40% annualised returns! This Kanpur-based ace investor hailed by Forbes, reveals how

Stock market investment is all about identifying high-quality companies that have consistently reported robust earnings over a period of time, says Ekansh Mittal, a Kanpur-based investor who shot to fame soon after he made it to Forbes India’s 2015 edition of Wealth Wizards list at the age of just 27. Mittal, who runs an equity research firm Katalyst Wealth, has a long-term approach to market and prefers investing in microcap stocks. In an interview with Zee Business, Mittal shared his views on markets and his money-making strategy. Edited excerpts:

What is your current understanding of the market? Which way will the market head?

We don’t predict short-term market movements. Our aim is to protect our wealth for a longer duration. If we reach a conclusion that market is expensive, we increase our liquidity portion. For example, the market is quoting at rich valuations these days, therefore I have maintained 25 per cent liquidity in portfolio. And I believe over the next one year, I’ll find some opportunities to deploy this liquidity.

When did you start your investment journey?

I started investing at the age of 19 years around late 2008. I was still studying, pursuing B.Tech. Many people discouraged me since it was the aftermath of global financial crisis, yet I went ahead since I understood the concept of low valuations and I had long-term view in mind.

I opened my D-Mat account late November in 2008, and invested a few thousands from my savings. Initially I went for fancy stories in areas such as bioseed and biotech, microtechnology etc. These stocks did well for me, not because these were good, but because market appreciated hugely from 2009 onwards. I was naive in my research approach, yet I made money.

Your most profitable stock?

Cera Sanitaryware remains my most profitable stock. I bought it in late 2010 or early 2011. When I stumbled upon Cera, I found the simplicity of business appealing. I could see the product around malls and at homes. Numbers were also too good. Another catching point was that the promoters themselves were buying the stock despite already holding high stakes in the company. In a nutshell, all parameters on the checklist were met. It is still quoting at premium valuations now.

Any stock where you incurred losses?

Real losses have been in terms of opportunity losses i.e. I saw the potential and still did not invest in these stocks. To name a few, Avanti Feeds and Astral Poly. Earnings and valuations were good for Avanti Feeds but by then (late 2010) I had started focusing on simple businesses. I did not understand the business model of Avanti Feeds. Another stock that I missed was Astral Poly. I realised its potential in 2012. I missed the sugar cycle and infra story too, but these are fine with me. I don’t consider them missed opportunities, because I was keen on investing only in simplified business stories.

What would you advise to fresh investors?

Fresh investors who cannot devote time should simply invest in mutual funds. However, those willing to devote time should start off by reading investment books to gain basic knowledge of interpreting the financial statements. Cash, balance sheet, and income statement are three basic pillars of determining the profitability of a company. Understanding this can be learnt easily. Important advice here is don’t just keep reading books, but set aside some money that you are comfortable losing, and consider this as tuition fees of learning stock market.  
 
Do you also invest in primary market?

I hardly ever planned to invest in primary market. I need at least two-three years of financial reports to understand the business model. Companies willing to launch IPOs may sometime showcase strong earnings years preceding to IPO launch for better valuations. So, IPO market doesn’t appeal to me. I prefer secondary market.

What is your portfolio size?

I can’t disclose the portfolio size, all I can say is it is decent enough for me and returns have been above my expectations. My portfolio has been growing at 40 per cent CAGR for over six years. 

How do you pick stocks? Is it a bottom-up or top-down approach? 

Bottom up approach I follow. I put in some parameters on sites like screener, and whatever stocks they throw up, I pick up the best ones and go for further research. I look at the numbers, corporate announcements. I attend various forums, sometimes AGMs. Basically it is all about numbers as to how the company has performed over the last five-six years. I mostly invest in microcap companies.

Whom do you follow in stock market?

Community of value investors has grown a lot of late. So, I don’t follow any particular investor, I just track if any other investor is holding the same stocks as I. For example, Ashish Kacholia and I hold a lot of common stocks.

Which books would you recommend to fresh investors?

Most Important Things Illuminated by Howard Marks, Free Capital by Guy Thomas, It’s Earnings That Count by Hewitt Heiserman and The Thoughtful Investor by Basant Maheshwari are some good books that I like. One can also read Financial Shenanigans by Howard Mark Schilit to understand how stock prices are manipulated in investing world.

Where do you see Katalyst Wealth growing in next few years?

Ours is a subscription-based model. We provide online services to long-term investors. Since there is a dearth of good reports on microcap companies, we provide detailed research reports to our clients and keep updating them time to time. At a given point in time, we work on less ideas, while keep looking for more. My next target is to manage funds for high net worth individuals (HNIs).