Session by Mr. Vinod Sethi at Value Investing Pioneers Summit(VIPS), New Delhi-2019


Contributed By- Jyoti Soni, CFA

The last  session at the third Value Investing Pioneers Summit was conducted as a tête-à-tête between Mr. Vinod Sethi, ex. MD and CIO of Morgan Stanley India and Mr. Durgesh Shah of Flame Investment Lab.

This was a unique session in a sense that the speaker did not give a presentation. Instead a presentation was prepared by moderator Mr. Durgesh Shah on investment journey of Mr. Sethi. Mr. Shah quizzed Mr. Sethi about his investments, philosophy behind making those investments, investing mistakes, his gurus in the market, experiences which affected his personal and professional behavior etc.

Mr. Durgesh Shah introduced Mr Sethi as an unusual visionary investor and a multi-faceted person. Mr. Sethi did his graduation from IIT Mumbai and his MBA from Stern University with a scholarship. In the 1980s, Mr. Sethi was one of the youngest fund managers when he started working with Morgan Stanley.  Currently, he is  chairman of KCP Sugar and manages his own investments.

In his stint as an investor, he bought anywhere between 5-15% of stock in companies like Infosys, Hero Honda, Hinduja, Concor, Tata Motor etc. when no one was interested to touch these stocks. He has a terrific record of accomplishments in his investing career with his multidisciplinary thought process.

He worked in Morgan Stanley as a Managing Partner till late eighties. He had a fabulous career and splendid performance as money manager at Morgan Stanley. He treated Morgan Stanley as a training platform and learned a lot. After finishing the most exhaustive part of his career stint, he decided to leave Morgan Stanley in order to discover other facets of his life. Valuations of Morgan Stanley at that time aided to his decision as the share was trading at six times its book value and he monetized his ESOPs at the right time. He was the largest private sector fund manager when he left his job at Morgan Stanley in his 30’s.

His investment decision making and lifestyle was influenced by three mentors in his early career. Lessons learnt from these mentors/investors helped him to become a well alert and humble human being, great analyst and money manager.

  • Michael Milken, the junk bond king of 1980s
  • Barton Biggs, chief of Morgan Stanley till 2008
  • Julian Robertson, known as a tiger, a client and shareholder of Morgan Stanley.

Mr. Vinod Sethi has always had a knack for recognizing the great futuristic entrepreneurs. He believed in their ventures and missions before most others in the market. Mr. Shah specifically probed him about his investments in Infosys, Hero Honda and HDFC.

In early 1990’s, he made investment in Infosys when most of the fund managers were not able to realize the power of IT industry and software services exports. At a time when the focus was on hard assets on the balance sheet, this was a company which did not have much of the hard assets except few computers and furniture with rented office building. Infosys valuation jumped to 5 times within a short span of two years of his investment.  His high conviction in prospects of Infosys was on display when he made another big investment in a preferential issue of Infosys which came after 2 years at a price 5 times higher than his initial investment.

Other unconventional example of his investment style was a motorcycle company, Hero Honda, when scooters were ruling two-wheeler space and motorcycle was not a preferred two-wheeler. Hero Honda was started by Mr. Brijmohan Munjal when he was in his late 60’s. Wherever Honda was selling its product in the world, they had around 15% market share at that time. Hero Honda was available cheap at that time as people thought motorcycles don’t have a future.

Mr. Sethi shared an interesting story as to how he came to know about HDFC. One analyst came to his office with one-page summary of many companies and one of them was HDFC. That time HDFC was trading at 1 or 2 times earning and no one seemed to like it. His thinking behind investing in HDFC was that the country is homeless, and mortgages as a business will pick up.

His acumen to understand the future trends in an industry and high conviction in his ideas resulted in building of an exceptional portfolio.  He never thought that these companies would become so big and neither did the owners/promoters of these companies, but he was sure of making decent returns.

He never believed in the idea of investing in traditional investment assets like gold and real estate. He believes that what is the point of investing in an asset class where your returns are lower than your cost of borrowing.

Mr. Sethi believes that formal education is a necessity but not sufficient. He believes that education doesn’t teach you about hunger, relationship, courage, inner voice – listening to yourself, feel the present moment and many other aspects. There are many other aspects and skills which one requires in investing business and daily life. “While a degree certainly helps, it is no insurance policy. it might get you through the door, but you have a whole life to face. One can be rendered irrelevant if he or she doesn’t keep himself or herself up to date”, he says.

Mr Sethireads at least one annual report a day. He might read an annual report of a private company in Europe where he won’t be even able to invest. According to him, an annual report is a summary of collective human effort. Hence, it shouldn’t matter what annual report you are reading. One makes money where one sees financial efficiency, an alchemy or something stands out. There is no need to read an annual report to the last line. Over time one can develop sense as to what to read and what not to read. Also, according to him, speed reading helps.

Mr. Sethi likes to keep half a day of his schedule open to meet people. He is not focused on meeting business people alone; he will meet any one from any field. Meeting people is not about cocktail party or dinner party and just floating around . Having a focused conversation really helps and expands one’s horizon. Only way to meet very smart people is by making yourself very smart. No one would give you time unless you give more than they gave you. If you start every meeting thinking I must give more than what I am expected to gain, then you achieve a very high level of evolution at personal level.You make the world a better place and give someone food for thought. Additionally, he stated that three things are a must do for a good investor:

  1. Pay attention to the Market: He emphasized on deep understanding of market phenomenon.
  2. Read & Research: He opined that speedy and attentive reading is necessary for a money manager. One should read an annual report daily and should take not more than 30 minutes for this. Quick and accurate analysis of company’s financials and performance is key to taking the right decision.
  3. Introspection: One should give time to oneself for self-discovery. One should understand one’s strengths & weaknesses, passion and priorities in life.

When the attack of 26/11 happened, Mr. Sethi was present at the Taj Hotel. He realized during the attack that what we call fear and nervousness, we can only afford that in a movie theatre. In real life, that is not an option. In such situations, you either stay rational and come out of it or get knocked up. Another thing he learnt during this experience is remarkable ability of human beings to survive.

He believes that investing is a combination of teamwork and individual efforts. Basically, it is a lone ranger game but having like-minded people who share and discuss ideas can really help.  .

Mr. Sethi, then, went on to answer a few questions from audience before ending the session.

Link to the complete presentation- Vinod Sethi – 08.11.2019











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