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    This value picker made 5,000% in Avanti; doubles wealth every 2 years

    Synopsis

    His portfolio has generated nearly 45 per cent CAGR return over the past seven years.

    ETMarkets.com
    He resides in India’s Silicon Valley, but lives his dreams on Dalal Street.

    Donald Francis (47) is one of the well-known value investors from Bangalore, who has made it big with a few of his value picks such as Avanti Feeds, PI Industries and Shilpa Medicare.

    He calls himself a conservative investor, restricts his portfolio to just 12 or 13 stocks and swears by investment Guru Philip A Fisher’s Scuttlebutt method.

    His portfolio has generated nearly 45 per cent CAGR return over the past seven years; which means his money has doubled every 1.5 years.

    “I believe in identifying unique emerging businesses that stand out from their peers,” says Francis, also cofounder of ValuePickr.com. “I am heavily influenced by the prescribed by Fisher.”

    The stock of Avanti Feeds, a leading manufacturer of prawn and fish feeds and shrimp processor and exporter from India, has delivered 4,954 per cent return in last four years.

    Agrochemicals company PI Industries has seen its shares jump 709 per cent over the past and six years. Another stock Francis holds, Shilpa Medicare, has soared from Rs 75 in 2011 to Rs 607 at present.

    Image article boday


    Francis says he likes to concentrate on finding gems in little-known names that can help him stay invested and compound over a longer time.

    Some of his recent picks included Bajaj Finance, CCL Products, Shemaroo and Premco Global. These businesses have a great chance of outperforming and running ahead of their peers, he told ETMarkets.com.

    “Before going for a particular stock, I need to know if past performance of a business has been good, what would make us believe that same will be sustainable? That’s my first criteria for picking a stock,” Francis says matter-of-factly.

    He prefers doing extensive field work with his fellow investors, whenever possible, goes out there to meet dealers, distributors, end-users, industry associations, domain professionals and competitors to establish Industry stability and the competitive strategy/position of the business.

    What’s important?

    “I need to get a feel where the business is headed,” says Francis.

    In case of small and emerging businesses, one should especially focus on their transition and establish sustainability. Most of the time, the edge over Mr Market comes from this feel that you develop by tracking the business, industry and competitive position over 2-3 years, he said.

    He advises investors to track past record of the management before buying a stock.

    He often asks four questions when he considers a company to bet on.

    a) Does the management have the self-confidence to do things differently?
    b) What’s in the DNA of this company that makes them extra special?
    c) Why will anyone find it difficult to dislodge the management from its perch?
    d) Why do we trust the competence of this management to handle inevitable business challenges that will come their way?

    Multibagger picks

    Another stock that delivered Francis good returns is Ajanta Pharma. Shares of the pharma company generated 4,038 per cent return between 2011 and 2017. He has already booked profit on the stock. The scrip is currently trading at Rs 1,200.

    Mayur Uniquoters delivered 1,103 per cent return between 2011 and 2015. Both Kaveri Seed and Poly Medicure generated nearly 450 per cent return between 2012 and 2015.

    ETMarkets.com could not independently verify Francis’ holdings and success stories at present or back then.

    Francis says affordable housing segment could be the dark horse in the current market. No other sector has been incentivised with such favourable policy guidelines as this sector has been: the industry has been accorded infrastructure status, customers can avail interest subsidy, and builders have got tax exemptions, he points out.

    Logistics is another sector that should see huge growth over the next 4-5 years as the economy expands. Similarly, winners would emerge in content/4G through the explosion in broadband data consumption.

    Francis says a bottoms-up approach to find businesses in these sectors and invest should work wonderfully.

    When to sell

    Selling decisions are always tricky, admits Francis. Selling too late or too early has always been among his biggest mistakes. In Kaveri Seed and Kitex Garment, he sold late at half of their peak valuation.

    “Today, I look at the selling process with more clarity (hopefully). Howard Marks has always said: ‘A proper assessment of risk lies in the proper assessment of stability of value’. Stability of value, I reckon, depends on only one thing – stability of future cash flow, which, in turn, depends on two things a) stability of the industry and b) competitive position/strategy of the business within the Industry,” he said.

    Francis says before selling major winners such as Ajanta Pharma and Alembic Pharma in 2017, he tried to answer two questions: a) Is the industry stable and growing? b) Is the competitive position of this business getting stronger or weaker?

    The pharma businesses as a pack has been facing several headwinds: more stringent inspections/standards, distributor consolidations in developed markets, currency risks for those with lots of exposure to rest of global markets against the backdrop of strident measures from drug price control regimes in almost every market.

    Luck versus skill

    Francis acknowledges the generous dose of luck which has helped his track record. “We had typical beginners’ luck from 2009 onwards. Mr Market gave us the opportunity to pick up some excellent businesses at bargain prices. We could keep doing our research and field work for more than six months before zeroing down on an investment. When we started sharing work at ValuePickr, we got attracted by very hard-working and talented investors like Ayush Mittal and Hitesh Patel and others. We had great mentors like Dnyanesh Bhatwadekar to guide us in our early days,” Francis recalls.

    One must be conscious of getting better at the game every year, he insists.

    Francis says he has always faces questions like how he has refined the investment process in last few years and what he had learnt incrementally over last six months that helped him take better investment decisions.

    “I find it extremely useful to ask this question on my track record: has the business performance over last 3-5 years kept pace with the stock market returns? If for majority of the businesses in the portfolio the answer is yes, I know we are doing something right,” he said.

    Over the long term, the proof of the pudding is in the eating. “If we can keep the focus on the investment process and survive through the next bear market with 30-35 per cent compounding over 10-15 years, we would have certainly gained more skills,” he added.

    Advice to small investors

    Francis says one should do the homework before buying a stock and try to stay away from the noise. Investors should not heed advice from experts blindly and the Sensex level should not bother much.

    “What matters is the consistency in business performance of the company you invest in,” he says. As Peter Lynch suggests: Just keep your eyes and ears open to spot success on the ground. One doesn’t need not be a top analyst to be successful.

    Take care to choose quality businesses that you can stay invested in for the long term. Use publicly available quality investment forums to become a better-informed investor. Participate, and ask questions. Help answer questions for your domain/industry. And then take the investment decision when you feel confident about sustainability, predictability and longevity of a business you would like to invest in.

    An average investor who cannot devote much time to learn the craft of investing, one is better off staying with well-known, well-discovered, reputed predictable businesses with distinguished track record and established customer franchises such as HDFC Bank, HDFC, Asian Paints or a Nestle and still do a very respectable 15-20 per cent compounding over five to 10 years.

    The journey so far

    Francis was ‘financially illiterate’ till 2005. His savings were not helping him much and was paying a 7 per cent floating rate of interest on his housing loan. That time, he understood that inflation would eat away whatever is left after tax outgo. So, he planned to do something differently.

    “There had to be a better way; that quest led me to the ‘Magic of Compounding’. But having already squandered the first 10-12 years of my working life (where I and my wife didn’t know where our money went), I wanted to be smarter about my compounding. That led to the quest for good mutual funds,” Francis recalls.

    Soon he realised that good performing mutual funds were doing well because they invested in good performing businesses. So why not invest directly in good businesses? And thus the journey began.



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    (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2024 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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