Dayanand Deshpande of MysticWealth shares his journey,

1. My Experiments with Investing Books: Mistakes
and Learnings
Dayanand Deshpande, 24th September 2016

2. No statement is more true and better
applicable to Wall Street than the
famous warning of Santayana: “Those
who do not remember the past are
condemned to repeat it.”
-Benjamin Graham

3. Investing’s greatest lessons can’t be
taught in a book or in a classroom.
They have to be experienced and
often times the teacher is loss.
--MicroCapClub@iancassel

4. Objectives of the Presentation
• Review the books that influenced me the
most.
• Recollect the important messages from
these books.
• List the mistakes I committed in following
these books – theory vs. practice
• Share and Validate my learnings.

5. The Intelligent Investor
By far the best book
about Investing ever
written
- Warren Buffett

6. Key Concepts from the book
1. Investment vs. Speculation
“ An Investment Operation is one which, upon
thorough Analysis, promises safety of Principal
and an adequate return. Operations not
meeting these requirements are speculative”

7. Key Concepts from the book
2. Two kinds of Investors:
a. Defensive (Passive)
• chief aim is avoiding losses
• secondary is low effort & annoyance and
infrequent decisions
b. Enterprising (Aggressive/ Active)
• determining trait is willingness to devote time
and care to selection of securities
• seeking a slightly better return (because
expecting significantly better returns is
probably unrealistic)

8. Key Concepts from the book
3. Portfolio and stock selection for defensive and
enterprising investors
• .

9. Key Concepts from the book
4. Mr. Market
• .

10. Key Concepts from the book
5. Valuation of Growth stock:
– Value = Current (Normal) Earnings * (8.5+
2*expected annual growth rate)
– Revised formula: Value = = Current (Normal)
Earnings *(8.5 +2g) * 4.4/ yield on AAA bonds

11. Key Concepts from the book
6. Margin Of Safety
If you are going to drive 8000 pound truck on the
bridge, you build a 15000 pound bridge

12. What I focused on:
1. Portfolio Policy for the enterprising investor:
a. Buying in low markets and selling in high
markets (Timing)
b. Buying carefully chosen growth stocks
c. Buying bargain issues of various types
d. Buying into special situations

13. What I focused on: Bargains
Buying bargain issues of various types
“The bargain issue that can be most readily identified
is a common stock that sells for less than the
company’s net working capital alone, after deducting
all prior obligations…this would mean that the buyer
would pay nothing at all for the fixed assets – buildings,
machinery, etc. or any good-will items that might
exist..”
Danny Devito Explains This

14. What I Did for Finding NCA >= Mkt cap:
1. Got a friend to develop a software to filter out such
bargain stocks…(2008-2009).
2. Invest in such stocks after a very cursory look at
their businesses and background.
• .

15. What I focused on:
Buying into special situations or workouts
1. Open offers due to acquisitions of large stake.
2. Delisting
3. Rights Issues
4. Merger Arbitrage

16. What I focused on-Open Offers:
Buying into special situations or workouts
1. Open offers due to acquisitions/takeovers of large
stake.
– http://www.sebi.gov.in/cms/sebi_data/common
docs/prosep092016_p.pdf
– http://takeovercode.com/
– http://www.takeovercode.com/open_offer_scor
eboard.php
– http://corporateprofessionals.com/home

17. What I focused on: Delisting
Buying into special situations or workouts
1. Open offers due to acquisitions/takeovers of large stake.
2. Delisting
– Infrequent but can give 10 to 25% in 1-3 months
– http://www.bseindia.com/markets/PublicIssues/IPOIssue
s_new.aspx?expandable=10&id=3&Type=D
– http://neerajmarathe.blogspot.in/2011/04/playing-
delisting-cases.html
– http://www.slideshare.net/perfectresearch/delisting-
ideas-how-to-evaluate-
them?ref=http://perfectresearch.blogspot.in/2012/04/de
listing-ideas-how-to-evaluate-them.html.

18. What I focused on: Rights Issues
Buying into special situations or workouts
1. Open offers due to acquisitions/takeovers of large
stake.
2. Delisting
3. Rights Issues
– http://www.sebi.gov.in/sebiweb/home/list/3/1
6/13/0/Draft-Letters-of-Offer-filed-with-SEBI
– http://neerajmarathe.blogspot.in/2012/04/right
s-issues-get-it-right.html

19. What I focused on: Merger Arbitrage
Buying into special situations or workouts
1. Open offers due to acquisitions/takeovers of large
stake.
2. Delisting
3. Rights Issues
4. Merger Arbitrage
– https://www.khanacademy.org/economics-finance-domain/core-finance/stock-
and-bonds/mergers-acquisitions/v/simple-merger-arb-with-share-acquisition
– https://fundooprofessor.wordpress.com/2012/10/20/teach/

20. My Experience
“It is extraordinary to me that the idea of buying
dollar bills for 40 cents takes immediately with
people or it doesn’t take at all. It’s like an
inoculation. If it doesn’t grab a person right away, I
find that you can talk to him for years and show him
records, and it doesn’t make any difference. It is
instant recognition or it is nothing.”
-Warren Buffett (The superinvestors of
Graham-and-Dodds-ville )

21. My Experience – Simple, Not Easy
1. Overall no loss in Cigar butt operations.
2. Great learning in finding out bargains and special
situations. Start of value investing journey.
• .

22. My Experience – Simple, Not Easy
3. Many failures/ frauds such as Prithvi Info, Eastern Silk, Ensa
Steel, Pritish Nandy, MTNL , Gwalior Chemicals (buyback),
Goltech (OO) etc.
• .Prithvi Info – like Satyam Ensa Steel - commodity
Pritish Nandy - communications MTNL – cash bargain - disrupted

23. My Experience – Simple, Not Easy
4. Many cigar butts (NCA issues) remained undervalued like
Ansal properties, Anik industries, simplex Projects, bright
brothers etc.
Simplex Projects Ansal Properties
Anik Industries

24. My Experience – Simple, Not Easy
5. Some performed well such as Borosil glass, Trent, Indo count
(sold at 100% profit in 2 months), Nirlon, Sandesh , alfa laval
and Atlas copco (delisting)
Borosil Glass ITD Cementation
Amara Raja Batteries

25. My Mistakes – And Learnings
1. Wrong time? – 2008-2011 – for cigar butt
operations. Many great companies available at dirt-
cheap valuations.
• Learning: Never miss a growing company
available at/ near NCA price and hold it for
a very long time. “Growth comes for free”

26. My Mistakes – And Learnings
2. Very short term focus. Selling at 10%, 20% or max
50% gains, like a trader
Learning: Practice sitting tight for a longer duration and
more gains. Allow the time and Luck to play its role.

27. My Mistakes – And Learnings
3. Mixing the Special situation strategy with NCA
issues. (selling after very small gains in a short
time)
Learning:
• In special situations very small gains (5 to 10%) /
month.
• For bargains issues, generally a longer holding
periods.

28. My Mistakes – And Learnings
4. Wrong allocation. (big allocation to Gwalior
chemical and some Open Offers (e.g. Goldstone
Infratech). Forgot “diversified” aspect of special
situations.
Learning:
• High uncertainty such as legal, approval etc.
• Always a basketful of special situations.
• Also when you want to deploy the excess cash.

29. My Mistakes
5. No attention to the underlying businesses and
qualitative aspects like management quality,
competitive analysis etc.:
– Some errors (blunders) of omission were
Stock Buy Price Sell Price CMP Missed
gains
Eicher Motors 308 593 21000 3400%
Arrow Coated 15 18 800 4300%
Indo Count 5 10 766 7560%
Tasty Bite 82 90 3930 4200%
TTK prestige 140 160 4800 2900%

30. My Mistakes
6. No attention to emotional aspects:
– “We shall say quite a bit about the psychology
of investors. For indeed, the investor’s chief
problem – and even his worst enemy- is likely
to be himself”
– We have seen much more money made and
kept by “ordinary people” who were
temperamentally well suited for the
investment process than by those who lacked
this quality, even though they had an
extensive knowledge of finance, accounting,
and stock-market lore – pg 8, Intelligent
Investor

31. My Mistakes
6. No attention to emotional aspects:
0
1000000
2000000
3000000
4000000
5000000
6000000
7000000
8000000
9000000
10000000
2008 2010 2012 2014 2016 2018 2020
Series1
Series2
0
1000000
2000000
3000000
4000000
5000000
6000000
7000000
8000000
9000000
10000000
30%
-30%
15%
15%
-5%
45%
100%
22%
18%
15%
63%
-5%
Series1
Series2
My Assumption
What happens
Learning: Understand behavioral
biases and apply to investing

32. My Mistakes
7. Working in isolation
– No validation with other value investors
Learning: network and learn from other investors and
gather insights. (Pune Equity, Value investors,
whatsapp groups etc.)

33. You Can Be A Stock Market Genius
Spin-Offs, In General,
beat the markets

34. Gotham Capital Investment Record
Year Returns % Cumulative basis $1
becomes
1985 +70.4 1.7
1986 +53.6 2.62
1987 +29.4 3.39
1988 +64.4 5.57
1989 +31.9 7.34
1990 +31.6 9.66
1991 +28.5 12.41
1992 +30.6 16.21
1993 +115.2 34.88
1994 +48.9 51.97
1995 Returns the capital
Annualised
Returns
since
inception
+50.0%.
(1985-95 : 50%
1995-2005: 40% )

35. Key Concepts from the book
1. Concentration
– Do your work, pick your spots
– Don’t buy more stocks, put money in the bank
2. Spin-Offs in general beat the market
– Picking your spots in spin-off universe can
result in better returns than average spin-off
3. Characteristics of exceptional spin-off opportunity
– Institutions don’t want the spin-off
– Insiders want the spin-off
– A previously hidden investment opportunity is
uncovered by spin-off transaction (e.g. cheap
stock, great business, a leveraged risk-reward
situation)

36. Key Concepts from the book
4. You need to read business press/ and BSE/ NSE
filings to locate and analyse new spin-off
prospects.
5. Keep an eye on the insiders
– Insider buying – especially management-before
and after demerger
– Effects on the shareholding patterns
– Stock options

37. What I did – Demergers/ Spin-offs
1. Searched the company filings in BSE/ NSE.
2. Kept a track of SEBI Website for the approvals.
– http://www.sebi.gov.in/sebiweb/home/list/3/1
4/62/0/Scheme-of-Arrangement
3. Read through the scheme of arrangement filed for
the court convened meeting of shareholders.
– Example: Orient Paper and Industries
4. Kept an eye on filings unders SAST regulations on
exchanges
– http://www.bseindia.com/corporates/Sast.aspx
?expandable=2
5. Kept a record of the events:

38. My Experience– Demergers/ Spin-offs
1. A very high success ratio compared to failures – It
really works.
Successful Spin-Offs Failed Spin-Offs
Alembic Chemicals Asian Hotels
Cadilla Healthcare Zenith Birla
Dalmia Cement (patience) Bilpower
D-Link Texmaco
Kesar Enterprises IDFC (in process)
McMilan India (MPS)
Gulf-Oil Corporation
Dhunseri Enterprises
Orient Paper and Industries
Provogue
Mastek
Crompton Greaves, Max India

39. My Experience– Demergers/ Spin-offs
2. Some Successful Demergers
* This doesn’t include the gains if you bought more quantity of spin-off entity/
original entity after demerger
• .
Stock Price
before
demerg
er
CMP for
original
stock
CMP of the
spin-off
Total Gain
%
CAGR
Returns
Alembic
Chemicals
35.18 38.85 670
(Alembic
Pharma)
1922% 72% (2011
to 2016)
Dalmia
Cement
266 116 1727
(dalmia
bharat)
600 % 38% (2010
to 2016)
Orient Paper
and Industries
71 80 202 300% 48% (2013
to 2016)

40. My Mistakes– Demergers/ Spin-offs
1. No patience. (Buy Demerger – Stay longer )
Sold at around 22 just before it climbed to 153.

41. My Mistakes– Demergers/ Spin-offs
2. Very small allocations
– If you are with the insiders
– If you have worked harder
– Need to make large commitments to see the
effect on the pf.

42. Summary of My Learnings
1. The concepts are simple, but not easy.
2. You have to work hard to earn good returns from
stock market, like any other business.
3. Avoid short term profit booking.
– Have other sources of income as markets can
remain subdued for a long time.
– Avoid looking at stock portfolio frequently. (not
able to achieve yet)
– special situation PF separate from long term
portfolio

43. THANK YOU ! HAPPY INVESTING !!