The Anil Goel Interview: Value in cyclicals, multi-bagger laboratory and other secrets of successful investing

Anil Kumar Goel

Most equity investors shy away from the stocks of commodity companies. But as veteran investor Anil Kumar Goel goes on to show, there is good money to be made in commodity plays by applying the simple principles of value investing.

The 71-year-old Goel spoke exclusively to Moneycontrol about his journey, investment philosophy, hits and misses. Edited excerpts:

How did you land up in Chennai?

I grew up and did my schooling in Batala (near Amritsar). After my 11th-grade exams, my grandfather called me over to Chennai, where we had a family business of steel trading. That was 1968, and I was 16 years old then. On coming here, he put me in the business. I enjoyed what I was doing and have been in Chennai ever since.

How did you get into the stock market?

By chance. I was observing the 1992 Harshad Mehta stock market boom from the outside. Share prices were going up like crazy. As a businessman, I knew they were unsustainable. I was on good terms with the manager of the bank where I had an account. He used to dabble in stocks. I told him to sell whatever he had and take the profits out because the prices were bound to crash.

Did he take your advice?

No. When I met him a month later, the prices had risen more. He told me that I may have a good understanding of the steel industry, but not about the stock market. This was sometime in April 1992. I told him to wait for another month. I forgot all about the conversation since I was not tracking the market. A month or two later, he called to say that my prediction had come true. By then I had become a bit curious about the market, particularly people’s behaviour, and their refusal to see reason. I decided to try my hand at the game.

You were around 40 at that time. Did you feel it was a bit late to be getting into a new area?

I was…41. I was confident that I could do well in investing because I had been a businessman for nearly 24 years by then. My neighbour, a subbroker, introduced me to a person called Kamal Chaddha, who managed the portfolios of wealthy people. In turn, he introduced me to a group of investors. They used to meet every Saturday between 3 and 5. This was the Chennai Investor Association in its initial days.

Did it help?

I spoke little at those meetings. I would listen and observe. To date, those are my biggest strengths. Thanks to that group, I managed to meet a lot of interesting people.

When did you start investing?

Sometime in September 1992. The Sensex had fallen from a peak of 4,400 to around 2,600. I thought this was a good time to put money. I put around Rs 50 lakh.

Did you profit from it?

No. by March of 1993, the market fell some more and my Rs 50 lakh became Rs 33 lakh. My family was aware of my investment by then, they put pressure on me to get out of the market.

Obviously, you did not listen to them. What gave you the conviction?

I had seen many cycles in the steel industry as a trader. I knew it was the same with the stock market as well. At some point, the cycle had to turn.

What was the turning point?

Kamal Chaddha knew one of the market legends of that time personally. I asked Chaddha for a favour. I told him: “Chaddha ji, can you ask Mr X what he feels about the market.” A week later he got back to me saying “Mr X says stay away from the market.” I immediately put Rs 5 crore in the market.

That sounds bizarre. But you lived to tell the tale.

I got lucky, beginner’s luck you could say. I invested in April-May of 1993, and that was also the time when FIIs (foreign institutional investors) were allowed entry in the Indian market. By January (19)94, my Rs 5 crore had become Rs 20 crore.

Were you able to take that money home?

When you make huge profits too soon, one tends to get overconfident. That happened to me as well. If you recollect, there was a GDR (global depository receipts) boom in 1994-95. Many companies were raising money through GDRs. Foreign investors were bullish on the consumption story because of India’s huge population. The optimism was overdone because the spending power of the average household was quite low back then. Most GDRs would become worthless over the next couple of years.

Where did you get caught out?

I had invested heavily in Arvind Mills. They raised around Rs 400 crore. Interest rates were around 18-19 percent at that time. I calculated that the money raised would help the company save around Rs 75 crore of interest. I reckoned that the earnings would increase by that much. But most companies who had managed to raise a lot of money at the time did not use it in their main business. Many of them invested in real estate, some others lent money to group companies, others used it for corporate lending. I invested in many GDRs when they fell to around 40-50 percent of the original price. But over the next couple of years, they became almost worthless.

How steep was the loss?
All the Rs 20 crore I made, plus more.

How did you get back into the game?

Luckily for me, when the market was booming in 1994, I had bought some land along ECR (East Coast Road). I sold that, and with the money got started again. This would have been sometime in 1997-98.

How would you describe your investment style?

I would call myself a value investor. I buy when the cycle is down and then wait for the cycle to turn. Having been a steel trader for a good part of my working life, I understand the commodity cycle well.

What’s was your experience during the 2000 bull market in technology stocks?

IT shares were the rage at that time. But being from a business background, I always look at the asset value to see if they justify the share price. IT companies failed this test as far as I was concerned, and so I did not invest a single penny. I am not saying that I was right in looking at IT companies this way. But there were plenty of old economy shares available at throwaway prices. These would give handsome returns during the 2004-07 bull market. I won’t claim any smartness. I was getting something worth Rs 50 for Rs 5. The only difference was that I had the guts to buy to in quantities that most others did not.

How has your approach to investing evolved over the 31 years you have been in the market?

I don’t read balance sheets at all. I have my own way of looking at things. Many of the youngsters whom I got to know in the mid-90s were very good at reading balance sheets. So if I liked a company, I would ask them to look at the balance sheet and let me know if it was OK to invest. I take into account their inputs even today.

Over the years I have formed a framework for investing called KCP LTD, which I also call KCP Limited. K is knowledge, which helps have conviction (C), which in turn drives patience (P). That is the KCP part. Once you are patient, there is a good chance of luck (L) coming into the equation. Once KCP and L are in place, you need to focus on the time duration (TD) for which to stay invested in the stock. Having got into the right stock, you must know when to cash out.

What is your thumb rule for booking profits?

I look at the valuation. If it has risen beyond our expectation, I start thinking about booking profits. So, when to sell is largely a function of the price I bought it at and how soon it has appreciated. At the same time, I will not consider only my valuation. I will also look at how the market is valuing the stock. Our perception will be totally on value, market perception will be value plus fancy. The mistake most investors make is to try and catch the top. We start selling in small lots the moment our trigger point is hit and keep increasing the quantity as prices rise. By the time the stock price has topped, we would have sold the quantity we were looking to sell.

Were there setbacks in your career of the kind you had experienced with your GDR investments in 1997-98?

In 2008, some of our bets on the short side of the market went wrong. We short sold stocks like RNRL, Educomp Solutions, and then had to cover the positions at a much higher price. I lost a packet on those trades. The reasoning of those trades were right, and the stocks eventually fell, but we could not hold on to our positions for that long.

In 2018-19, we were hit by the sell-off in mid and small caps when SEBI changed the classification of small and midcaps. We had a lot of exposure to small caps at that time. At the peak of COVID in 2020, we were hit when many of the stocks we had pledged to raise funds were removed by lenders from their list of approved securities. There was no warning. And because everything had come to a standstill it was a struggle for us to raise cash.

Were any of these incidents as dire as the one you had faced in 1997-98?

No. In 1997-98, I had lost everything.

You entered the market when you were 41. Today, with the kind of corporate disclosures and financial data available, is it possible for a 41-year-old to start from scratch and make a fortune?

I was lucky, because when I was 41, the market was very cheap. That is not the case today. If I had to start in today’s market as a 41-year-old, I am not sure if I would be as successful.

But you said cycles repeat. So there should be hope for someone looking to start now?

True. Cycles always repeat. Only their duration may vary. But the thing about market is that what goes up has to come down, but all that goes down does not necessarily go up again. So even when you are playing the cycles, you should be careful to pick something that is truly cheap, not something that looks cheap because it has fallen a lot.

So, what according to you is cheap right now?

Sugar, textiles.

What is your portfolio construct like?

Around 15 stocks make up 80 percent of my portfolio. Around 10 stocks make 10 percent. If I were to exit any of the core holdings, then I promote one of the stocks from the second line to the core portfolio. The last 10 percent of my portfolio comprises anywhere between 60-70 stocks, which I call a laboratory for potential winners. These are stocks I keep on my radar by doing a commitment investment of about Rs 40-50 lakh, so that I keep following that company. If my conviction in any of these stocks increases, I increase the position as well.

What is your typical day like?

I am up at 3. Over the next hour, I check my mails and trends in global markets. I go for a walk between 4 and 5. After that I return, fix myself a cup of herbal tea. Between six and seven is the time I am available to friends and my students who seek my advice on investments and personal matters. Yoga between 7 and 8. It has been my routine for the last 42 years. Breakfast between 8:30 and 8:45, and after that I am in front of the screen till 3:30. After that a nap, and later I conduct spirituality classes for my students between 6 and 8 in the evening.

What is it that you teach in your spirituality class?

Many things.

Share a nugget with us.
On?

Happiness, isn’t that everybody’s ultimate goal?

There are many ways to be happy, but what is important is how you are able to sustain it. The first source of happiness is what we get from our body, but that is also the shortest-lived one. The second source is our five senses. If we watch a movie, have good food, listen to music, the happiness stays with us for a bit longer. The third source is our emotion. This could be some major event in our lives…marriage, parenthood or some such. This lasts even longer. The fourth source of happiness is our intellect. Say, we have been proved right in our views or thoughts. The last source of happiness is our soul. That comes from helping others. The first three sources of happiness are fleeting, while the last two sources of happiness are the most enduring and the most satisfying.

Any advice for the new investors

I have none. Their investment horizon is too short for my advice to be of any help.

I guess there would be some patient investors among the lot

I would say KCP LTD works the best. Knowledge, conviction, patience, luck, time and duration.