have low or zero debt?
– All these are available through financial
statements

58. My checklist as I study companies
• What price should I buy?
– PE ratio – this should be high – as that denotes
growth companies –ideally 20 or more
– PEG Ratio –this should be close to 1 or less than 1
–the lesser the better – as that denotes that the
market is undervaluing the company
– For large and mid caps I forecast the share price
based on past ten year financial data.
– For small caps – I am flexible – as my exposure is
also low.

59. My checklist as I study companies
• Companies to avoid as per Warren Buffet
– Commodity companies – eg TATA STEEL, STERLITE
– Cash guzzling businesses -AIRLINES
– Industries that I do not understand

60. My sources of Information
• Company website
• Moneycontrol.com
• www.screener.in
• Analyst contacts

61. My allocation approach
• I use equity MF’s for parking funds till I find the
right stock.
• For large caps or high conviction mid caps – I
allocate between 2% and 5% of my portfolio
• For mid caps and high conviction small caps – I
allocate between 1 and 3% of my portfolio
• I do not add any new stock less than 1% of my
portfolio

62. My allocation approach
• I wait for 4 quarters once allocated to watch the
company performance and whether my
assumptions are right.
• If I am more convinced about the company – I
buy more stocks in that company in subsequent
years
• I typically get 4-5 new stocks per year at best.

63. My current portfolio
• Around 20% of my portfolio is MF’s – HDFC top
200, HDFC Mid Cap opportunities fund and HDFC
tax saver.
• Around 52% of my portfolio is six shares (appx
9% each) - Gruh Finance, Page Industries, Asian
Paints, Pidilite, Sundaram Finance and KRBL
• Around 25% of my portfolio is seven stocks
(appx 3% each) – Kitex, HDFC Bank, Igarashi
Motors, Amrutanjan, Shriram Transport,
Mahindra and Mahindra and Nandan Denims

64. Some of my compounding engines
Company name
Sales growth 10
yrs
Profit growth 10
yrs PEG
Gruh Finance 29.59% 28.62% 1.66
Page Ind 35.33% 37.31% 2.32
Pidilite 20.98% 22.76% 1.88
Sundaram
Finance 18.28% 13.22% 1.19
KRBL 20.92% 40.27% 0.33
Asian Paints 18.74% 23.20% 3.98
Kitex 18.47% 41.15% 1.14
HDFC Bank 27.18% 31.47% 0.85
Shriram
Transport 28.50% 27.20% 2.1
Nandan Denim 35.28% 40.02% 0.12
Shilpa medicare 33.82% 44.25% 1.15
THESE
ARE
RECOMMENDED
FOR YOU TOO
AT CURRENT
PRICES

65. My views on exiting an investment
Exiting an investment is only for three reasons:
1. You need the money
2. The company / stock price is not performing as
per your forecast – for this you need to give it 3-
4 quarters
3. There is a better ROI investment available

66. You can reach me through my websiteYou can reach me through my website
http://get-rich-and-retire-early.comhttp://get-rich-and-retire-early.com//

67. You can join my private mailing list forYou can join my private mailing list for
equity - http://get-rich-and-retire-equity - http://get-rich-and-retire-
early.com/equity/early.com/equity/

68. You can also get all updates throughYou can also get all updates through
the FB pagethe FB page