\nEXECUTIVE SUMMARY<\/strong><\/span><\/p>\n\n- \n
\n- Trailing twelve months\u2019 earnings of underlying portfolio companies grew by 59%.<\/span><\/li>\n
- NAV grew by 28.1% YTD with 73% funds invested in equity positions. Balance 27% is parked in liquid funds.<\/span><\/li>\n
- We share our favourite learnings from Charlie Munger.<\/span><\/li>\n
- We added to one position, it\u2019s now a major position. We exited from a minor position at a good gain.<\/span><\/li>\n
- Euphoric retail participants drive flows into risky segments. Their lack of fear should be feared.<\/span><\/li>\n
- Stance: Cautious<\/strong><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n
Dear Fellow Investors,<\/span><\/p>\n\u00a0<\/em><\/p>\n\u201cBull markets<\/strong> go to people\u2019s heads. If you\u2019re a duck on a pond<\/strong>, and it\u2019s rising due to a downpour,\u00a0<\/em><\/span>you start going up in the world. But you think it\u2019s you, not the pond.\u201d<\/em><\/span><\/p>\n-Charlie Munger, 1924 – \u221e<\/span><\/p>\n <\/p>\n Charlie Munger<\/strong>, partner of Warren Buffett, passed away last quarter at the age of 99. Warren credits Charlie for the mindset shift and phenomenal track record of Berkshire Hathaway. Charlie\u2019s teachings have had an important impact on our thoughts and behaviour. While it is difficult to do justice to cover it all here, but as a token of tribute, we take a shot at sharing some of his worldly wisdoms around thinking, living and investing better<\/strong>:<\/span><\/p>\n <\/p>\n Better Thinking<\/strong><\/span><\/p>\n\n- Lifelong multidisciplinary learning:<\/u> \u201cTo a man with a hammer the world looks like a nail\u201d<\/em>.<\/span><\/li>\n<\/ol>\n
\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0<\/span><\/p>\n\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Munger said that a single discipline often lacks tools to look at the world holistically. Having key mental models from<\/strong> multiple disciplines<\/strong> – compound interest from Mathematics, margin of safety from Engineering, natural selection from Biology, breakpoint, tipping moment and autocatalysis from Physics and Chemistry, behaviour from Psychology and many more \u2013 give better tools to analyse problems or opportunities. For eg. Economic theory predicts that demand falls as price increases. However psychology provides exception to this rule\u2013 often high prices of certain products indicate their exclusivity and in turn increase their demand.<\/span><\/p>\n\n- Read read read:<\/u> \u201cIn my whole life, I have known no wise people who didn’t read all the time \u2013 none, zero. Spend each day trying to be a little wiser than you were when you woke up. I believe in the discipline of mastering the best that other people have ever figured out. I don\u2019t believe in just sitting down and trying to dream it all up yourself. Nobody\u2019s that smart.\u201d<\/em><\/span><\/li>\n<\/ol>\n
\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 The road to better thinking and learning is to read. Munger read in truck loads across diverse topics. Buffett said that Munger has the best 30 second brain, he can think about the answers before the question ends. Munger admits that he is able to do this because of hours of study and analysis that has gone into forming opinions on wide range of topics of general importance. Those who keep learning<\/strong> will keep rising.<\/span><\/p>\n <\/p>\n \n- Seek to invalidate:<\/u> \u201cAny year that we don\u2019t destroy one of our best-loved ideas is probably a wasted year. Recognize reality even when you don\u2019t like it \u2013 especially when you don\u2019t like it.\u201d<\/em><\/span><\/li>\n<\/ol>\n
\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Seeking to invalidate<\/strong> long held incorrect beliefs is necessary to progress. The key is not to ignore disconfirming evidence but to embrace them. Munger gave example of Charles Darwin (father of the theory of natural selection), who trained himself to intensively consider any evidence that went against his hypothesis.<\/span><\/p>\n <\/p>\n \n- Human Biases<\/u>: In his famous talk \u201cPsychology of Human Misjudgement\u201d<\/em>, Munger shared 25 human tendencies\/ biases that lead to judgement errors<\/strong>. An awareness about them can reduce errors. Here are a few popular misjudgements:<\/span>\n
\n- Incentive caused biases:<\/em> it is difficult to do something that goes against incentives. For eg: AUM based fee or brokerage will lead to asset gathering or portfolio churn respectively.<\/span><\/li>\n
- Reciprocity bias:<\/em> tendency to return favours and disfavours. For eg: releasing favourable equity research reports in exchange for investment banking deals (IPOs, M&A, block trades etc.).<\/span><\/li>\n
- Liking\/ loving bias:<\/em> tendency to ignore faults or grant favour to those liked or loved. For eg: getting investment opinions influenced by good looking\/ presentable top management of a company.<\/span><\/li>\n
- Confirmation bias:<\/em> tendency to look at facts selectively so as to support already held beliefs or conclusions. What a man wishes, that also will he believe. For eg: overlooking bad news around owned stocks.<\/span><\/li>\n<\/ol>\n<\/li>\n<\/ol>\n
<\/p>\n Better Living<\/strong><\/span><\/p>\n\n- Invert, always invert<\/u> \u2013 \u201cIf you want to achieve X, find how to avoid non-X. Invert, always invert. To live a good life, find how to live a bad life and don\u2019t do it. All I want to know is where am I going to die so that I donot go there. It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”<\/span><\/li>\n<\/ol>\n
\n- Track Record:<\/u> \u201cI think track records are very important. If you start early trying to have a perfect one in some simple thing like honesty, you\u2019re well on your way to success in this world. Remember that reputation and integrity are your most valuable assets \u2013 and can be lost in a heartbeat.\u201d<\/span><\/li>\n<\/ol>\n
\n- Work\/ Career<\/u>: \u201cThree rules for a career: Don\u2019t sell anything you wouldn\u2019t buy yourself. Don\u2019t work for anyone you don\u2019t respect and admire. Work only with people you enjoy.\u201d<\/span><\/li>\n<\/ol>\n
\n- Happiness<\/u>: \u201cAvoid envy, avoid self-pity, avoid resentment and have low expectations.\u201d<\/span><\/li>\n<\/ol>\n
\n- Mistakes<\/u>: \u201cA meaningful life cannot be lived without making mistakes (corollary: pursuit of returns higher than risk-free rate will invite chances of mistakes). But try avoiding fatal ones by first learning from others\u2019 mistakes.\u201d<\/span><\/li>\n<\/ol>\n
<\/p>\n Better Investing <\/strong><\/span><\/p>\nBelow are few useful thoughts that Munger has shared on investing:<\/span><\/p>\n\n- All intelligent investing is value investing<\/strong> \u2013 acquiring more than you are paying for. You must value the business in order to value the stock. (inference: growth and quality are components of value)<\/span><\/li>\n
- A great business at fair price<\/strong> is superior to a fair business at great price. (Warren Buffett attributes the shift of his style and resultant success of Berkshire Hathaway to this one secret<\/strong>.)<\/span><\/li>\n
- There are worse situations than drowning in cash<\/strong> and sitting, sitting, sitting. I remember when I wasn\u2019t awash in cash \u2014and I don\u2019t want to go back.<\/span><\/li>\n
- We have three baskets for investing: yes, no and too tough<\/strong> to understand.<\/span><\/li>\n
- The wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds<\/strong>. And the rest of the time, which can be very long, they don\u2019t. It\u2019s just that simple.<\/span><\/li>\n
- I want to think about things where I have an advantage<\/strong> over others. I don’t want to play a game where people have an advantage over me. I look for a game where I am wise, and others are stupid. And believe me, it works better. God bless our stupid competitors. They make us rich.<\/span><\/li>\n
- How could economics not be behavioural<\/strong>? If it isn\u2019t behavioural, what the hell is it?<\/span><\/li>\n
- Bull markets<\/strong> go to people\u2019s heads. If you\u2019re a duck on a pond, and it\u2019s rising due to a downpour, you start going up in the world. But you think it\u2019s you, not the pond.<\/span><\/li>\n
- Understanding both the power of compound return<\/strong> and the difficulty of getting it is the heart and soul of understanding a lot of things.<\/span><\/li>\n
- It\u2019s (investing) not supposed to be easy<\/strong>. Anybody who finds it easy is stupid.<\/span><\/li>\n<\/ol>\n
Book suggestion: Those interested in reading more about him can start with Poor Charlie\u2019s Almanac<\/em><\/a><\/span><\/p>\n <\/p>\n A. PERFORMANCE<\/span><\/p>\n <\/p>\n A1. Statutory PMS Performance Disclosure<\/span><\/span><\/h2>\n\n\n\nPortfolio<\/span><\/strong><\/td>\nYTD FY24<\/span><\/strong><\/td>\nFY23<\/span><\/strong><\/td>\n\u00a0FY22<\/span><\/strong><\/td>\nFY 21\u00a0<\/span><\/strong><\/td>\nFY 20*<\/span><\/strong><\/td>\nSince Inception*<\/span><\/strong><\/td>\nOutper-formance<\/span><\/strong><\/td>\nCash Bal.<\/span><\/strong><\/td>\n<\/tr>\n\nCED Long Term Focused Value (PMS)<\/span><\/strong><\/td>\n28.1%<\/span><\/strong><\/td>\n-4.3%<\/span><\/strong><\/td>\n14.9%<\/span><\/strong><\/td>\n48.5%<\/span><\/strong><\/td>\n-9.5%<\/span><\/strong><\/td>\n15.5%<\/span><\/strong><\/td>\n| <\/td>\n | 27.0%<\/span><\/strong><\/td>\n<\/tr>\n\n| S&P BSE 500 TRI (includes dividends)<\/span><\/td>\n | 34.1%<\/span><\/td>\n | -0.9%<\/span><\/td>\n | 22.3%<\/span><\/td>\n | 78.6%<\/span><\/td>\n | -23.4%<\/span><\/td>\n | 19.7%<\/span><\/td>\n | -4.2%<\/span><\/td>\n | NIL<\/span><\/td>\n<\/tr>\n\n| *From Jul 24, 2019; Since inception performance is annualised; Note: As required by SEBI, the returns are calculated on time weighted average (NAV) basis. The returns are NET OF ALL EXPENSES AND FEES. The returns pertain to ENTIRE portfolio of our one and only strategy. Individual investor returns may vary from above owing to different investment dates. Annual returns are audited but not verified by SEBI. W.e.f. April 01, 2023 SEBI requires use of any one from Nifty50, BSE500 or MSEI SX40 as a benchmark. We have chosen BSE500 as our benchmark as it best captures our multi-cap stance. <\/em><\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n <\/p>\n Protecting our wicket<\/strong><\/span><\/p>\nBroader markets scaled new peak this year. BSE 500 index was up 34% since Mar 2023. Higher euphoria was seen in mid and small caps with BSE Midcap and BSE Smallcap indices being up 53% and 58% respectively. Despite being only 73% invested, we were also up 28% thanks partly to the general rise in market prices.<\/span><\/p>\nWhile evaluating investment performance in bullish times like current one, entire focus needs to be on portfolio risk with a complete blind eye<\/em> to headline returns<\/strong>. For, these are the heady times that mess up human mind and engender mistakes. Without worrying about lagging index or FOMO, we continue to adhere to price and quality discipline while deploying capital in the current expensive market. This discipline, we hope, will allow us to fall less and make up for current relative underperformance versus the index. To invoke cricket parlance, the pitch is difficult, conditions overcast and the ball is swinging and bouncing. This calls for playing defensive and protecting our wicket. Stance: Cautious.<\/strong><\/span><\/p>\n <\/p>\n A2. Underlying business performance<\/u><\/strong><\/span><\/p>\n <\/p>\n \n\n\nPast Twelve Months<\/strong><\/span><\/td>\nEarnings per unit (EPU)2<\/sup><\/strong><\/span><\/td>\nFY 2024 EPU (expected) <\/strong><\/span><\/td>\n<\/tr>\n\n| <\/td>\n | <\/td>\n | <\/td>\n<\/tr>\n | \nSep 2023<\/strong><\/span><\/td>\n8.61<\/sup><\/strong><\/span><\/td>\n8.0-9.03<\/sup><\/strong><\/span><\/td>\n<\/tr>\n\n| Jun 2023 (Previous Quarter)<\/span><\/td>\n | 8.1<\/span><\/td>\n | 8.0-9.03<\/sup><\/strong><\/span><\/td>\n<\/tr>\n\n| Sep 2022 (Previous Year)<\/span><\/td>\n | 5.4<\/span><\/td>\n | <\/td>\n<\/tr>\n | \n| Annual Change<\/span><\/td>\n | 59.3%<\/span><\/span><\/td>\n | <\/td>\n<\/tr>\n | \n| CAGR since inception (Jun 2019)<\/span><\/td>\n | 14%<\/span><\/td>\n | <\/td>\n<\/tr>\n | \n| 1 <\/sup>Last four quarters ending Jun 2022. Results of Jun quarter are declared by Nov only. 2<\/sup> EPU = Total normalised earnings accruing to the aggregate portfolio divided by units outstanding. 3 <\/sup>Please note: the forward earnings per unit (EPU) are conservative estimates of our expectation of future earnings of underlying companies. In past we have been wrong \u2013 often by wide margin \u2013 in our estimates and there is a risk that we are wrong about the forward EPU reported to you above. <\/span><\/em><\/span> | | | | | | | | | | | | | | | | | | | | | | | | | | | |