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The Equitymaster Way

'What courses should students take if they want to become successful investors?'

This was a question put forward to the value investing legend Warren Buffett during one of his company's AGMs. And as is the case with most of the things he does, the Oracle's answer was all simplicity. He was of the view that in order to be a successful investor there are only two things that matter. And these are the ability to value businesses and an un derstanding of how the markets work.

Outliers of the investing business

Research analysts, are supposed to be ' a tribe of professionals who work hard to carry out the twin responsibilities of valuing businesses and understanding markets'. And that too in the most objective manner possible.

Alas, that's not always the case.

There's a mountain of data out there to suggest that research analysts don't necessarily work in the best interest of investors. This is because they don't earn their incomes based on how many right and wrong recommendations they make. Instead, they are based on how many feel-good reports they wrote about the client who has other business relationships with the firm these research analysts work for.

In other words, the same companies they write about... determine their incomes.

It is natural for objectivity to get tossed out the window and the interest of the small, retail investor to get quashed under such a scenario.

This is not all. Their incomes also depend on brokerage revenues. This means that the more they make an investor transact in stocks, the higher the brokerage revenues and consequently, higher the incomes they take home. This is again not in the best interest of individual investors. For stocks are not pieces of paper but part ownership in a company and one cannot keep switching real, life and blood businesses frequently for the sake of slightly higher brokerages.

We are proud to say that we are sort of outliers of our industry.

We have neither any brokerage arm that compels clients to churn portfolios frequently nor do we care about companies getting displeased with our reports for we are totally committed to our subscribers. In fact, we have even been turned away by few companies with the excuse that we would not make any difference to their market capitalisations.

But none of this has deterred us. For success in the area of stock research does not come with having good relationship with clients nor does it come with hiring star analysts. As Buffett pointed out, what matters is good old common sense and a fiercely independent thought process not coloured by any hidden agenda.

Value investing - The style we are devoted to

If investing isn't about buying a stock at a discount from the determinable intrinsic value of the company, then it can't be anything else.

This cardinal principle, propounded first by Benjamin Graham, the father of value investing, stands as strong today as when it was first introduced about 7-8 decades ago. In fact, if anything, its appeal has only increased, reinforced by the numerous success stories that the discipline has spawned. None bigger than that of Warren Buffett, who is one of the richest men in the world, solely on the basis of few value investing principles handed down to him by Benjamin Graham and the ones that he steadfastly stuck to.

At Equitymaster, we are totally devoted to value investing and would not ever give up this approach for anything else.

Our sole aim is to find companies with strong competitive advantages, impressive past track record and an honest and capable management team that are trading at a discount from their intrinsic value and recommend them to our subscribers.

However, we've not restricted ourselves to just recommending stocks. We are also firm believers in investor empowerment and consequently, through the platform that our website offers us, we've written copious amount of material on sensible, long term investing. You can rest assured that this effort is only going to get bigger and better in the times to come

What does Equitymaster's track record say?

It is perhaps this approach that has led lakhs of readers to warm up to us and our ideas. For they know what they will get here is 100% unadulterated and unbiased recommendation. We will of course make our fair share of errors but what we are aiming for is that our good calls outnumber our bad ones by a huge margin.

We are proud to say that so far, that's precisely been the case. In our various services, we have a track record of being right anywhere between 70% to 80% of the times. And please bear in mind that we are talking pretty long term here. In fact we recently completed 10 glorious years of one of our services where our track record stands at a very impressive 80%. In other words, for every 10 recommendations that we have given, 8 have gone on to hit their target within the stipulated time period. Impressive indeed whichever way you look at it!

Instances that have reinforced subscribers' faith in us

The twin magic of an independent thought process and our strict adherence to value investing principles was evident in the way we side stepped one of the biggest fiascos in the history of Indian capital market. We are referring to the famous, or rather infamous, IPO of Reliance Power. The issue was quite audacious we should say, with the company seeking to raise in excess of Rs 100 bn, making it one of the biggest IPOs to hit the Indian market. And investors were seen falling over each other in order to subscribe to the issue. Their excitement was fuelled not only by the record highs on the Sensex, but by investment bankers and analysts who literally went berserk in explaining the merits of the issue. All this for a company that had not earned even a rupee in revenue at the time of going for the IPO.

Equitymaster Hall of Fame
Stock Date of Recommendation Returns till date* Publication
Page Industries 15-Jan-09 16,477% Hidden Treasure
L&T 05-Nov-02 3,309% StockSelect
Voltas 30-Jun-03 2,740% StockSelect
M&M 07-Apr-03 1,821% StockSelect
eClerx Services Ltd 14-Mar-09 1,400% Hidden Treasure
TCS 07-Feb-09 1,325% StockSelect
State Bank of India 23-Sep-02 1,197% StockSelect
Titan 21-Jul-03 1,082% StockSelect
Balkrishna Industries Ltd. 15-Oct-09 1,058% Hidden Treasure
Tata Elxsi 15-Apr-20 1,051% StockSelect
Exide Industries 22-Nov-03 1,043% StockSelect
Mold-Tek Packaging Ltd 14-Mar-16 581% Hidden Treasure
NIIT Technologies Ltd. 15-Oct-08 550% Hidden Treasure
Titagarh Wagons 20-Mar-14 545% Microcap Millionaires
City Union Bank Ltd. 15-Jan-10 489% Hidden Treasure
CDSL 16-May-20 419% Hidden Treasure
CanFin Homes Ltd 14-Oct-14 330% Hidden Treasure
Trident Ltd 01-Aug-17 324% Hidden Treasure
Graphite India 20-Mar-20 275% Microcap Millionaires
Cosmo First 14-Jan-17 271% Hidden Treasure
eClerx Services 02-Apr-20 208% Double Income
Puravankara 20-May-16 204% Microcap Millionaires
DCM Shriram Industries 18-Sep-20 183% Microcap Millionaires
Precision Camshafts 30-Sep-20 179% Exponential Profits
LEEL Electricsls 21-Apr-14 177% Microcap Millionaires
HIL 20-Feb-14 170% Microcap Millionaires
Navin Fluorine 20-Feb-14 170% Microcap Millionaires
NCC 14-Sep-20 168% Exponential Profits
Ambika Cotton 20-Apr-20 161% Microcap Millionaires
Gujarat Ambuja Exports 05-Feb-21 145% Double Income
Tata Motors DVR 30-Oct-20 132% Exponential Profits
GMDC 26-Feb-21 129% Exponential Profits
IIFL Securities 12-Nov-20 122% Exponential Profits
Sharda Cropchem 03-Sep-21 116% Double Income
NBCC (India) 08-Jun-20 109% Exponential Profits
Geojit Financial Services 25-Oct-19 105% Exponential Profits

*Returns calculated upto date of closing positions or September 2022. Past performance does not guarantee future results.

However, our objective assessment had an entirely different story to tell. It told us that the company was on shaky grounds. Not only was there no underlying business to figure out the valuations but the issue too was excessively priced we felt. Therefore, rather than go with the herd, we preferred to go by the numbers and we recommended our subscribers against investing in the issue.

We were perhaps the only major research outfit to do so.

To cut a long story short, the IPO turned into a colossal failure and precious savings of thousands of small investors got eroded.

For us though, it was nothing short of a ringing endorsement of our philosophy and our research process. It clearly showed how a customer-oriented approach rather than commission -oriented could work wonders in the industry.

Of course, this is not to say that this is the only bubble whose eventual deflation we correctly predicted. There have been numerous other occasions where we've gone against the crowd. And in the process, helped our subscribers generate handsome returns or prevent them from losing huge sums of money.

The recommendation on Tata Motors at the depth of the crisis was another such decision we believe.

It was a time when no one was willing to touch the stock even with a 6 ft pole.

However, we felt that factors affecting the company were more short term in nature and given the competitive strength of the company and its staying power, it could reward patient shareholders. Our judgement eventually proved to be correct with the stock making huge gains over the next couple of years.

Similarly, we have also recommended many mid and small cap stocks over the years that have greatly benefited our subscribers.

Our approach to investing will not appeal to everyone...

Having said that, we firmly believe that investing is a marathon and not a sprint. In other words, we have no place for tricks or methods that encourage short term thinking and promise investors to give multi-fold returns in a very short period of time.

We are all about sensible long term investing. And given that businesses evolve over time and take years to prove themselves, how can it be any different we believe. Therefore investors looking to invest in Equitymaster recommendations from the point of view of making a quick buck or identifying the next big fad in town will be left hugely disappointed in us.

For long term value investors though, we are pretty confident of being the topmost resource and the go-to website when it comes to gaining insight on value investing and building a market beating portfolio.