There is saying that if you start investing early the chances of claiming success in the markets are high. Vijay Kedia, who started his investing lessons at the age of 14 has many things to share. He speaks with Jitendra Kumar Gupta about his journey from a trader to investors and how he identifies some of the multibagger stock ideas. Kedia is director at Kedia Securities and currently runs his proprietary portfolio and holds stake in some of the companies as Agis Logistics, Godrej Properties, Cera Sanitaryware and Atul Auto among others.
Q. You started investing in markets as early as at the age of 14. Do you think early investing works? What has been your experience?
A. I started my career early and experienced so many bull and bear markets so far. I am lucky to be born in a family with a stock market background. I think no academic degree in the world can guarantee you a success in stock market. In my view it is ultimately the experience which you learn either from your own mistakes or from other's mistakes, that counts. Early investing does helps in the market as one learns from one's mistakes with a smaller risk at stake. It’s a continuous learning process. It is good to lose money with smaller risk and learn then to make money with bigger risk and earn.
One must understand that stock market is a “high risk- high gain” business. It is a full time business which has its own rules which need to be strictly followed. One has to fall in love with the market. Market rewards you as per your perception about it. If you treat it as a gambling den, it will prove a gamble for you.
Q. If I can call it so you are trader turned investor. Tell us about you experience as a trader and investor? If you at all have to trade in stocks what are the preconditions that you work with?
A. I started as a compelled trader in Kolkata because I had no money to invest. Stock market rewarded me as it rewards everyone as beginner’s luck. But later on, I experienced more downs than ups and finally learnt that stock market trading is the hardest way of making easiest money. Here no one is right for ever. It is a business of strict discipline and total concentration. After being unsuccessful many a times in trading I learnt the art of cutting losses. After this, things in trading changed for me. Even after losing 7 times out of 10 times in trading I would not be in net loss as my losses were shorter than my profits. The one and only precondition for trading in stocks is to cut losses.
Then one of my friends S P Modi in Kolkata inspired me to invest. He identified many multi-baggers in those days when very few in Kolkata Exchange were even discussing investments. There I started to allocate a part of my money made from trading into investment. I used to invest in stocks recommended by Modi and got my money multiplied based on my small investment size. Eventually my passion for investments kept rising. Now the fire to identify a multi-bagger on my own was on the radar. With the primary education that I had picked up from Modi, luck and passion, it finally happened. While I was in Kolkata, I identified Punjab Tractor at Rs 50 which multiplied 10 times in next 3 years. But my investment base was very low.
In 1990, with the help of my friend Sameer Kedia, I came to Mumbai, with Rs 1 lakh in my savings to try my luck, and joined him in the ring. He showed me the way to the Bombay Stock Exchange (BSE). The first two years were hard and troublesome. I started with staying at paying guests and kept changing places. Finally in 1992-93 I was lucky to identify ACC at Rs 300 which I sold at Rs 3,000 within a year and half or so and I bought my first house in Mumbai. That gave me a lot of encouragement.
Q. You have bought significant stake in some of mid-size companies? How do take care of the risk that comes along with companies in terms of volatile earnings, management etc?
A. Management, business growth and understanding the downside risk are the most important things that I look for before buying any shares in any company. I believe that best businesses can be ruined by bad management and bad businesses can be revived by the best management. If management is experienced, aggressive, transparent and dedicated to their business, they will protect your investment in order to protect their own wealth and reputation.
A company should have the ability to grow more than the economy and its peers, otherwise the stocks will not outperform. Besides, even if one is 100% sure of the fair price of a stock, one should be mentally prepared to face a fall of 20 to 25% due to factors that one can not foresee and forecast. All big companies were once a small company. If small management has fire in the belly and cares for its reputation, it will make the investor big along with the company.
Q. When did you first get the idea of buying stakes in the company and how did you manage to stay long with them?
A. In Mumbai, I luckily befriended Rakesh Jhunjhunwala. He favoured me and made me invest in a few of his stocks. I was very lucky that he used to share, not only his stocks, but his knowledge with me. I wanted to imitate Rakesh and buy 5% in any company identified by me but I had no courage. Finally with the secondary education pick up from him, during 2004-05 I identified Aegis Logistics at Rs 20 and bought 5% stake for the very first time in my life. The share did not move much for next one year and I was disappointed and fearful. But he was my source of courage. Luckily, the market realised the potential and the share moved to Rs 300 in no time. I then exited. But my wrongs are still more than my rights.
I realized that investing in 200 companies is not a thrill. One will never be happy. One should neither put all eggs in the same basket nor should he put an egg in each basket. So there I learned to concentrate on the whole market, identify say 50 scrips and select one. Keep a long term vision of minimum 5 years as it takes this much time for a small company to become a medium company. I don’t decide when to exit when I enter. I exit when I need money to invest somewhere else, or I feel that the price is unrealistic. As long as I am invested in the stocks, its profit does not lure me. I feel this money is not mine till I sell the stocks.
Q. How much weightage do you give to the dividends, growth and scalability of the business? Do you search for companies with high opportunities in the sector or a pure bottom-up approach is best suited?
A. According to me, dividend is an important part but not the sole criteria to invest. Whereas, growth and scalability is the top most criteria of the business. The company in which you are investing today might have a low dividend yield, but as the company grows faster the dividend payout should also rise in tandem. If the company’s growth is stagnant with higher dividend yield today, it might affect the dividend payout later. I use a bottom-up approach for investing. Although, in back of my mind, the sector also plays a crucial role. It is faster if the wind and the ship sail in the same direction. I like companies which are not very famous thus available at a cheaper valuation. Once a stock comes into the limelight the valuation also rises. Thus, I try to use the theory which says catch them young.
Q. Tell us at least about two multi-bagger ideas that you identified in the past in terms of how, when and why you bought them?
A. The first multi-bagger is Atul Auto Ltd. I bought this stock 6 years ago. At that time, the automobile sector was turning around and Atul Auto had a very low valuation as the management was unknown. But the management of the company was very transparent and reliable. Chairman of the company Mr Jayanti Chandra had the zeal to grow. It was the first company in Gujarat way back in 1990s which introduced an innovative 3-wheeler automobile vehicle called 'Chhakada'. In 2006 the company was planning to set up a state of art automobile plant to manufacture latest 'Rear Engine' 3-wheelers similar to Bajaj auto, piaggio etc. That changed the whole story. The product became successful and the company became a national player from a regional player and stock price also appreciated more than 7 times in 5 years.
Another multi-bagger that I identified is Cera Sanitary Ware. When I bought it 5-6 years back, the company was already growing steadily at bout 12-13% annually and paying a modest dividend. It was also available at half the valuations of its competitors. I sensed the opportunity in the backdrop of booming housing sector in India. Especially I was of the view that the middle class housing demand for Cera’s product should continue to be in higher double digits for years to come and the stock was available at a PE of some 6 or 7. I was luckily right and company grew in 20% annually and stock price appreciated more than 7 times in last 5 years.
Q. Could you also tell us about one future multi-bagger idea, along with the rational?
A. I will give the idea of one which I have invested in - Paper Products, it is a multi-national company having its presence all over the world. Almost all FMCG companies in India, irrespective of whether they are multi-national or national are its clients as it provides packaging products to them. The company is growing at a modest rate of some 10% annually. But, as the FMCG market is expected to remain buoyant, packaged foods would be the next big thing to happen in India. So I expect that going forward, Paper Products will grow faster. Current valuation of this multinational company appears to be very cheap.
Q. How do you assess the quality of the management?
A. The key to assess the quality of management of any company is their past record and current practices. It needs to be analyzed that whatever the management has predicted about its company or any group company, has been fulfilled or not. Also, how the management has behaved or performed during a slowdown in the past and how much management is devoted towards the company in which we are investing. Other aspects are, is management ambitious enough to grow and what are the future plans and the capability of its team to deliver.
Q. If somebody puts a gun to your head and tells you to buy Kingfisher at current price, will you buy it?
A. Yes I will certainly buy it, but will sell it in the next possible minute.