You do not find an IIT-IIM graduate single-mindedly working on stock strategies too often; do you?
That’s not the only attribute that makes Gaurav Sud stand out. This Gurugram-based investor also has a unique style of investing: he keeps looking for stocks which may have taken a dent because of a negative event. And then he tries to look for signs of insider buying in such dips. If the promoter starts buying at this point, he would jump at the prospect.
“I don’t invest in growth stocks or chase momentum,” says Gaurav.
In a regular week, he would have a quick check on the 52-week low list and then look for common names on the insider buying list. Then, he filters out the stocks whose industries are facing some headwind or stocks are suffering due to some negative event. Some of the rest could be potential value bets.
“Many a time, there is a reason for the promoter to buy his stock from the market. It’s important to figure out that reason. Sometimes a negative event may cause a stock correct much more than its fundamental value, throwing up a buying opportunity,” says the 42-year old.
Gaurav claims he made money on Unitech during 2002-06 and Ashiana HousingNSE -2.10 % over the past decade. Unitech shares jumped from just Rs 0.30 on January 2, 2002, to Rs 229.90 on December 29, 2006. Ashiana has climbed to Rs 163.45 as of May 11, 2018 from Rs 4.10 in January 2006, where he had bought it.
He also claims to have earned 5-10 times returns from Suprajit EngineeringNSE 0.31 %, NESCO, Gulf Oil Lubricants, SMS Pharma, Cosmo Films, Arman Financial and Deepak NitriteNSE -0.61 %. He still holds Ashiana Housing and NESCO.
ETMarkets.com could not independently verify his holdings at present or back then.
Gaurav has a knack for stock picking in special situations such as open offer, merger, demerger, buyback, rights issue and delisting, among others.
This kind of investment is of limited duration and returns expectations are much lower. But the certainty of making a profit on investment is high, he says.
That man, who discovered his passion for stocks after reading legendary investors Warren Buffett and Charlie Munger, says he tries to do a fair bit of scuttlebutt by speaking to the company’s customers, suppliers and competitors when he zeroes in on a firm.
“If the company’s balance sheet metrics are better than the peers and I can understand the business, then I invest for the long term,” he explains.
He also follows American investors such as Seth Klarman, Howard Marks and Akash Prakash, CEO and MD of Amansa Capital.
He says company-specific factors can often be a cue to pick the stock. For instance, in case of Ashiana Housing, he liked the company’s differentiated business model which entailed building mid-income homes and holding limited amount of land as inventory, besides adopting a joint development model and selling directly to customers.
Gaurav says before picking a company he tries to look at least its annual reports for at least five years and attend conference calls.
He says it’s very important to get it right when selling a stock. The right time to sell a stock is when the stock has become overvalued within his parameters or the hypothesis on which he bought it is no longer valid.
“I often sell a stock when I find a better opportunity that can generate higher returns than the existing stock,” he reasons.
Gaurav, a product of IIT Delhi (1993-97) and IIM Calcutta (1997-99), started investing in stock market in a small way from 1998. Over the years, he has channelled all his savings into stocks.
“I process of reading up on a company and sector, digging up new information and making a hypothesis for investing. It is more fun than work to me,” he said.
Learning from mistakes
After getting mouth-watering returns from Unitech, Gaurav put all of his investment in the stock market in 2007 and did not care rich valuations. But overconfidence led to disaster.
“I felt so sure of compounding my money that I had no fear of the downside. The market crash of 2008 was a shocker and I learnt some big lessons on risk management,” he says.
Looking back, Gaurav rates his investment in Syndicate Bank in 2012 and JP Associates in 2013 as his biggest mistakes. He purchased Syndicate Bank at Rs 110, considering it was giving a dividend of Rs 4.5 and trading close to book value. Since then, the stock price has halved as the bank’s NPAs ballooned, as is the case with most PSU banks. Gaurav is still holding the stock.
He bought JP Associates at Rs 68 after the QIP of 2013. “After that the company got into a debt trap and had to sell all its prized assets one by one. I exited it in 2017 at 80 per cent loss,” he recalls.
Lessons to investors
Gaurav has a five-point checklist for his peer investors to become a successful investor on Dalal Street.
• Always invest money that you do not need for the next 4-5 years.
• Never build leverage in your portfolio. While it provides great returns in a rising market, it can wipe out your capital if the investment goes against you.
• When you invest, always try to answer this question – What is my edge over other investors in this stock. This edge could up your ability to look at the long-term performance and ignore the short term underperformance. It could be your domain knowledge in that industry or could be your contrarian view from the consensus.
• Look to build a network and discuss your investments or ideas with people you respect and trust.
• If you cannot devote enough time on your investment, then it is much better to invest through mutual funds and trust professional fund managers. In India, most of the equity mutual funds have outperformed their benchmarks for over long intervals.
He also recommends the following books for avid market participants: Misbehaving by Richard Thaler, Bull – A History of the Boom and Bust, 1982-2004 by Maggie Maher, Roger Lowenstein’s When Genius Failed and Thinking Fast and Slow by Daniel K ..
Views on present market scenario
He feels that the current market valuations are on the higher side. “On a percentile basis, Nifty PE valuations are in the 95-96 per cent band and with macro headwinds like rising crude oil and interest rates, I would tend to be cautious,” he says further.
He is positive on the road sector and sees rising air traffic as a mega trend, which will benefit some companies directly or indirectly in years to come.