Reflections on My Life

19 years have passed since I entered the stock market through my first and last job as an equity research analyst. 11 years have passed since I left that job to start on my own.

I recently tweeted about my experiences during both these phases, which I thought I would share with you here too.

There have been numerous lessons I have learned along the way, but what follows below contains some of the most important ones. Mostly, it’s about the memories I have made on this journey.

This is how an important part of my life has flowed over the past 19 years, and the best thing I have enjoyed about the whole journey is, well, the flow, with not much idea about where I would go.

If you are still reading, let’s start right here.

2003-2011 – Years working on a job

4th April 2003. My first day in my first job as an equity analyst, and the first day of my career in the stock market. The job paid peanuts (less than what my office’s senior peon was earning), but I was also a monkey without any inkling of what the market really was and what made stocks go up and down. Joining this job straight out of an MBA was an accident. I wanted to get into the forex market, but this was the only job on offer.

I had made a promise to my to-be-wife that I would get a job quickly after the MBA else her parents would have gotten her married somewhere else. And so, I got started.

I realized very quickly that my boss had not hired me for my research skills, because I did not have any. I could not differentiate between market cap and book value, or P/E and EPS. Years later, I got to know that they liked my EQ better than my IQ and so I was hired. In short, I got lucky because you do not get stock market jobs for your EQ.

To start with, I was allotted the software/IT sector to analyze. The first company that came my way was Infosys. The company was slated to announce its FY03 results on 10th April, and I was required to write an analysis of the same. The results came, and the company missed its 4Q “estimates” and warned that earnings for FY04 would also disappoint investors. The stock crashed 32% on that day. Remember, this was just the 5th day of my job as a software analyst, and I had to reason why Infosys fell and what should investors do with the stock. I “made up” my report, thoroughly edited by my senior. It sounded intelligent, but if I were to look at it now, 19 years later, I would see “I don’t know anything!” written all over my report.

Lesson number one for you – When you see an analyst report and get impressed by the analysis, know that the analyst may just be into the first week of his/her job and may not have any real understanding about whatever he/she may have written.

Lesson number two – Stocks, of even the best companies, may crash for funny reasons, like missing past estimates and forecasting a weak next quarter or year. That is what is the investment horizon of most people working in the market. And so, if you are playing the long-term game, you must use such opportunities to get into high-quality businesses suffering short-term issues. Guided by my wiser seniors, I learned it early, though I was not allowed to buy Infosys’ or IT shares as per my job requirements.

Time passed, and I learned to create excel spreadsheets to analyze companies’ past and forecast their future. Most of the time, forecasting was easy. I just had to look at the past, work around growth and margin numbers close to how they looked in the past, and then create the future while believing that I made them with a great amount of certainty.

I still had to come across the learnings of Graham, Buffett, Munger, and Fisher, and so had no idea was value investing was, or what margin of safety meant. I was analyzing businesses and estimating the future with zero margin of safety. But things were working out well, as we were in a bull market. In fact, the first five years of my job (2003-2008) were probably the best bull market years India has ever seen.

Sensex was around 3160 on the day I started in April 2003, and it reached a peak of 21200 in Jan. 2008. By 2006, I was also handling power, engineering and infra sectors. Given the way these stocks performed in the 2006-2008 period, my ego also magnified along with my body frame. But the fact that I was working with an independent research house, and not a broker (thankfully!), there was not a time when I even thought about writing reports to fleece clients.

Our incentives were in writing well-analyzed and honest reports, and not indulging our clients in excess activity/trading. I thank my stars for that because it was in that firm and job that I learned that honesty can be practiced even while working in the financial market. And so, in hindsight, I realize I was ‘honestly stupid’ in recommending investors to ‘hold’ on to excessively priced power, infra stocks. We had stopped giving buy calls somewhere around mid-2007. But we were not even giving sell calls. We were stuck at ‘holds,’ which I am sure caused a lot of wealth erosion for our clients in 2008.

Thankfully, I had completely avoided the scam stocks, and that was a saving grace. In fact, when I wrote the IPO report of Reliance Power and after a 25-year DCF had arrived at an intrinsic value of ₹40 (forty) per share when the IPO price was around ₹450 per share, ours was the only firm that had an ‘Avoid’ rating on that IPO. We were even called by some ‘high authorities’ and were questioned about our bad rating on the IPO. But we stuck to our voice, and it paid off. Reliance Power never went higher than its IPO price, ever. That was one of my moments of ‘being right’ on a stock, and I look back at that with some pride.

My research role got me entry to a lot of analyst meets and a few investor conferences, but since we were a small-time research firm and not a large brokerage that can ‘move’ markets, we were often working from the sidelines.

In fact, once when I called India’s largest power company to seek a management meeting, I was asked point-blank – “What report would you be writing on us?” I said, “It depends, and would be based on my analysis after this meeting.” The Investor Relations lady on the other side asked, “So it could be a sell report as well?” I said, “Yes.” She banged the phone down. This was not just one incident. We were asked quite a number of times about what we would do in return for the favour of a management meeting.

It was a lesson in how companies that publicly look sane and sound, may be seeking market cap gains and nothing else from analyst reports. Such experience put me off enough to not meet single management after I quit my job in 2011. I now make my investment decisions based purely on publicly available decisions – no conference calls, management meetings, AGMs, or factory visits. And that has not caused any difference in how I have done as an investor (and I have done reasonably well).

Anyways, the bull market of 2006-08 led me to believe that I was among the masters of the universe and could easily predict the future of stocks and businesses. All I needed was an excel sheet and the ability to drag and drop growth numbers. The crash of 2008 brought me, and my complex excel models, to our knees. In hindsight, I learned that the more complex the analysis in the stock market, the more confusion and losses it can create.

Anyways, that period also left me with the realization that predicting the future of businesses and recommending stocks were not something that I wanted to work on for the rest of my life. Rather, I wanted to get on the ground and teach people how not to lose their hard-earned money in stocks.

I had seen enough of the financial devastation in 2008, and that changed something within me about what I wanted to do in life. I continued in that job till 2011 because I had a financial liability – loan on a home I had purchased in 2006. I pre-paid a part of that just before the markets crashed in 2008, and then entirely in 2010. I could manage that because of frugal living, enough savings, and two good markets – pre-2008, and during 2009-10.

A lesson – Selling your investments that could earn 12-15% annual return to pay off your home loan that costs 6-8% makes for bad financial sense. But it made tremendous emotional sense for me, as it allowed me to have zero liabilities so that could have enough margin of safety while quitting my job. Sometimes, it is fine to let your emotional sense overpower your financial sense.

Another lesson – it’s important to give luck due credit. It plays a very important role in your life as an investor. And so that it continues to play a positive role in your life, you must keep it happy by thanking it often. But all you need to find consistent good luck is through hard work. Nothing else gets it closer to you.

The reason I could quit my job was because of my savings, staying put in the markets when it mattered, and of course, good luck. Not to forget that by the time I had decided to leave my job in late 2010, my take-home salary was 11x of the figure I earned when I had joined in 2003. That was a CAGR of 35% over 8 years, which I had never imagined when I started in that job (they pay you so much in equity research to produce often useless reports!).

My salary could have been higher if I was working in a brokerage, but I was not comfortable with the idea of working for a broker (bad incentives, you see). And so, I was content with my salary, and post-2008 was even willing to give it up for a life of greater uncertainty but also with greater control over my time.

I resigned from my job as an equity research analyst on 2nd January 2011. And 2nd April 2011 was my last working day at my first and last job.

I was happy as I felt liberated after 8 years of slogging on a job I had come to “not love”.

[Read on Twitter – Part 1, Part 2]

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2011 Onwards –Years working for myself

2nd April 2011. India won the cricket world cup. And the reason I remember that day is not that India had won the world cup, but because it was my last day working for someone else. It was the last day of my job and a day before I started on my own.

Eleven years have passed, even as the memory remains fresh of that day in 2011. As I bid goodbye to my colleagues, my heart was racing in two directions.

One, towards excitement as I was getting a chance to take control of my life. That is what I had been waiting for for years. Two, towards anxiety, as I was taking a chance on my abilities even as I was uncertain about what I would exactly do to feed my family and myself. I was never a “business” type, and I had never learned how to deal with people. I was too shy to even talk to people. That I had my wife’s complete support and faith in me, and that I had zero liabilities and some savings to start with, were the only saving grace for me to actually take that plunge.

As I plunged into an unknown future, it turned out to be one on the deep end of the pool. My son was born a month later, and he was premature and hospitalized for 20 days, which took away a large part of my savings. But I had started with no Plan B, and that remained the plan.

I started as a content writer, trying to offer my services to anyone who was willing to hire me. I got jobs paying ₹1 per word, to write several 100 words articles every day. I hated that kind of writing. It was mechanical, boring, and cheap. But I started. I had no other choice.

Three months into writing such cheap, meaningless stuff, I was approached by someone to write a 25-page report for an IT product company. I had no idea what to write, but I accepted the offer. It was paying me ₹10,000 for that report, and it was big money for someone who was earning ₹1 per word. I wrote that report, it was bad, and I received just 50% of the money.

Life kept moving, and I tried to keep up with its pace. A few more such writing projects came. Some people paid in full, most did not. I did not lose heart, because my wife did not lose heart. Life was good, as I got to spend almost my entire time with my family.

Meanwhile, I started Safal Niveshak in July 2011, again not knowing exactly what I wanted to do. I knew I had to write on value investing and teach people how not to lose their money in the stock market, but I had no idea how that work would pay, and how much. Again, I had no choice but to start.

Life kept moving, and I again tried to keep up with its pace. Writing projects had dwindled. And I had no choice but to jump headlong into writing for myself. I used to write two articles daily, one on investing, and one for my other website on writing (which I closed).

There were days when no one signed up for my free newsletter on Safal Niveshak. And on the days when one or two people signed up, I used to shout out happily to my wife that someone signed up. A few months passed, and I kept writing and writing, even when very few people were reading.

Early next year (2012), I planned my first investing workshop in Bangalore. Why Bangalore? Because that was the only place where I had a friend who had a conference room that she was offering me for free to conduct my session. And since I was too shy to ask my audience for any money, I kept the pricing at “₹0 to ₹5000, anything you want to pay after the workshop.” After each such session, I went to my room and the first thing was to open the envelope to see how much money people paid. Most paid ₹100 to ₹500, and a few paid ₹5000. I think the first person who paid me ₹5000 was Ashish Kila in Delhi, a fellow investor I admire a lot, not only for that ₹5000 but also for his wisdom.

I trusted my workshop audience that they would pay me at least to cover my costs, and they returned the trust by doing what I expected of them. There was just one incident when one person did not pay anything and left a message in the envelope that read – “Lunch was not enough.”

As time progressed, the site got more readers and subscribers, but the inflection point came when I interviewed Prof Sanjay Bakshi, and he posted that interview link on his site. I had 1000 subscribers before that. 500 more joined on the day he posted that interview on his site.

As years passed, the snowball that I could barely see in 2011, got bigger in size. I launched the Mastermind Value Investing course, then the Almanack newsletter, a few eBooks, and finally The Sketchbook of Wisdom and The One Percent Show.

People suffer from recency bias, that they remember the recent past with the greatest vividness. For me, the most vivid memories are from those early years of struggle. Life was highly uncertain, but the days were still joyful.

As I look back at this journey, I realize I have been so lucky to have walked this path and survived to tell the tale. The risk-taking worked, and the practice of “do your work, trust your fellow humans, and don’t worry about the outcome” worked.

These 11 years seem to have passed in a jiffy, but the time moved slowly when it all started, and I enjoyed and cherished each one of those moments. I live with no regrets. Instead, I am proud of the fact that I have walked this path with complete integrity, never even thinking about wavering off what was meant to be a path I had chosen for myself. There have been numerous mistakes I may have made along this journey, and a few people I may have turned off. But I regret none of that.

All I remember is the path, with all its roses and thorns, and that you’ve walked a bit of that with me. Thank you for that, and for reading this.

By the way, I danced on the night of 2nd April 2011, not because of the start of my new life, but because India won the world cup.

[Read on Twitter]

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That’s about it from me for today.

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Stay safe.

With respect,
– Vishal