Episode 144 / November 21, 2021

Secrets to Financial Independence ft Deepak Shenoy, Founder & CEO, Capitalmind

46 min

Episode 144 / November 21, 2021

Secrets to Financial Independence ft Deepak Shenoy, Founder & CEO, Capitalmind

46 min
Listen on


# What is Financial Independence?

# Does everybody need precisely 10 crore to be happy?

# Is the process of “Wealth Creation = Cutting out on all your wants & desires completely”?

For the past 2 years, it seems like everyone around us is investing either in stocks or crypto and also making generous profits.

And you too are probably thinking to jump in right? After all –

# Markets are at an all-time high

# Crypto is “The New Thing” and you don’t want to miss out

Well, just wait for a moment, before you begin, in today’s episode we’ve brought Deepak Shenoy, Founder and CEO at Capitalmind (SEBI registered – Portfolio Manager).

During the episode, Deepak will help you have the right mindset to begin your investment journey, what to and what not to expect off your investments, and how to evaluate an investment opportunity much more.

Notes –

01:40 – Beginning of his investing journey

04:33 – Where would your 1st crore of wealth come from?

07:17 – Behavioural changes in growing from 1 to 10 crore wealth

10:29 – True definition of financial independence

14:20 – Are emotional buying decisions hindrances in wealth creation?

24:13 – Has investing become mainstream in 2021?

33:30 – How to find under-valued investment opportunities?

41:43 – His upcoming book “MONEY WISE: Timeless Lessons on Building Wealth”


Read the full transcript here

Siddhartha Ahluwalia 00:01

Hi, this is Siddhartha Ahluwalia. Welcome to the 100x Entrepreneur Podcast. Today, we have with us Deepak Shenoy, founder of Capitalmind, a SEBI registered wealth management firm. And he’s also the author of Money Wise, timeless lessons on building wealth. Welcome, Deepak to the podcast.


Deepak Shenoy 00:18

Thanks Siddhartha. And awesome to be on the 100x podcast.


Siddhartha Ahluwalia 00:23

Deepak, would love to know how you started your own investing journey?


Deepak Shenoy 00:30

So where I come from is, I was a tech engineer, to be precise. So writing code, I mean, I was building my first business at the time and perhaps early 1999 is probably when I actually invested my first rupee. But of course, a family’s been in stocks for a longest time, very small. And you know, the time you didn’t have these Demat accounts, you didn’t have all of this, we had physical certificates. So, I did my first investment possibly into a mutual fund in 2000, February actually, because that was the peak of the dotcom boom, that was pretty much when I put my first rupee into mutual fund, i had a little bit of money, I put all of it into mutual funds to see how this whole thing works. And of course, the whole world came crashing down my investment, which was in a technology fund fell 80%. But since then, you know, things have been about learning, doing direct investing, buying mutual funds, doing quantitative algorithmic investing, left technology to build a FinTech company around algorithmic trading in 2007, worked from algorithmic hedge fund in 2009. And then went on to build Capitalmind toward which was more detail-oriented, investing methodology over the long term. So, that’s been kind of a longest journey shortened into a small couple of sentences.


Siddhartha Ahluwalia 02:04

And when did you realize that it became a full-time passion or full-time profession for you?


2007 was when I think I said, Okay, I just got an exit from a company I was in and I had some money. So I said, Okay, why don’t we do this full time? My partner Kaushik and I moved to Navi Mumbai from Bangalore to be closer to the action, all the action seem to be in Bombay. So we moved there. But, you know, 2008 was when, you know, terrible tragedy struck the markets. We were doing fairly well, to be honest, our algo strategies were actually working quite well. Unfortunately, markets didn’t allow us to pick up more capital or scale the time nobody was interested in stock markets at all. If you asked anybody in the December of 2008, if you wanted stock markets, nobody really cared. but I was interested enough to say this is going to be a full-time job for me. So I went on for the algo trading fund, left to do something in financial education which eventually morphed into what is now Capitalmind. Primarily research plus education plus enrichment plus entertainment all in one has a platform for people to either do it themselves or to you know, for us to do it for them as part of the PMs we can invest our customer’s money so it’s kind of evolution there, but it was largely a full time job for me since 2007.


And since your journey, you have built wealth for yourself and many clients. If you can start from basic, what is it required to build your first cr in wealth in public stocks or in an asset as you say?


Deepak Shenoy 03:56

So, in general and I write this in my book also, your first rupees will always come from the amount you earn from your job, from your work and so on. It’s very rare that you find a person who says you know, I’ll put some five lakhs and it becomes 20x, it becomes a cr, that is hardly the case. most of the people who earn their first crore, million whatever, earn it from the job that they do, and that is possibly how most people will eventually build wealth, build your first crore through a job, through your savings. Your savings can grow, but the incremental amount that you will earn from the job and savings is higher than how much our return you get from the money you put in. So, a person saving one lakh a month will add 12 lakhs to his savings every year. If he starts off with a saving of 50 lakhs, he has to make a 24-25% return just to make those 12 lakhs and you know most likely 24% returns are obscene. They’re not going to happen to everybody. You will make 10-12-13% and therefore, what you add to your portfolio at a 50-lakh level will be another six lakhs or seven lakhs, but your income savings are giving you that one lakh extra month, which is 24%. Or who can change the numbers, you can say, Okay, I say 50,000 a month, but I have a 25 lakh corpus, no matter how you do it, your first cr will come mostly from the extra money you save every year, from your savings, from your income, but not necessarily from your growth but second, or the third cr will start to come from growth that you see in the portfolios as well. So, when you cross the one crore or two crore number, then the incremental money you’re making, even if it’s 10%, is probably significant compared to the savings. So, that’s where you start making your larger sums of money. If you’re a trader also, that’s an income-based strategy. So, the percentage of return does not matter as much as the absolute amount that you earn. So you might make 300%, but it’s limited to maybe five or 10 lakhs a year or 15 lakhs a year, and in some cases, it can be much, much higher, trading can scale quite considerably with the one or two cr levels. But, you know, that is where I think you know, people should focus on more for their first cr is just earn the money, instead of trying to make it from your returns that on your capital. Beyond that, of course, you can do much more with capital.


Siddhartha Ahluwalia 06:29

And then starting from one crore to 10 Crore journey, what are the best behavior patterns that you have observed today which you advise?


Deepak Shenoy 06:39

So, in general, your 10 crores are achievable for a very small set of people who typically do not want to give up their jobs, and just want the savings to kind of grow, they will earn this money towards the later part of their life. So, it keeps saving over time and time and time, and you’ll get to that number over a period of maybe 15-20 years is when that money will come typically, from your income, the savings you make investments you make, the difference can be if you go run a startup, if you join a start-up and or found a start-up, sale or a valuation, or secondary from a VC may actually give you enough to be able to generate that one cr relatively faster so that is a leap of faith in a way and the other one is to join a startup or, a listed company or any of these companies where the growth from price of the stock from your options itself can give you a big leap from the two or three crores which you would otherwise have saved to the 10 Crore levels. So, I think behaviourally, the idea is to maximize those opportunities for the longer gains built in stock options into wherever you’re working, build more savings, when savings itself is not going to give you this you know, this sudden jump, it’s going to be more linear in nature. Or you may know people who take risks, for instance, invested early in cryptocurrencies, which suddenly has boomed up right now and hopefully gives them enough capital to reset one of those extreme risks with a small part of portfolio has potentially you know, jump into the 10 cr level, but otherwise, you are getting 10 cr very slowly. It’s okay, it’s fine, everybody does not need to own 10 crores and need to struggle so much that they try to on that 10 Crore number. Many people are satisfied with a lot lesser, and it gives them great quality of life, I think quality of life is to be aspired for, the 10 crores what makes your life great, that’s fantastic. If it’s five crores, it doesn’t mean it’s any worse for you. It just that you know, the way to get there as a part of it as some immediate jump, where you might use options you might have these extreme risk cases like cryptocurrencies, starting your own company and so on. Or you go slowly which will mean you’ll achieve that target in a longer period of time but it will allow you to do your job in a more normal way. So, I think the behavioural pattern is largely about how aggressive people are and how well they can take losses, all entrepreneurial activities involve losing money, time, effort, enthusiasm, all of that has a cost and that if you’re not willing to lose then I think the slow way is better for you. But if you’re more the dynamic kind of says I don’t care I want the reward and i will chase after them and even if I take some risks, it’s fine then the first way is better so it’s behaviourally it’s different for different people.


Siddhartha Ahluwalia 09:40

Let’s focus on financial independence right where our listener doesn’t have to work for money right? He worked for his choice his love for work or passion, right? Or at what stage you think right up what does that required to reach there?


Deepak Shenoy 10:00

So, um, you know, they call retirement as that’s why we have a statement at capital mind because you can’t really retire who can’t really stop working. But you work because you want to not because you have to that is the retirement concept. A lot of people achieve that over time by two ways. First one is financial independence, which is you make enough money to be able to say to your boss that I don’t care about this anymore. And I don’t want to do stuff that I don’t want to do. And therefore, I’m going to be you know, if you don’t want me to do this, I can leave my job and I’m fine because my financial independence is big enough. Or more commonly, what we’re seeing is that people just get to the spots where they don’t have to worry about the money anymore. So they enjoy the work so much, they’ll continue to work despite all of the constraints that they have. And their jobs typically are very satisfying as well. So they want to continue to work as long as they are and they don’t have to worry about the money anymore. So it doesn’t really bother them how much they earns but the difference between the two is the first set of people actually want set something else to do. So they want to do something else but they’re doing this just because it gets them enough money. So that point of financial independence just tips them over and then they can go do their own thing. Now as much as I have seen it largely starts off with a feeling that I need the money but people who are truly passionate about something don’t care, they will let go even earlier they will find a way to make money in their what they really passionate about. And you know, there are people who now do I take people for I know they do they take people for walks all across Bangalore or across Bombay just to show people and it’s a it’s a fee, but they take you through the history of the city in a way and different kinds of things that people have given up city jobs to run a farm not as rewarding financially perhaps, but they’re very happy where they are. They find that quality of life is more important than the finances and they’re also farming so bringing new techniques to farming they’re able to earn more money or enough money to be able to take care of them so that I think that financial independence is often first thought saying I can’t quit my job because I don’t have enough money. But you know, it empowers a lot of people who are sort of passionate so they might actually think I need to make 5 cr for any to quit to quit a little bit earlier also say I don’t need five crores I can do make do with even one crore or 50 lakhs or 75 lakhs but also empower the set of people who are in lousy relationships perhaps both emotional, mental or physical so they end up you know, being able to get out and do something on their own. I’ve seen this happen more often recently than otherwise sometimes to women.


Siddhartha Ahluwalia 13:07

So, emotional decisions like buying a house, buying car? Or vacations? Do they hinder in the process of wealth creation?


Deepak Shenoy 14:29

Well, they are emotional things and I think it’s important to solve the emotional problems at some point in life. So, you have to buy a nice car, when you want to travel and I love driving. So you know if I mean there are people who may not find the car very useful, they can just use an Uber or whatever or Ola to travel but for me, it’s important because I like to travel outside out of the city quite a bit. So you know, it’s important for me, so I’ll buy it However, not as important for me, I don’t mind living on rent for a long time because I don’t really care. But for other people, it’s an emotional decision to buy, you should buy those and solve your emotional problems, because that’s what money is for. But wealth creation in the longer term is going to be beyond all of this. So you have to spend on these things because they give you emotional satisfaction. But you should also make ensure that money is to enhance your journey, it is not to reach a destination, saying I’m free financially and all that stuff. You know, like my parents say, or my mother just say my dad used to say, a long time back, which is that if you don’t eat sweets, for the longest time thinking that you will eat it, when you’re older, you get diabetes, then you can’t eat sweets. So, you know, you should enjoy your journey. So don’t think of these as hindrances on the path of wealth creation, because then wealth creation becomes a goal in and of itself, which is wrong. Wealth Creation should be a byproduct of your journey. And if you can’t enjoy the journey, because you’re trying to hoard all your wealth, and you’re not spending on stuff that makes you happy, then I think you’re missing the point. So, you know, building your wealth is less important than you know, enjoying the process of doing so don’t do things in excess but I don’t think you should you know, starve or survive on Maggie, just because you want to see that extra five rupees so that, you know, I don’t know what you do with the money. Eat more, Maggie, I suppose? Because that’s, that’s why not at least.


Siddhartha Ahluwalia 16:37

But is delayed gratification a part of the wealth creation? Or doesn’t affect it?


Deepak Shenoy 16:43

Well, depends on what you want to delay gratify yourself with. So for instance, if you’re the kind of person who wants to party every Saturday, and then I don’t think you will see a point of delayed gratification, because what will you do then not party now and party later so you have to change your mindset to say, Listen, I can’t afford this kind of party. Therefore, I will reduce my partying if I have to actually create wealth, because you’re actually hindering your wealth creation process by saying I won’t save any money by doing these parties every month. But if you can, if you earn enough money to be able to save and do parties every month, be my guest, I think that is perfectly fine. As long as you’re saving enough for retirement, it’s important to save because at some point, you’re going to need that money, and you won’t have the earning capacity to do so. So if you’ve kept that aside, that amount of money that can be built in the longer term. And you can start any time, it doesn’t mean you have to start at 25 or 30, or 38. Just easier if you start earlier, but even if you are 40, you can start and you can build yourself that well. But delaying any sort of gratification forever is not a great idea. I haven’t not bought a house because of delayed gratification saying i have saved now and buy a house later, I have not bought a house because I don’t know whether this city is where I want to live forever. And it doesn’t make sense to keep your options closed for buying a house. If you buy a house, you get to attach to it. And you know, all the emotional attachments come which I don’t think we want. So, when we decide whether you will really flip the switch will flip the switch. So it’s not because you want to delay it just when you could save money to buy a house.


Siddhartha Ahluwalia 18:28

And on the path of let’s say getting to x target for some it may be one cr for some it may be two or five cr. How much is investing monthly a part of their savings important to attract?


Deepak Shenoy 18:44

typically, it is important in the sense if you can, so a lot of people have these EMIS which don’t allow them to save. So they keep using those EMI is to buy their house or whatever, and then the house is not really a saving for long term, you’re going to have that house and that’s going to be a house you will have but that’s not going to feed you know, so unless you sell it and get the money and that’s not something that you’re going to want to do unless you’re in a distressed situation. So really, saving is an important part of longer-term wealth creation beyond all of these pending things like houses and cars and all that stuff. So where you will eventually be will be a eventual result of your savings. That means you can’t get to a point where you’re saying listen, I’ll somehow make this one crore per happen out of the blue. It won’t happen as a lottery. It has to be a slow process of saving, unless you’re in the business like we are of actually investing money where we can actually say we will turn some money into more money hopefully over the longer term. And that will result in something you can outsource that job. You can buy mutual funds, you can buy companies like ours, you can buy stocks to our longer-term investments that is the point of saving and then investing it into assets that give you larger amounts in the longer term. So, the only way you will get there is by saving and is not only way but the best, the most likely way you will get there is by saving, the most unlikely ways by a sudden big, you know, your company gets bought over and you get one crore rupees lottery kind of thing. That’s the only other ways you can make the money. Unless, I mean, so that’s what I’m saying. It’s like you want to balance that out. But I think saving is it’s, you can’t bet on these lottery kinds of events. So therefore, you have to save.


Siddhartha Ahluwalia 20:33

And what have you seen, like, the saving rate for the individuals, I would say, the happiest, most contented with their financial goals.


Deepak Shenoy 20:45

So I mean, we’ve seen all kinds honest, I’ve seen people who save 75-80% of their take home salaries, because they don’t spend that much, there are people who save less than 5%. But typically, someone who spends a lot and who’s contented is already got a huge corpus in place. So they’re like, oh, I don’t care, I’ll spend all the money that I have, because I have this built up this three or four or five crore corpus over a long period of time. So that’s also fine. But I think it’s largely that, how close are you to your financial goal requirements, so for instance, if you’re two years away, but you’ve already got 80%, of the required corpus, that you’ve decided, and you can decide this fairly easily, we have a tool, also called So you can actually go there and figure out how much money you need, if you want to retire at 60 50, and all that stuff. So if you need if you’ve reached that point, where there’s some I need three crores, and I have two and a half already, then I can actually reduce my savings, because over a period of four or five years, that 2.5 itself will probably grow out to three, you know, just by the nature of inflation and, you know, it’s likely that over four or five years, I’ll get there anyways, so I don’t need to save. If I don’t have anything, if I have a lot lesser, then I have to save more, or find more sources of income to be able to bridge that gap. So I think contentment is that saying am I on the track, right track and am I at the right kind of distance away from my goals, while actually be able to make it, the more closer you are to that more on track you are. So for instance, if I were to go from Bangalore to Mysore, it’s 140 kilometres, I know it’s going to take roughly two hours, if in one and a half hours, I only done 30 kilometres, I’m in trouble, I’m not going to get there another half an hour no matter what the traffic situation. But if I’m, if I’m only 30 kilometres away, and it’s one and a half hours passed, I know that possibly I can make it 60 kilometre per hour possible, I can get there in 30 minutes, so I don’t have to drive too fast. Now. So what happens typically is people find their way behind. And then they try to take extreme risks, that’s a big problem. Because we take extreme risks, you could have extreme losses, more likely you’ll have extreme losses, so you won’t get there. And then that will make life even more miserable, because you now lost the capital that you already have saved by taking those extreme risks. So that is something where you know, you would either say I can’t retire five years later, let me retire 10 years later, or I can’t do it with this kind of income, let me try and increase my income, get a better job, take a second job and so on. So these are things that I think one needs to course correct over the course of their financial lives. And people who need lesser and lesser course correction are usually the happiest.


Siddhartha Ahluwalia 23:39

So you are saying the people who take less of extreme steps are the most happy?


Deepak Shenoy 23:47

Typically, all progress is a result of unhappiness. So people who take extreme risks tend to make the most progress in society. That’s because they are inherently unhappy about the status quo. So you know, happiness and progress are sometimes not compatible.


Siddhartha Ahluwalia 24:05

And is investing you think in 2021 becoming mainstream for general public, because you know, the signals that we see, right, for example, during IPL and T20 World Cup 90% of the ads are about investing platforms or brokerages like upstox, coin switch and others.


Deepak Shenoy 24:31

Yeah, so what’s happened right now is a surplus of money that’s making its way into investing to such companies. They’re using the money to buy into IPL ads, they’re probably driving up the price of IPL ad so much that the traditional advertisers, the car manufacturers or the or the FMCG companies are no longer advertising on the IPL because the prices are too high because these people have come in and they’ve come in with deep pockets. So, you see cred, you see upstox All of them have raised significant rounds of capital in the recent past and that capital is going towards ads. Now this is not very different from the US, you had a period in the US when such companies were the only ones advertising the Superbowl. So that’s because they had extremely amount of capital and they were able to finance those last year even now, if you see if you see what’s on the T shirts, on the Indian team in the in the in the T 20. It’s got BYJUs on it, or it’s got Paytm on it, or these are all startups the earlier days to be CEAT and all that even now CEAT makes bat MRF makes bats in there. That’s what shows on the front of bats, I’m telling you tomorrow, startups will start making bats. And you will see some Paytm or something like that, in that it’s a function of money that has been pumped in into these places. It is not because investing is mainstream that they have got doing this, it’s because they have been able to raise capital on the back of the fact that India is relatively underserved in terms of number of businesses that have brought people into investing, the scale and the landscape of it has changed quite dramatically in the last one year, people are hoping that with the pumping of money, more great things will happen. And more people will continue to invest. This is typically a bull market, if there was a 30% correction in the market, none of those ads would be visible, because none of them will be able to raise capital. And these people go back down. So I think you know, it’s a function of where we are in the market run. I don’t think that this is, I mean, this is a fundamental change in the dynamics of advertising. But I think, you know, from a people perspective, we’re still very early and possibly a lot more big and bad things also will happen before we mature as a society. So right now, everybody’s chasing those 50% per month kind of gains, you can see in crypto. That’s because nobody has seen a 90%, I mean, many people have but it’s not widespread enough to have scared the whole bandwagon off the table. When that happens, you’ll see the crypto ads vanish also, I think the fact is that speculation is always you know, big in India. So, whether you speculate with real estate, whether you speculate with stocks or with crypto, there will always be a need to you know fight these guys, if gambling was legal. India would see only gambling ads. Deepak you have seen two burst or crashes in the market. One was the 90s dotcom. Second one was 2008 housing crisis. What are some of the signals if you had identified from those times, right, which can apply to current market? Do you see commonalities between the two?


Siddhartha Ahluwalia 27:57

Yeah, of course, I mean, you have the same kind of euphoria now that you used to have them. So now is better. I mean, last year, we were wondering whether that euphoria, similar, but now I think it’s much more likely to be similar to 2008 and 1099, compared to maybe 2020, or 2017, or something like that, where markets were going up. But we weren’t seeing the same kind of euphoria. So now, you know, if you go and talk to people about stock market, he’ll probably tell you five stocks, he’s invested in that may 20% of crypto or something like that. So that fervor and that euphoria, and that feeling that I cannot lose that is the one that’s very common. So it’s mostly behavioral. It’s mostly people who are taking out money from relatively safe assets to invest in markets, that drives this kind of behavior and is driving it right now. So very similar things, but like 2008, 2008 stretched a lot. 99 stretched a lot. It went when people say it was extremely overvalued, it went another 30% higher than that, before crashing. The same thing in 2007, when people said it was too much. The markets went 25% in three or four months before it crashed. So it’s good, it could be likely that the markets are overvalued right now. But it’s also equally likely markets continue to go up another 30% before the crash, because that’s the nature of such markets that the boom gives you this, you know it is overvalued now let’s crash. You know, it doesn’t happen like that. So you cannot bet on the lack of rationality falling apart at any given point in time, all I can say is you got to keep your feet in and you got to keep enough asset allocation so that you can benefit from both the upside and also protect yourself from a little bit of downside by having money in other asset classes. So do you advise your clients to spread assets across multiple asset classes like gold?


Deepak Shenoy 29:55

well not gold but Yes, we do talk about Indian stocks, international stocks, Indian fixed income and fixed income of various types, shorter term and longer term. So, if you spread across those, then you should be fine over the long term and the amount each will be dependent on each person, some person may have a 10% allocation to international stocks, 70% to Indian stocks and 20% of fixed income, some person may have 50%, fixed income 50% everything else. So, it depends on a person’s risk-taking ability, the desire for risk, which is their appetite, how much they can take? And secondly, there you know, their financial ability to take risk. That means, how close or close are you to the point where you need the liquidity? Do you have a large amount of debt that will cripple you from taking large amounts of risk? So, these kinds of factors, if you act together, we’ll come out with a number that says well, roughly you can take 60% equities 40% of fixed income kind of risks are the person who can say listen, everything else is taken care of. take 100% equity doesn’t matter. So all of these things together, I think add up to where you should be. And therefore, I always tell people spread across assets, many people have it, you have PPF, for instance, PF. pf, is typically a fixed income instrument for the most part. So that’s already giving you a debt allocation for your longer term, you can then therefore whatever beyond you have a savings that can go into equity and will still be maybe 70-30 or 60-40 Because your PF has kind of added up to so much all these years.


Siddhartha Ahluwalia 31:36

And in today’s market, you see, 2021 has seen the highest number of Indian companies go public. Is it also a signal of the capacity of retail investors to buy? Or is it a signal of the best time to go public? You might not never find a chance again in the next three, four years.


Deepak Shenoy 31:57

Mostly it’s called the chipkow moment. Okay. So it’s when you can you do that’s the way the investment bankers think that they’re putting money they put, I don’t know Nykaa got 80 times oversubscribed it was valued, I think more than 40% higher than what it was valued in February of this year. And relatively speaking, you know, this is froth. So in froth, you can price anything in any, you know, people buy diamonds at whatever price, what is the price of a diamond, it means nothing, its price is what you can tell me about because the industrial usage of a diamond is nothing it can be used to cut glass or a few things. But other than that, there’s no use of it. And I won’t pay like you know, $6 million for a diamond but people are there are people who do like art, like crypto, there is no inherent use of anything of that sort. But, you know, price it according to what another person wants to buy it at. So that’s what’s happening in stock market side. Now, the inherent value will be visible over time, some of these will be grossly under-priced even though at these prices, and some of them will be grossly overpriced because people have expected too much of them. And those expectations were too high. So as a balance or a counter between the two, I think, you know, markets right now are allowing a lot more froth than they used. two or three years earlier, you wouldn’t have been able to do these issues at all.


Siddhartha Ahluwalia 33:26

And can you advise tools to our listeners, on how to find undervalued assets or studies or books, in your experience?


Deepak Shenoy 33:39

So I mean, I think firstly, what I’m saying is not advice, because I think advise the world has a specific regulatory nature to it. Advice is always personal one on one. That means if I’m advising you, it’s based on your situation. So this is more generic gyaan, if you may. Yeah. So recommendation to people when they start looking for value in companies is they typically look at how much as a multiple of earnings that a company can give you. And the growth that the company can give you. So if a company is in a very fast growing sector technology, Nykaa, for instance, for all its thing it forget the valuation that it’s at right now. But it’s in a phenomenally fast-growing market. That market involves bringing all of India to be able to access great cosmetics, which I think in general is a very big commodity. Although it’s not just a commodity there lots of brands and very fragmented market. There are people who want it delivered home so they could change test, try all that stuff. There is a tremendous market in there with the current businesses and stores. So why when you look at a company like that, you’re not going to look at its current earning potential alone. You’re going to look at potentially how big the market can grow and how much this company can grab that much larger market. Whereas if you look at a market like the market for noodles. There is a Maggie there is a few other people, very difficult to get in because building a brand, it takes a long time the massive distribution effort involved because to go to remote parts of the city, you got to have people willing to carry your brand of noodles to that part of the city, they’ll be like, why should I carry yours when I have so much capacity, I’ll just carry Maggie. So this is the kind of brand advantages that a current incumbent player will have. And the fear of competition is relatively lower. So going to value such a brand very differently from one of these newfound larger market brands. Both may have value because why in one case, the market, I’ll give you an example IRCTC. When it came out with an IPO, they said it’s a 3000 cr company, this sounds a little expensive. Today, it’s a 90,000 Crore company. Well today, you could still say it’s over value, but 90,000 crores is a fairly large number compared to 3000 cr when it was listed. And same with Dmart I think Dmart of course, is much, higher, but when it came out 300 rupees per share now it’s, 4500 rupees per share in a matter of two and a half years what changed, it was expensive, then to the landscape of the retail market has changed as a survived a pandemic, they had some very interesting things on offer. So there are value points in each company’s life that as more information comes, you might find that oh, it was expensive earlier because I didn’t know x and i know x, this sounds cheap. I think that very generically put, you should look at how a company is going to be 10 years from now. And therefore, where it is today. Although it may look expensive today, that 10 years later picture could be a dramatically higher part of the universe as it applies to Amazon, Facebook, Google Tesla. Tesla, Elon Musk is now the richest man in the world. But you know, five years ago, people said Tesla would be bankrupt. Because he had so many challenges when you know about cars, about delivery, I can’t deliver this car is not as good. All that stuff got wiped out because of the execution of this company. And over time, they built SpaceX also. So betting on company’s future is not a onetime process. It’s a something that you do over a period a long time. So I’m saying okay, I want this. And if you can’t do that, then I think best is to go with mutual funds with let them go find undervalued assets. So, people like us who are running PMS, which require larger capital to start with, when you invest, but there are people whose job it is to try and find that bridge between value and growth, then, and who will actually purchase those assets. So there are no easy tips for this. But I would say just look at the landscape of where everything is going to be five or 10 years from now, rather than and don’t You don’t need to be exact, you need to be more worried about the skin scale or not.


Siddhartha Ahluwalia 38:07

And let’s say if you have to evaluate putting your client’s money into one of those companies coming IPOs so is future growth, the only metric that you’re going to look at?


Deepak Shenoy 38:22

Yeah, because in a way, one new thing is the only process that you have now is future growth, because all the past data. So, you may know today that, you know there’s this kind of a we’ve done so much in profit and also but almost all IPOs come to you when the books have been dressed up already. So, in the past is not very relevant to it. So all of it is going to be about how this company is going to be in the future. Now, to have guessed that Dmart could have been valued at 150 or 200 or 300,000 crores when you started off with a valuation of say 20 or 25 or 30,000 crores for this company, the vision would have been to say the Dmart will become this big, the Indian retail market is recorded this size therefore, off the bigger size I have a small percentage that is being held by account by accountable by company like this and they have profit making opportunities in x y Z and therefore, I can give this company you know an investment right now, however most investment don’t happen like I will invest now and forget forever. I mean of course some happen by nature because people get really disappointed, they don’t look at their investments, but a large amount of investment are following right we invest 10 rupees today then you will invest 15 rupees once that company starts showing some progress then 25 rupees and something else happens and so on. So, those that progression is what brings you the longer-term focus. So building vision into how these companies will grow. And then chalking yourself investment paths and listen when they do this. So for instance, let’s say there’s a company that has a payments bank today, you know payment bank are not very profitable, but they can apply in the future to become a small finance bank that allows them to lend money and earn much more money than what they’re earning as a payments bank. So you might say i will invest in some 10 rupees today, when it applies to become a payments, small finance bank, it kind of proves my theory, right is when an investor another 15 rupees. And then when they start making profits from this business and start showing me their NPS and how they’re lending and using tech to lend, I will add another 20 rupees. So that’s the way you want to think of any of these startups. And we want to invest a lot of them, not just one or two, because we concentrate your bets the landscape can change very dramatically against you. So you want to make large number of smaller bets, rather than small number of concentrated bets


Siddhartha Ahluwalia 40:59

and in your upcoming book, which is about to be released on 23rd. November, money wise, what are three to five, that you can highlight for our listeners right now that they’re going to learn from the book on wealth creation?


Deepak Shenoy 41:14

Yeah, so I think from what I’ve written in the book, it starts off with a journey that says, Well, investing is largely about behaviour. When I say I could give you this funda that says invest every month like this, and you’ll get there that’s the traditional form It’s more gyaan giving, I’m telling you but you’re telling me Deepak, this all is fine, but I’m getting some you know, one lakh and two lakh, but my neighbor he put one lakh rupees into some Tata Motors and it became five lakhs in like three months, how can I do that? So, I’ve tried to address that behaviorally investing in the longer term is always a challenge because you always find that Oh, yaar itna kar diya but market is not moving what is the point in my neighbor is investing in crypto my friend is invested in this is what some real estate property, should I just take all my money from here and put it there. This is the kind of thought process you want to avoid so largely the behavioral challenges to say okay, what our broad context, create yourself a sandbox that allows you to invest in all these 5 lakhs, 10 lakhs when all those 5x-10x kind of opportunities where you will, you will invest smaller amounts of money, but you will be happy that you invested that small amount of money and become 5X. And if you lose, also, it’s not a big deal. So you create a sandbox for your behavioral excesses, which is normal parts of market, keep your regular investments going in parallel, that allows you to participate in the longer term. And how you want to participate is also a very important thing. So whether you want to participate in a mutual fund, equity kind of approach, or mutual fund fixed incompatible approach, a fixed deposit kind of approach, or direct, I will buy stocks myself kind of approach. These are four or five different ways you can invest in the market, you can buy gold, you can buy an ETF that invests in gold, all the instruments are different, but how to allocate between these different styles of investing is something that I kind of explore saying this mutual fund a good Forex, in, you know, the mutual fund or something called index funds, where you might find more peace of mind, if you’re a long term investor, because you don’t have to worry about which fund managers better was something else, then you have something called direct stock investing where you to choose stocks yourself, this puts you into higher grade now, because now you’re going to have to do more work in order to do the same investing. But hopefully those for that more work, you get better returns as well. And then you have, you know, the other forms. So for instance, I talk about all the time saying, focus on income. So the more income that you can make, the more you can eventually invest in less complicated things, so that you can achieve the same goal. But so the book takes you through a journey of all of this, including the stocks and mutual funds, the various kinds of scams that have happened in the mutual fund and stock area that allows you to appreciate when over speculation has led to extreme situations in the market. And that over speculation can be there was a time when teak plantations were the vogue, you bought a share of a teak plantation, and they would build the teak trees grow it for 20 years when the teak grows big, they will make a big amount of money and so on. This entire thing was you know, about 80% of it was scams. So those scamming companies took away the money of so many people that people got disappointed, important to analyse historical excesses in the mind of how things are currently somebody comes into this is new crypto coin that’s going up 10% every day. You should be suspicious more than you should be rejoicing. Because if you’re not an insider, not a person knows this industry deeply, then you’re likely going to lose all your money if you put it into such a business. So I think the book kind of takes you through all of that journey of an investor and the scams that have happened in an in a part of the book I called suckered that will tell you how all of this comes together. Hopefully it gives you an insight and helps you invest because but mostly, I think it’s going to help you build a canvas on what you are, and therefore how you should invest rather than me giving generic advice.


Siddhartha Ahluwalia 45:35

Thank you so much Deepak has. It been a very insightful conversation. I wish we could do it more. You know, that’s for another time, but really appreciate you coming on the podcast today. And enlightening our listeners.



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