$1,000,000 Champion Investing Strategy | Tanmay Khandelwal

Any money you earn is basically your Capital. Now, just because you earned it, you don't have a right to lose it.

Our focus is not to find the stocks with the best momentum, but to find the ones with the best earning momentum. Our aim is that in no single trade should we lose more than 1% of our Capital.

We followed our thesis, and when we got uncomfortable with the valuation, we sold the stock. Our idea is to hold stocks until they fit our criteria, and our general holding period is about 5 to 6 months. We can put so much more time into every stock and making every trade into a perfect trade. Investing or trading is a business, and if it's a business, it should make money for you. We should learn from mistakes and not repeat them.

Hey everyone, welcome back to the Trade Line podcast. I'm your host, Richard Moglin. This episode is brought to you by The Ultimate Trading Guide. You can pick up your free copy down below. Highly recommend that resource and that you check it out, especially if you're on the newer end of your trading journey. Uh, with us is a fantastic guest. We have a US investing champion, Tonmay K. Wall, of the money manager division, that's the million-dollar-plus division of 2023. Super excited to dive into his process, talk through his trades, learn about his background as well, and, uh, just get to know him a little bit better. So, Tonmay, first of all, thank you so much for taking the time, uh, to join us here today. Uh, you've also created an amazing presentation to run through your strategy, your process, as well as winning and losing trades. I think that's really important, as well as your kind of core principles that you use to run your account. So, thank you so much for joining us and looking forward to it.

So, thank you, Richard, for having me on your show. I would like you and your audience to excuse me because I'm still 24 years old and I just started learning. So, this is also the first interview that I've given. So, I would seek my apologies in advance if I don't put out such a good show, if I say something that I should not say. Okay.

Uh, I would like to start by admitting that it's been a very humbling past year for me. Winning the US Investing Championship. A lot of people that are really idealized, like Mark Minervini, David Ryan, Bill Perkins, Louis Bacon, have been grievous followers. And having my name up there among them, it has been among the proudest things in my life. Second, uh, I would like to thank my family, especially my parents, my mom, my dad, my grandmother, my brother, my fiance, for putting all their faith and trust in me and supporting me through my trading journey. Not only through the US Investing Championship, but over the past 3 years. Uh, they believed in me and believed that I could do this without taking professional work experience in any company like Goldman Sachs or JP Morgan or Bridgewater. I feel so glad that this competition really defines their trust and their belief in me and shows me that they really backed me for the career path I choose, as well as gives me confidence that I can deliver on their dreams. And just the last thing that I want to say is that IBD and Trader Lion have been a constant source of learning for legends and smartest investors for me, which have included Mark Minervini, David Ryan, Stan Weinstein, you among others. So, all I want to say is that I feel very excited to be here and slightly nervous too. But whatever I just want to share today is my personal experience. I'm not giving any advice to anyone, but I hope that whatever I shared today could be useful to some other young traders, uh, and other people who want to start out in the stock market.

From your, yeah, I think that's great and, um, yeah, I'm looking really looking forward to this, this one especially this year and, um, yeah, I mean, from our chats earlier, it's clear how much work you've put in and I think that will really show, uh, today. So, excited to dive in. Um, I always like to start at people's backgrounds and I know you've prepared a presentation, so feel free to start sharing that. But, um, I'd love to hear, kind of, how you first got interested in trading, investing, and, um, just hear about your journey thus far. I know, uh, you, you work closely with your brother as well, so I'd love to hear how, uh, that kind of started.

So, basically, I was born and brought up in a city that's called Indore. It's located in central India. Uh, it's a Tier 2 city, not as well known as most of the metro cities like Bombay or Delhi or Chennai or Bangalore. So, I did my high school from here and I was lucky enough to get admitted to Columbia University. Uh, that was a sea of change for me because generally, very few Indians, only about 9 to 10 a year, actually go to Columbia. And almost all of them are from metro cities. But being the first one from my city to go to that school, I think really like exposed me. And being in New York gave me a very different experience. Uh, I studied Industrial Engineering and Operations Research, uh, completed my undergrad and graduated in 2022.

So, since I was from a family that's been in business for more than three generations, I've been learning about business since a very young age. So, after school, like most of my time, I would spend at the office studying, as well as being a silent listener to what my parents were discussing or like, just trying to understand how different things work. So, I think that really like made me curious about entrepreneurship and that made me curious about like how businesses work and now I can start a business for myself as soon as possible. So, since I was young, my parents also took the initiative to take me to various companies that they work with in the industrial automation space, which helped me understand how like different companies function, what are the different products that different companies make. And these visits were not only with my dad in a sheltered way, but also with a lot of like, uh, employees that we had. So, I could understand from different perspectives as to how people think and how different companies function. So, even when I look back on stocks today, sometimes I'm able to imagine as to what the company exactly is doing on the ground as well. So, I think my, my childhood included a lot of learning about our family business in industrial automation, as well as a lot of learning in our other family businesses of real estate, as well as IT solutions.

My grandfather actually was a stockbroker many, many years ago. My dad, for the initial couple of years of his career, was a stockbroker as well. Uh, but due to many different business activities that they were undertaking, they had to close it down. But my dad has been an investor for many years, and you know, just investing the savings to make sure that we get a good return on there. But my interest with stock, stock market really began during COVID-19. So, in like March 2020, COVID struck and almost everything closed down. So, so college also closed down and Columbia told us to go home. So, I took a gap year from college after my junior year. So, I was class of 2021, but I was shifted to the class of 2022. So, uh, at the same time, my younger brother, who's shown here, Aryan, also took a gap year after high school. So, my younger brother has been a professional squash player. He's represented India in various international tournaments in squash in juniors, as well as he's been a national champion of the national sports game for many years. Uh, he was selected to represent Dartmouth as an athlete and as a student. So, since both of us were sitting at home and we didn't really have too much to do, most of the business was at a standstill, and we didn't like, but being in a college like Columbia where you're forced to work like all the time, we always think that, oh, what can I do? Do what can I do? What can I do? What can I do? And that made me really like interested in the only thing I could do at that time, which is like invest in stocks. And I think at that time, since everyone was at home, the market has just crashed. Like, I think stocks was something that a lot of people were discussing at that point of time, and a lot of people also started trading at that point of time. So, me and my brother started learning from our dad. Uh, we are all voracious readers, so we started like reading a lot of books. We started seeing a lot of podcasts. We started talking to a lot of like, my dad's friends who were investors or ran different businesses to understand more. So, I think that at that time, we started a blog in 2020, which was known as 2xc capital.com. So, what we used to do was that every week, me and my brother would each read a book. So, one of us would read a book that was related to the stock markets and business and investing, and one of us would read a non-investing related book. Maybe the life story of a famous businessman or just a book on like psychology or, you know, something like that that was of interest. And we would make a summary out of it and discuss it like within ourselves and with our parents, and we would upload it on our blog, 2x Capital. We would also try every 10 or 15 days to talk to like a famous like entrepreneur, uh, who was established in an industry, and try to understand from them how that particular industry works. And if they gave us permission, uh, to also upload that interview on the internet as well. So, I think that this really gave us an overview that about what business is all about. And we started like learning about the fundamental aspects of stocks, the technical aspects, uh, you know, how to manage risk, what do, how do different investors think, what's a momentum investor, what's a value investor. So, I think we really like learned from the ground up. Okay, so I think this is, this is where we started getting interesting and, uh, and from there on, the interest just compounded and it's something that we think about all the time now.

Yeah, awesome. And and walk me through this timeline now because I love to hear, um, and we've talked you before about how you guys performed in 2020 and then also leading up to how you eventually decide, hey, let's go ahead and enter the USIC, which I know you learned about through through your studies. So, yeah, what kind of happened from 2020 to, um, up until you guys decide to enter in 2023?

Okay, so basically, the timeline is very simple. Uh, we started this in April 2020, right after college closed down in March 2020, and my brother's high school also got completed. Uh, since I still had a year of college left, I went back to college in August 2021. I graduated in June 2022 as a part of the class of '22. Uh, after graduating in June, I came back to India full-time. I started working full-time, uh, in, in, in the business, trying to really, so trying to really improve. And we had some really nice results during 2022, after which I entered the US Investing Competition. Okay. And there on, the story goes. So, what I really want to emphasize on is also how did I really start? What was the strategy that we did? And some of the mistakes and learnings that we had, which us like crafted a strategy forward.

So, basically, when we started trading, we didn't understand a lot of things that we understand today. What we saw was that there's a 200 DMA on the chart, there's a 20 DMA, and there's a 50 DMA. Uh, DMA stands for the daily moving average, which is an average of the, uh, previous number of days the price of the stock has had. And we saw that whenever the 20-day moving average and the 50-day moving average crosses over above the 200-day moving average, which basically indicates that the stock is in a bull trend, we would buy the stock. And, uh, and as soon as it moved up a bit, we would sell it. Our stop-loss would be just 2% below our buy price. And so, because the moves were very small, generally we used to deal in a lot of futures. But since in 2020, the market was rolling, anything you bought just shot up. Basically, we thought that, wow, we like so smart. It's like we started this, we started this business like, like 3-4 months ago, and now we are just like compounding our money on a daily basis. And because we were doing futures and we were highly leveraged, like three or four times or more, it's like the compounding effect really comes on, like really strong on you. And that just made us feel like at the top of the world. But till the end of 2020, all of this worked really well. And at that time, I think our ego and, I would say, our confidence, maybe peaked. What we did was we thought that we have the magical touch, and whatever we buy or choose, we'll basically it'll just go up. Okay, because I have the golden touch. But, and we stopped putting stop losses. And in like 2021, Jan '21 to April '21, there was a slight correction after the bull market that took place in the last 9 months of 2020. And because we were leveraged four to five times, we had no stop-loss, we had no strategy of how we should exit, where we should exit. Uh, basically, most of the profits that we made, we gave them away. But I think this time was really important because it made us realize that even though we read so many books and we summarized so many books, and you know, we discussed so many books, how much of it was something that we were actually applying to the work that we were doing? Okay.

So, after that, we really focused, went back on the drawing board, started thinking about how is it that we can do this really well? Okay, because we were operating on high leverage, we were operating without stop-loss, and we were operating with a lot of ego that whatever we do is right. Okay. So, we went back to the drawing board and we started thinking, and that is where we started formulating a more formal strategy. We started understanding things in a better manner, in a more mature manner, and learned to apply it, not only understand but also apply it to things around us. So, basically, 2021, the latter half was spent in formulating a lot of the strategy. 2022 was a slightly hard year for the markets, but as we were able to successfully apply the strategy that we have created, which I would explain in a bit, was something that helped us like too well. I think the markets ended flat for the year, but we made some very, very good returns in the year. And that gave us the confidence that we should participate in the US Investing Championship and have the, have the confidence to benchmark ourselves against people who were professionals and benchmark against people who were the best in the industry, and look at the competition as a way to self-discipline ourselves.

Yeah, I'd love to dive in a little bit into, uh, your process in, in 2023 and, and how you guys kind of went about, uh, entering the contest and actually trading. So, uh, let's push on unless there's anything more on this slide that you wanted to cover.

So, uh, one more thing that I just want to point out is the three learnings that we had, and which really form the basis of our thought process and our risk management. One is that risk management is important. Any money you earn is basically your Capital now, and just because you earned, you don't have a right to lose it because it's part of your Capital now. As long as you retain your profit, only then can you compound. Second, we felt that we lost our humility and became egoistic, which is the single worst thing I think anyone can do if they are a trader or investor in stocks. Third, I think leverage is good, it really helps you compound your results, but it's important to use it in a very judicious and controlled manner. Leverage used in an uncontrolled manner or without a proper risk management plan in place, you run basically the risk of, uh, bankrupting yourself as well, or like blowing up your account. So, I think this was basically what we learned, and we applied this to every trade, and almost every day we think of the same thing and ask ourselves if we're doing any of these mistakes, and if we are, we want to correct it as soon as possible.

And Tonmay, I want to ask, um, who have been, uh, the, you know, the biggest inspirations for you and your brother? Brother, uh, who do you feel like you've learned the most with, and your kind of strategy is kind of molded, um, you know, from their styles, as well as I'm sure, you know, taking a little bit from this person, a little bit from this person. Who, who have been kind of your biggest influences, uh, for, for learning to trade?

So, I think the biggest influence for us, uh, has been our family, and, and what our parents have taught us about, like human psychology and a little bit about investing and trading. Uh, I think a second thing has been, uh, our family principles, and I think that by sticking to them, we are able to be morally upright business and have confidence in whatever work we are doing. I think there are like four to five people who have like really impacted me and whom I've learned from investing and trading. So, number one is Howard Marks and his study of market cycles, because I think in cycles, it helps you really understand, understand like where the, how the economy is moving and where are the big moves coming in. And his book, Market Cycles, really explains it well. Second, I think is Mark Minervini and Mark Minervini and David Ryan, because of the way in their interviews, they have explained their trading process, as well as like outlined what traders who are just even starting out in the market can easily apply to get good results. I think their trading style, their cool, their calmness, their, their simple explanation of how to make money is something that has like really benefited us. Uh, number three, I think is Ray Dalio. His book, Principles, is a good way for any person to improve their thought process, not only towards stock picking or business, but also towards life in general. Uh, number four, I would really like to thank, uh, William O'Neil, because I think the single biggest influence has been his book, How to Make Money in Stocks, as well as like, Market Smith. Because I think Market Smith is a very important tool and has helped us like, really, really simplify our research.

Tonmay, I'd love for you to dive deeper into your kind of investment process and thesis. Do you mind kind of walking through, uh, the BEST acronym, which I know you use to kind of identify potential stocks to trade as well as to invest in?

So, basically, we use the acronym that's called BEST. It's something that we have coined ourselves, and it's something that we are trying to get it copyrighted right now. Okay. We are under the process. So, BEST, where B, B stands for a big addressable market. A company's share price can only grow if the business expands, for which it needs a big addressable market to be present. E stands for earnings. A share company's stock price, we believe, only grows if the earnings grow exponentially. S is for strength, which is a technical indicator for us. T is trustworthy management. So, this is a modified version of CAN SLIM that we have used, where we have applied a lot of learnings that we have understood from fundamental analysis, as well as what we have learned in technical from different traders, and tried to put it together in the simplest way possible, which is the easiest for us to follow. So, now I'll explain all the four indicators one by one. So, in this, first B, E, and T are fundamental indicators, by S is a technical indicator. So, B, which stands for a big addressable market, there are basically two types of companies we look for. Number one, which is a small player in an otherwise really large segment, and therefore has a lot of potential to grow. Second, is a company that is a big dominant player in a niche segment. So, any new business that comes into the segment goes to that particular company. Okay. So, every incremental revenue, operating leverage, pricing power lies with the company that we are talking about. E stands for earnings. So, we believe that a stock price of a company really rates when the earning growth, or the revenue and the profit growth of the company exponentially increases at a faster pace. So, there are like certain factors and indicators that we look for to make, to understand if the earning of this company would grow for the next three to four quarters. So, one of those things is increase capacity. If a company increases capacity, they can produce more, sell more, operating leverage. New products, that means that they can easily sell new products to existing customers and increase their sales. A change of management, which can be a catalyst. So, if the quality of a management is not good and a new management is better, they can, the company can get a new valuation multiple, as well as the business can perform better. Then we look at an improvement in operating parameters, like is the company doing things to reduce cost? Is the company doing things to use its plants better? Is the company doing something to really increase its sales network? Let's say a company was only selling in two states, and now if it's expanded to six states, the sales would grow exponentially as well. And then the other thing we looked at is an improved macro and industry environment, just as an overview, to see if there are certain like commodity cost pressures, etc., which have improved for the company. But the basic idea of everything that we look for is to make sure that the company that we choose is going to increase its revenue, or in a faster pace than its historical pace over the next three to four quarters, and it's going to increase its profit margins in an exponentially increasing way over the next three to four quarters, and thereby that for us defines the earning potential or the earning strength of a company.

Uh, I think I'll cover the third fundamental parameter first, trustworthy management. Uh, I think this is one of the concerns that many investors in India have, because disclosures here from companies are generally lower, and in many cases, the management owns up to 75% of the shareholding of the company, in which case they believe that the company is their own family property and of shareholders. So, we only look for companies where the management has shown that they have delivered what they have talked about in the past, and there is enough public domain information available in the form of investor presentations, in the form of con calls that are given by the management, in the form of interviews that are given by the management to media, where they highlight as to what they want to do and how they see the future of the company to be. So, this helps us like reasonably understand as to what is a, a company that has a potential to grow over the next three to four quarters, a company that has a track record in the past and would perform better than it was doing before. Uh, once we have all of these, we look at our own parameter, strength, uh, which in simple terms, is of, is a score of high relative strength to the general market, characterized not only by the stock, but the sector in general. We also have created our own, own slightly proprietary, uh, analysis software that we use to just understand like various technical parameters about a company that we're looking to buy. So, our idea is that we want to buy a company that is doing well, and which will do better, as characterized by B and T, but we want to make sure that we have a reasonably shorter holding time, so that we are able to increase the returns on our capital by buying the company at the right time, as characterized by S, and make sure that we book profits at the correct time, so we are able to churn our capital better and get a higher rate of return on our capital.

Now, basically, I think there is a slight difference between what we do and what a lot of other people who are more technically focused traders do. What, what we want, our strategy is 80% fundamentally focused, and about 15 to 20% is what we characterize as a technical focus in the strategy. So, our future aim, which is me and my brother, our aim is to create an India-focused hedge fund, where we leverage on our understanding of business in India, we leverage on the pedigree of the education we have, and the track record that we are now trying to create through the US Investing Championship. So, we believe that because India is a more thinly traded market, where the volumes and stocks and the values that are traded are lower than in another market, and secondly, the, the fact that if you, the larger quantum of investment that you have, the longer needs to be a time frame on horizon of holding. If let's say I have like, just as an example, if I have 1/10th the amount that I had, I could churn more regularly, use more breakouts, and keep getting in and out of stocks as soon as I wanted. But to the strategy that I have, I have to hold longer because some of the stocks that we buy, uh, are thinly traded, and to sell our the position that we hold might take us more than a day. So, sometimes we have to sell over a period of two to three days. So, same way, we feel that when we have a fund, and where the AUM could be, for example, let's say hundreds of millions of dollars, one day, hopefully, we would have to hold positions for a longer period of time and make sure that we focus on the fundamental aspects of the position, positions, so that we get confidence to hold them over a longer period of time. So, this is where our strategy has evolved from. So, I still churned a bit, uh, did a few entries and exits through the year using our S indicator to improve our returns. But my brother, who's participating this year in the competition on behalf of our company, is looking at a strategy that is that constitutes even less churn than the one I did, and tries to achieve the highest returns in the minimal number of trades through the year. So, I think what we're trading on is a daily or a weekly basis, and our idea is to hold stocks until they fit our criteria, and our general holding period is about five to six months.

Yeah, that that's helpful. I think so you're much more on the position trading, you know, active investor end of things than, you know, swing trading, that that type of thing. So, our focus is not to find the stocks with the best momentum, but to find the ones with the best earning momentum. So, I thought I would also just share the mission and vision of our company, because that could help better explain why we chose this strategy. So, we want to have the best risk-reward ratios. So, I, we think the performance is not important, but the quality of the performance we have is also important. Any reward that comes with a lot of risk may not be worth the reward. So, we want to apply our thesis properly so that we are able to have leading risk-reward ratios. Second, uh, is our vision. Uh, we believe India is the fastest growing market in the world. It's going to be the fastest growing country for the next 30 years. There are a lot of people who might want to allocate in the future to India, and our aim is to develop one of the leading long-only focused equity funds that give people an opportunity to participate in the growth story of India.

Yeah, excellent. Yeah, I mean, you can look at, look at the ETF and you can see the growth potential that India has. Um, what do you think are the kind of driving factors that will lead to the long-term growth of, of the Indian market relative to, to other markets around the world?

So, I think one of the, I think one of the most important factors is the fact that a lot of the world is already developed, and India is one of the last, like frontier markets where a lot of development is going to take place. So, when I look at like, a lot of the companies that I own, they do like really simple businesses, but the fact is that today, let's say 5% of Indians own a car. In the future, maybe 50% of Indians will own a car, similar to how it may be in the US. So, I feel that the current standard of living for a lot of Indians is, is not that high. And given the amount of impetus that the government, the existing government has put on, like, like infrastructure development, making sure that people at least have a basic standard of living, focusing on, like, making industry more favorable for investors, helping industries grow, among other things, I think that is like really going to, like, catalytically pull the population up. I think what also really matters is that India is like a really, a, like a very youthful population, and a lot of, like, younger people who have like aspirations. So, if, like, let's say somebody has a cycle, he wants to maybe own a motorbike. Someone who has a motorbike wants to own a small car. Someone who has a small car wants to buy a mid-size car. Someone who has a mid-size car wants to buy a luxury car. Let's say someone who has a Rolls-Royce, maybe wants to buy a plane. And I think that if everyone is driving to do better, then they want to find ways to grow. And if, like, people within a country grow, then the economy of that country, uh, would grow as well. So, I think a lot of people add to a lot of, like, future productivity for the country, as I think Ray Dalio puts it.

Yeah, excellent. Uh, no, it's really good to kind of get this background of your process and your overall goals. Um, I'd love to keep just kind of diving in and, and let's, uh, let's see, kind of your, your, your process as well, you know, diving a little bit more into the details. So, feel free to keep on going with the your presentation.

Perfect. So, I think now maybe we can move on to a little bit about our performance in the US Investing Championship, and post that, we can dive into the process that enabled and the specific trades, uh, that helped us understand this process. So, next, I'm going to share a slide which basically showcases our performance. So, we entered the competition in March. So, until March, our return was zero. And then you can see the cumulative returns that we for every month. These are US dollar adjusted, as they were, as they were calculated by Professor Norman, based on his, based on the information that he provided to him. So, you can see we almost had every month positive. Some months were really good. We even gained 27, 28% in a month, which was May to June, which was really good for us. We only had one month of drawdown, which was the month of October, which was the worst performing one, where we had a portfolio drawdown of around 5%. So, I think one thing that we found really lucky is that almost through the year, our gains were distributed, rather than, you know, being focused on a certain part of the year. And I think it was because we put an effort every day to be more consistent and daily, like check our portfolio and make sure that we were on the right track. So, this is just an overview of our returns through the year.

Next, I just want to share a slide which showcases a few of the important principles that we undertook. So, these 11 things is something that we have printed and we pasted in front of us. So, I think it's important for me to explain these 11 things because they would help someone understand as to where our focus lies. So, first is that, uh, our biggest stop loss is the company we we invest in. So, we take a lot of effort to research every company we invest in. Even though we get some ideas through screeners, we personally like spend hours going through, like con calls, investor presentations, past management interviews to really understand what the company does. And only when we are completely satisfied, and we fulfill our checklist of what we want to buy, of the reasons we want to buy, and what is it that we see the future planning out, only then do we take the company. So, I think this is the biggest stop loss because if you select the right thing, it's most likely to go up. And we consider this to be 75% of our job as an investor. Second is, like I explained to you, the S, which is the strength factor. Uh, we want to use the right technical tool, not hold the stock forever. And I think that's the job as 15% of us as an investor. The third thing that we have a lot of emphasis in is, is, uh, is risk management. And our aim is that in no single trade should we lose more than 1% of our capital. And even if we make a 100 mistakes, we'll still have like enough amount of capital available to make those 100 mistakes. So, I think this is what forms like the 10% of our strategy. So, for us, the most important thing is risk management and preservation of capital and the profits that we have made. Like, I told you, our returns were scattered through the year, and it's because we want to like make sure that we have a low drawdown or lowest number of negative weeks and negative months, so that we are able to have a stellar performance over the longer run.

Mhm. We made a lot of mistakes before where we bought stocks out of emotions. It's like, oh, I think this is perfect, this, this company is going to do this, and this company's going to do that, and like, you buy the stock and like, uh, it's not going exactly the way that you wanted it to go. So, we make sure that every straight, every trade fits our philosophy. Even if any trade is slightly outside of philosophy, we don't consider buying it because we think there are thousands of opportunities available, and you just need to take a really few out of them. So, if something doesn't fit, it's best to not be there. Uh, and I think that leads to the next point, which is avoid discretionary buying. But at the same time, if we feel that a stock has maybe overrun, or if it's overvalued, or there is a change in the technical patterns of the stock based on certain indicators, I think it's okay to sell on a discretionary level and book your profits because as long as you nail down good profits when you have them, you'll keep compounding your capital over the long run. So, I think we also have a slightly longer horizon because we are more easily able to predict what would happen in the next two or three or four quarters, maybe, and therefore take our investment decisions accordingly. Uh, we have diversified adequately. No stock is more than 7% of our portfolio. No sector is more than 30% of our portfolio. So, we make sure that at any point of time, we are diversified and we have a risk in control. Uh, I think the last point that we have is, uh, something which is the most important thing that I think Paul Tudor Jones taught us, and which is that never trade below 200 SMA. And I think he said a specific term that only like big trades below 200 SMA or something like that. And I feel that if a stock, I feel that the performance of a company shows in its stock price. If the price of a company is not reacting, or if it's going negative, then the performance that is coming up would most likely be negative. Therefore, our one of the most important principles we hold is to not trade below 200-day moving average.

So, I think this made you understand a little bit about, like, our returns and how they were generated through the year, and some of the principles that we hold to you. Now, what I've done is that I've curated a lot of portfolio statistics so that people can understand, like, how our portfolio was constructed, what are different risk metrics were, what is the gains that we had, what is the losses that we had, what were our biggest gainers, what were our biggest losers, because I think a lot of numbers really speak for themselves rather than me speaking for the numbers. And I think, uh, this really, like, gives an overview in the next few slides about what we did in a very, like, numerical and statistical format. So, one of the things that our company really focuses on is to make sure that we collect as much data as possible about every trade we do, and about a portfolio on a holistic level, so that we are able to go back every time and understand what mistakes we did and work hard to rectify them.

So, uh, this is a slide which gives an overview of our returns. So, the investment period for the competition was, uh, for the year, which is 1st January to 31st December. During this time, we introduced an amount of 142 million Indian Rupees, which is somewhat equivalent to 106, 1.6 million US. On that, we generated a return of 1885 million Rupees, which is equal to somewhere about $2.3 million for the, in this specific account. Our returns for the year were 13.4% on an INR Indian Rupee basis. When they were adjusted for US dollar, due to the Indian Rupee depreciation, our returns came out at 12.9% for the year. We benchmarked ourselves against the Nifty 500, which is the leading index in India, and where 90% of our stocks come from, almost I would say 90 to 95% of our portfolio comes from. During that same period of time, the index gave a return of 25.8%. Another, another index that I think a lot of fund managers in the US use to benchmark emerging markets portfolio against is the MSCI Emerging Markets Index. For the year 1 January to 31st December, this grew 10.27%. So, I think this slide makes it very evident as to the outperformance that our portfolio was able to generate versus the Indian as well as the global index over the year.

Mhm. So, next, uh, we just have some information about our monthly performance of the portfolio. We look at a portfolio over a monthly level because we feel daily is too small a time frame to look at your portfolio, and even a week might be distorted by the movement of one or two days. So, that is why we look on a portfolio in a monthly level. So, uh, like I told you, we only had one drawdown month, which was October, where we had a drawdown of 5.25% of the portfolio, and around 10% of our profit got diluted. Uh, so we got a positive return 11 out of 12 months for the year, because, and because we just had one negative month, which was October.

Mhm. We outperformed the benchmark in every month that we got a positive return, and we underperformed the benchmark, which is our Nifty 500, the Indian index, in only one month, which was October, for which our portfolio went down 5.25% versus 2.39% for the index. Based on this, our batting average worked out to 11 upon 12, which is a 91.7% batting average. So, I think that you can see that our outperformance over the index was significant, but it was also scattered through the year, as defined by a, our batting average being at 91.7%.

So, the next thing I want to share is just some portfolio statistics to help people understand the kind of risk we took. As of 31st December 2023, our portfolio Alpha was 26.8%. Our Sharpe ratio was 2.63%. Uh, I think a Sharpe ratio of 2.63 puts you among the top, top percentile of funds. Generally, I think this also defines that for every risk we took, there was a bigger Alpha that we had to create. Our Beta is also 0.9. So, despite the, despite the significant portfolio gain we had, our Beta was very, very, very minuscule, meaning we had lower volatility, lower drawdowns, and our portfolio grew on a more consistent basis versus the index. Uh, I think another most important thing that I would like to highlight in this slide is that no single stock, like I reiterated before, was more than 7% of our portfolio, and no sector was more than 30% of our portfolio at any, at the time of investment in that stock. So, the returns that we have generated is not because I bought two stocks and they went up like crazy and like my return just gained, but it's because what we're doing is a methodical process of stock selection, and a lot of stocks that we chose performed really, really, really well through the year to get us to that return that we have got. So, what I want to showcase through this is the strength of not only a risk-reward, but also the fact that the attribution analysis that we have is very strong, because of a lot of diversification that we have done, and effort that we have taken to find companies, uh, across the spectrum, not only in a single sector, but across multitudes of sectors and industries, industry trends.

So, I think over the year, uh, we booked trades in 53 trades. We booked, as on 31st December, 28 stocks were still in our portfolio. Our allocation at max is 7%, but many times stocks also have a lower allocation in our portfolio because we don't buy at once. We build on, like, positions over time based on the performance of the stock. There were three stocks that were still in our portfolio and which were partially booked. So, a part of them was sold, and the profit was, uh, the profit was booked, and a part of them was still carried on. So, what is our aim? Our aim was to show through these slides that we have tried to achieve substantial outperformance with below-market volatility, and making sure that, and this is by making sure that we took some of the opportunities in the market which were really alpha-positive, as in those companies really outperformed, and therefore this gave us a very significant risk-to-reward ratio for the year. So, I think this just gives us an overview of the characteristics of our portfolio.

So, next I have is, uh, one of my favorite slides because, uh, it just shows everything in a, in a single snapshot. Like, I told you, we booked about 58 trades. We had about 28 trades running, out of which three were still partly booked and partly unbooked. So, our, our average gain was 24% on the stocks we booked. Our largest trade was a company called Zato on, which had a gain of 92.7%. And this 92.7% translated into a 13.7% gain on an invested capital. So, this basically grew the net worth of our portfolio by 13.7%. Uh, I think we almost had an equal number of losing trades because we really cut our losses out fast, and seek to have as minimum drawdown as possible on any single trade. So, our average loss on a trade was minus 4.5%. Uh, this was a stock called Derivvery, which is focused on logistics. Uh, and we got a loss of 7.1% in this particular stock because we also had bought the first quantity and the second quantity of that particular stock. The impact on our capital was 1.8%. But otherwise, generally, all of the losing trades have less than a 1% impact on our capital on the, on the trades that we were still continuing on 31st December. Out of the 28 trades, 24 were positive, four were losing. 24 were positive because we booked our losses fast in the stocks that we were losing. Our average gain was coming out at 16.9%. Uh, the largest trade was a company called RateGain. Uh, our profit was 89.7% in the part that we were continuing, and 100.8 in the part that we have booked out, and this had an impact of

A growth of 16.1% on the net worth of our portfolio. While the biggest continuing losing trade we had was a stock called Feno, where our loss was 7%, and uh, we should have sold this because this was almost at a 7 to 8% level at which we exit stocks. So, we exited it like right after the competition ended on 31st December. But I think the important thing to note is that the impact on our capital was just 0.8%. So, we tried to keep it under the 1% losing group.

So, what I want to show is that uh, we have trades which actually substantially added to the net worth of our portfolio or the value of our portfolio, while minimizing the number of trades that really didn't work out. So, uh, I'm just going to show the chart of these four stocks. Uh, but at the same time, I would be discussing them in detail at a later point of time in the interview, along with a few other stocks that I've picked for selection.

So, this is Rate Gain. We bought it in multiple tranches because uh, the liquidity of the stock is not very high. It was a new IPO. The company was listed around one and a half year ago. Uh, and you can see that we bought at multiple levels based on our buying criteria, and we sold based on a discretionary criteria of profit booking. And while it was partly sold, a good amount of the position was still continuing at the end of the year. So, this was our largest unbooked trade that was going through.

Next is a company called Zomato. You can see as well, we bought this couple of times over. Even though this was a profitable trade, a mistake that we did was that we bought this below the 200-day moving average, violating one of our principles. But I think which was wrong. We could have waited until it came up a few percentage points above and then we could buy it. But I still want to highlight that we still bought this in a step-wise fashion, the way we do it. And we sold it uh, because we felt the results were out on that particular day. So, you can see the E written, which was the earnings, and we felt that the earnings were already priced in. And therefore, that day you can see there was a big gap up, and then we just sold the stock the next day.

Then our biggest loss was Delhivery, which we again bought in a step-wise fashion. It crossed, it went below the 200-day moving average, and therefore we exited at a 7 to 8% drawdown. Now, sometimes we are not able to exit stocks at exactly the time we bought them because of liquidity. We want to wait for a day where there's actually enough volume that we don't break the price while we're selling that particular stock. So, even though while this is a $3 to $4 billion company, the traded value every day is very minuscule, only about $3 to $4 million a day.

Next is Feno, which was the largest unbooked loss. So, this was rebounding off the 200-day moving average. We bought this, and then the stock just slid. So, later we just got out of it. Again, we just couldn't get out at the time we wanted because of certain volume restrictions. So, while we kept selling, our last sell was a couple of days after the competition ended.

So, I think that just gave an overview about how our portfolio was constructed and how we think about the trading process as a whole. This is just a chart that I want to show which showcases our benchmark index, CNX 500. So, we basically entered the competition around March because we felt that the index was in a downtrend and now there were signs that the index was turning. A lot of the sectors that we were looking at, which we felt were leading sectors, because of the macroeconomic news as well as looking at the industry rankings, we were seeing that a lot of stocks in those sectors were setting up for large runs. And seeing those particular stocks set up for large runs made us believe that the index had bottomed out somewhere in March and April, and it was time that a big move was going to start.

So, while we entered the competition, we entered the competition in March. We didn't really trade much in March because the index was below the 200-day moving average. When we really started like building up our positions was somewhere around end of April, start of May, because at that time we felt the index had stopped making lower tops and lower bottoms, as they would technically put it. And we felt that the index was now right for a rally, given the different macroeconomic positives that was shaping up for India, and the fact that a lot of stocks were undervalued, given the significant growth potential.

So, and if you'll see May to June, we have one of our largest gains because during that time we were really adding on positions, and a lot of stocks that had set up were just starting to explode. And you can see there's a slight drawdown of the index in October, October to November, and that is also the losing month we had, where we underperformed the index. But I think one of the key things to look for is that the index did do well through the year, giving a decent 25% return. But we were able to grow through the year in a few of the months, such as August to September, September to October, when the index didn't really make any moves at all.

So, next I have is just a comparison of few of our top stocks and our top performing stocks against the index to give an overview of when did I enter those stocks and what is it that I particularly saw in that index. So, maybe you can understand better as to when was the time that a portfolio really started building up for the year. Great.

So, I have compared three to four of our top performing stocks, which I've also covered individually in detail later. One is Zomato, one is uh, which is an Indian version of DoorDash. Like I shared earlier, one is S.M.S., which is a company in electronics manufacturing, which the government is promoting, like really promoting to bring electronics manufacturing to India. One is Ethos, which is a luxury watch retailer in India, the only organized luxury chain, which guarantees that they're giving you origins. And one is Rate Gain, which is a SaaS-based travel software.

So, now what you see in this chart basically is that we started picking out a lot of those stocks in Feb or March, just when we were like entering those competitions. What we have indicated here is the first time that we looked at that particular stock. And and what you see is that when these all were stocks that were in leading sectors, and when these started emerging out of a downtrend was similar to the time that the index seemed to have bottomed down, which was around March and April. And you could see that setups and some of these stocks were emerging. But what is interesting is like through the year, these stocks performed significantly outperformed the index, almost four to five or six times versus the index.

And also what I want to highlight in this slide is that a lot of these moved in correlation with the index, but at the same time, there were a few moves which were uncorrelated based on like earnings or how the performance of that particular stock was. And I think these were factors that led to our portfolio like a growing because of the diversification that we had, when certain stocks performed when other stocks didn't. So, I think this is what I wanted to showcase in this slide.

So, next I have is basically a slide, which I think is one of the second most important pillar of risk management. The first most important pillar is of course the stop-loss, which you have highlighted. So, basically we want to sell 7 to 8% up to a maximum of 8% from our first buy, up to a maximum of 8% from a second buy. Generally, what we try to do is that we try to average our second buys 5% above our first buys. So, I can't exactly put a numerical figure because because of lower volume, sometimes I have to buy that same stock on a couple or three days. So, I can't exactly say that I put a market order 5% above this price because in that case, I would just be like increasing the slippages that I have by buying or selling the stock.

So, we buy uh, in a very calm manner, and feel that there is nothing to get too excited that they're going to move up today or tomorrow, because when we buy stocks, we buy them for a big, big potential of growth. So, even if I buy a percentage above a lower, it's not really going to change my returns. But the most important thing that we hold is that if any stock goes 7 to 8% below, we want to sell as soon as possible.

So, I think it's understandable as to why we entered stocks. What basically our thesis was to enter the stock which was best. We entered because we felt the market was coming out of a downtrend. Okay. And then we have given statistics which tell how the portfolio was constructed. But I think what is important is also how we decided to sell the stocks. So, because a portfolio to a certain degree is fundamentally focused, with that being 80% of our selection criteria, a lot of sales we do is also around the earnings time. Because we have three fundamental reasons to sell, which is that if a company in a quarterly update gives a performance that is lower than what we expect. If there is a fundamental change in the stock that we have bought. So, let's say if a stock was performing better because commodity prices were reducing, but if that's no longer happening, then maybe that should be a concern for which I should get out of the stock. Third, we sell the stock if we believe that the valuation has far exceeded its earning potential. And all three of these factors generally come around the earnings, quarterly earnings time, because that's when that companies give out earnings, you're able to see the fundamental changes that are taking place, and you're able to see that does the current valuation justify the growth potential that the company is now putting out.

And but these are broadly the three fundamental reasons on which we sell a stock. Now, I can't like quantify this because I think this is like very subjective and can change based on person's perspective. Because in the market, there's always a buyer and there's always a seller. So, if a stock might be expensive for me, it might be cheap for someone else. And therefore, it's hard for me to quantify these particular perspectives. But what we try to do is that at every different price level or when there is a significant update about the company, we try to put it in a best framework that, oh, is this company in some way distorting its earning potential? Or let's say that the management has done something like allotted themselves shares at a very low price. We are like, oh, does this show transparent management? If they're trying to allot shares of their company to themselves at a very low price, maybe that doesn't show like a transparent and a quality management. So, maybe at that time we should exit the company. Or let's say that a company has said that we'll grow our revenues by 30%, but then they just grow their revenues by 20% and there is no reason why the management has given as to why the revenue growth was lower. Now, that's also a sign and an indication that they are not living up to the expectations that they have placed. And therefore, we should exit the stock.

At the same time, there are three major technical indicators that we see while exiting a stock. One is that a stock is showing signs of distribution, which basically means that a lot of high volume is taking place. In the quarterly shareholding updates, a lot of institutions are reducing, or maybe the promoter has sold some shares as well. And on the charts, you can clearly see that at high prices, a large volume has taken place, and then in the update, in the holdings themselves, it is reduced. Second, I think if a stock breaks some important technical levels on the chart, because we believe a lot in support and resistances, and we believe that if a stock has broken an important level, it means that fundamentally bad news may follow soon. So, given a risk management approach, we try to sell the stock if it breaks certain important technical parameters or levels as we set them on the chart. And I think a third that is a very, very, very no-no thing for us is to trade below the 200-day moving average. So, if any stock goes below the 200-day moving average, we don't think about how this company could do or how could it perform. The idea is that it's not performing how we expected it to perform, and it's time we get out of it.

So, I think this just gives an overview of how we place our exits and what is it that we're looking for. Of course, a lot of this is very discretionary, but I think as long as you're nailing in profits, it's okay to be discretionary because at the end of the day, you're just increasing your compound and the value of your account.

Can I jump in with a question? This is a little bit more related to buying, and you might address this later, but for your both your first buy and second buy, what kind of position size do you look to accumulate during those, and how do you come up with that position size that you would like?

So, generally, what we want to do is that we want to reduce our, we want to reduce the drawdown that we have. So, for doing that, what we try to do is that we want to buy 50% of a stock on average in the first buy, and about 50% on the second buy. So, if 50% of the eventual value that we want to buy gets stop-loss at the first buy, then that really reduces the drawdown that we have on a particular account. And if, let's say, the 50% of the second buy comes, and then we get stop-loss on the second buy, there is some profit that's built in from the first buy. So, I think we want to stage it in two parts. So that, mhm, it's not that I just buy the stock, but I buy the stock, it's going up 5%, it breaks out based on the thesis that I have, and I only buy more quantity of the stock when I'm really, really, really convinced about the thesis.

Yeah, no, that's helpful. So, once it's up, once you make the second buy, that's the overall stop loss for the entire position, is that, is that right? Am I understanding that correctly?

Okay. So, we place the stop losses at the time of the buy. After we take the second buy, we place a stop loss 8% from the second buy. So, just as an example, if I bought a stock at an average of $100, my stop loss would be somewhere around the $92, $93 range, trying to sell around that level. Then, if the stock goes to $105, I would buy my second position, and I would try to sell around 7 to 8% down from there, so somewhere around, let's say, $97 or $98. So, of course, we have different sheets where we fill this information on a trade-wise basis, and which is then executed by like traders accordingly by traders accordingly.

Yep, that's helpful. Perfect. Um, yeah, we can keep moving on, but that's definitely helpful. I think this slide, especially for position traders, longer-term investors, having both fundamental reasons to exit a position, technical reasons to exit a position, I think this is perfect. And whatever your process is, you should think for yourself how you're going to break it down like this, because this is simple, it can fit on one page, but sums up, you know, one of the hardest parts of trading, which is your sell rule. So, this is fantastic. Tom, May, thank you. Richard, thank you for your kind words.

So, basically, I thought now that we have gone on a portfolio level and had like a deep overview of what we really think in terms of buying, what we think in terms of holding the stock, when do we buy in relation to the index, I think the next part that we really want to go to is give around three of our trades that we booked that were winning trades. So, I'll just give like a basic overview about those companies. So, three to four of our winning trades, why we bought them, what did we see on the chart, what were the different levels we bought at, etc. Second, we'll give, I'll give three of my losing trades, and I'll also give the mistake that I did in those particular trades. So, the mistake is fundamental in a couple of the trades, and is technical as well as fundamental in the next couple of trades. And then I'll give examples of trades that are still continuing as of 31st December, which was the end of the competition.

So, the idea through this is that I want to showcase that wherever we really did a research and stocks that were really fitting in our best criteria, really gave us a desired output. But whenever we even slightly deviated from our criteria, or let's say that some other reason came up, but wherever we slightly deviated from our criteria, actually led to a losing trade. So, mhm, like I told, what we do is that we like to collect a lot of data and look at that data and see like where we made a mistake. Same way, we look over every trade and try to think that what was I thinking when I took that trade, or what was my like overview or analysis of that particular stock, how did I fill the checklist, so that I'm able to understand the mental mistake that I did and make sure not to repeat that mistake again. Mhmm.

So, and also, just to be very honest with viewers, these are all Indian stocks. So, I just try to explain their business in a couple of lines and try to compare it with an American company if it's possible for me. But it would be easier if people were interested in a particular company and they would just search the name to better understand what the companies do.

So, the company, one of the companies that I picked was Zomato. Zomato is basically India's version of DoorDash. Basically, when the company IPO'd, it was making a lot of losses, and those losses were just piling on. And because it was making losses, the stock went to 1/4 of the IPO valuation. And because the stock went to 1/4 of the IPO valuation, the company really wanted to do something to turn around their operations. So, they started focusing a lot on like increasing their, increasing their margins by cost cutting, increasing the network effect of their delivery riders, charging people for every delivery which they were giving free before. First, they were giving a lot of freebies, like giving people like free sodas or free dishes, like if you order like five times through us or something. And they stopped all of this, and their focus really became on like increasing their revenues.

So, this is just the trade. We bought, like I told before, this is one of the trades where we bought it not the right time. But I think our analysis on the stock was strong, and therefore, even though we did not buy at the exact time we should have, the stock still did well. U and post an earnings, which we felt now was priced in, we exited the stock. And then you can see higher volume also taking place on the chart, and the price also coming down, showcasing that distribution started taking place in the company. And funds that owned the stock, then one of the funds that owned the stock, which is Ant Financial from China, also came and like said that they want to dilute a large part of their equity in the near term. And that meant that more individual traders would now come and buy the stock. By then, it had also significantly rated from a bottom of 50 rupees to somewhere around 120 rupees.

Mh. This is just a, this is just a MarketSmith overview of the stock. Now, how does this fit in our BEST philosophy? Because it's a big market, food delivery in India is of course, this is almost the only company in food delivery now in India. And people love the convenience of ordering it from home versus going to a restaurant and you know, taking all that time and effort. You can clearly see that the revenues of the company were going like crazy, 75%, 87%, 62%, 75%, expanding really fast. There was a big focus on on on margin expansion, getting the company to profitability. So, you can see there were negative growth in 2021, in 2022, there were negative earnings, but then this just turned around. And from June 3rd onwards, the company started giving positive earnings, which was a big trigger for the stock. And you can see that we started buying somewhere around here, and since then the stock has continued to perform well, even to today, even after we sold.

So, one of the things that happens sometimes is that we sell the stock and it still goes up. But for us, that's okay because as long as we did something that we feel is right by our own parameters, it's okay. So, as long as we have all the important decision-making information in front of us, we think the decision that we make in that particular moment is okay. So, we don't regret if a stock goes up after we buy it.

How, how did you identify these particular buy points? Was it anything technical based, or it was much more, you've got your fundamental thesis, you can, you know, the tides turning in the overall market, how did you, I guess, pick these particular buy points, starting maybe from your first buy? I understand your second buy might be just based on a percentage gain above that first one.

So, if I'll be honest, so the first buy was actually, like I told you, an emotional buy because we felt this company is just going to grow. So, I'll be very honest about that. We took a small position, which was a tracking position. Now, this is something that we don't generally do in our stocks, where we prefer to stick to, where we prefer to stick to structured buy. You can see that the company gave earnings over here, which is an E written. And after that, when the earnings came out, we analyzed the earnings, and based on that, we took a first buy, so which is at 63.2 rupees. Now, 5% over that would be somewhere around 67 to 67.5 rupees. And you can see that immediately the stock moved up, and it moved up with a very high volume, and you know, it was a gap up. And we were like, this stock is going to fly now. Because, you know, 250 were almost also back to coming back together, and the stock was showing a lot of strength as per our proprietary indicator. And we bought that position over here. We felt there was again a lot of accumulation taking place in the stock. It had taken a new breakout above this particular range, and we had some allocation left in our portfolio. So, we just took a discretionary buy at this point because we also had some good profits logged in on our trade because of adding it at first, second, and third positions. So, based on that, we took the buy calls again. We expected the earnings to be good, and therefore the earnings which came after this buy point really pulled the stock up with gap ups. And we sold the stock over here, right, right, right, right before these earnings, because we felt the stock had like more than doubled from our average buy price, almost doubled from our average buy price, almost gone up more than 2.5 times from a first buy price. And we felt that all the earnings growth was like factored inside the company now.

Yep, that's helpful. Have you considered implementing a few sell rules to maybe when you've got kind of a judgment call on the earnings potential to hold, you know, some portion of your overall position until it breaks a particular technical level, like a moving average? Because here I see the green line, I assume that's the 50-day moving average. It continues to hold that line even after that small pullback after, you know, that earnings report.

So, so it continued to hold the line. So, on a technical basis, it would not be a sell for us. But what we generally think is that if a stock really runs up before the earnings are going to be out, either the earnings have to be blockbuster earnings, and or otherwise the stock will just come like crashing back down and giving up all its gains. And like I told you, what we do is a process. So, if we don't take all the gains on one stock, and let's say we are just able to capture 50% of the move, it's okay for me because I believe that there are so many more opportunities that are available at a more reasonable valuation or at a more reasonable earning momentum or potential, given the valuation and the sectors, than this particular opportunity. So, very honestly, the stock continued its move. We could regret that it still went up even after we sold it. But I think as long as we locked in, locked in our gains, and we were able to then sell it and move on to new opportunities, that's a good perspective. You got the portion of the trade that was relevant to you and just moved on to the next opportunity. That's great. Perfect. Yeah, that's all the questions I had about Zomato. So, we can push on to the next stock.

So, this is a stock called DreamFolks. Now, this stock is also a new IPO. This company basically gives access to airport lounges. Now, whenever you go to an airport lounge and you want to use the lounge, you have to like pay like a certain fee. Or if your credit card issuer gives you lounge access, your credit card needs to pay a certain fee to the lounge operator. So, the company that connects every lounge to every credit card company is a company called DreamFolks. So, on every person who goes into a lounge, the revenue it earns goes up equally. And then if people purchase different things inside the lounge, it earns a percentage of that particular fee.

Now, we selected this. So, first, I'll go on a technical basis. You can see that this was a new IPO. It was moving within that particular range. We studied this company, and we were very confident that the earnings of this company would come really good. So, based on that, we staged our buys, and we bought most of our stock within this timeframe. So, we bought a tiny position just to track the stock, then we added at this particular level, and then we added at an average of 5% up. Now, this is a very thinly traded stock because it was a new IPO, and it was majorly like almost 97% of the equity was owned by funds, and most of the people who were invested were IPO investors who are always looking to make a longer-term gain on the company.

Now, this company is something that we have personally used a lot of time when we go to the airport and we go to the lounge. Whenever you sign in, like you see the board of the company, and when you put your card, like a welcome board from this company allows you to sign in to the lounge. So, this was something that we had personally used, and we felt that because air travel in India is growing at an exponential pace, and the number of people who use lounges is also growing exponentially. Like there is so much crowd in a lounge, you there's not even like place to stand because, and in almost every airport, the size of the lounges is expanding, new lounges are being added because more people who want more comfort while they travel. So, we felt this company has a lot of potential, and it was also fitting in all of our parameters.

During sell, we started selling it during this time because from here to here, the company had rated significantly in a span of hardly three to four months. So, we felt that it is okay for us to exit our positions. And after that, you can see that the company gave earnings that was not as much as the expectations of the valuation, and the stock just crashed. So, it went down around like 60% in hardly two weeks, sorry, hardly a week. And on the last trade, the stock continued to go up even after we sold it. But in this case, it actually worked out well for us to follow our principles and sell if we felt that the valuation or the earnings of a company won't come out as great.

So, now, just to show the fundamental aspect better, there was COVID before, so of course people were not traveling. So, the revenues were growing exponentially. Post-COVID, and travel coming back, you can see a 500%, almost 200%, 100%, 140% growth in revenue. Now, during the same time, the profits of the company were also growing exponentially. So, 188%, 4.92%, 100%, 200%. But just year in June, the margins of the company, due to some contract they had with a leading credit card company in India, just caused them to have to reduce their margins. And because of that, right after the result that came in July of the June quarter, the stock, the stock completely fizzled out. So, this is another example of why we think it's all sometimes better to book profit and move on to the next trade when we are uncomfortable with a particular trade.

Next, I have is a company that's known as S.M.S. S.G.S. Basically, it's a company that's into electronic manufacturing. And because the government is really promoting electronic manufacturing, this company was a beneficiary of a lot of foreign companies wanting to manufacture their products from India. And at that time, it was also a newly traded IPO. Like you can see, we love IPOs because we feel that during that time, the true value of a company is not known to many investors. And after a lot of IPO investors exit, a lot of really high potential companies are available at decent valuations.

So, so basically, we bought this similarly. After the earnings came out over here, we assessed the earnings, we thought they were wonderful. The company gave a wonderful presentation, con call, guiding for almost 80 to 90% plus growth because of the number of contracts that they were receiving. So, we bought our first position. We bought our second position, again, you can see the price is around 5% above the first position. Over here, after that, because we had a lot of profit, we added on a tiny position later on as well. And you can see this also took place post earnings, because earnings came, we felt they were really good, and we added on a small position at the breakout here. We had to sell some position here because we were rebalancing our portfolio, and this was coming above our risk metrics of the percentage that we hold in a stock. So, from a rebalancing perspective, we had to sell some. But you can see then we later sold our stock over this period of time frame because it had almost doubled up, actually more than doubled, it almost went, I think, 140, 135 to 140% in hardly a time frame of six to seven months. And we thought this stock is almost fairly valued now. EMS manufacturing is also a low margin business. So, and there are more and more companies getting in because of the government benefits, it might get impacted due to that.

So, you see before the earnings came out over here, we completely exited the stock. And I think that was a right decision because even though this chart does not give the complete story, after this, the company gave a series of really bad results, and the stock just crashed. So, you can see it fits in a BEST theory because there's a big potential for electronics manufacturing. Earnings were going like crazy, like 192%, 119% revenue growth, 70%, 83%. Margins were growing concurrently with the revenue growth. So, you see a 200% profit growth, 100% profit growth, 30% profit growth. But later on, the revenues kept expanding, of course, at a slower pace, 50%, 50%, 40%. But the profit started shrinking because a lot of new companies set up electronics manufacturing because the government is providing so many incentives for companies to set up the manufacturing. And because of that, the new contracts that they signed for the next few quarters were at a far lower margin than the contracts they signed before. And so, because of this reason as well, we felt that we followed our thesis, and when we got uncomfortable with the valuation, we sold the stock. And in this case also, I think it proved out well. Now, the stock has broken the 200-day moving average as well, as of current date, and now it's just giving, I think, a very big.

What would get you to become interested in a company you previously sold? What would have to happen to set it up again for your process?

So, I think that we are okay buying any company that we have sold before, as long as it fulfills our BEST criteria. So, yes, I think a company that once has a big market potential would continue to have a big market potential, because that market could be constantly growing. I think the company needs to focus on getting its earnings back on track, focus on accelerating the revenue growth. So, if you see a difference is also that revenue growth here was like 200%, 100%, 70%, 80%, and all of a sudden it went down to 50%, 50%, 40% approximately. So, if the revenue growth went from a 50% to a 70%, the stock would rate positively. But in the same way, if the growth came down from a 70% level to a 50% level, the stock would start derating, because PE is a measure of the future earnings potential, and if the earnings potential reduces, the PE should reduce, and if the PE should reduce, the stock price should come down. Mhmm.

So, I think like this was one of the reasons that we decided that we should sell the stock. But now, of course, if the company starts, let's say, derates to a decent valuation or derates to a good PE, okay, first, second, provides good earnings in terms of it accelerates its growth from a 40% to a 70% again, or at least guides to accelerate to a 70% from your. I think, and if it sets up as well as our S criteria, which is that the strength is maintained on a particular time frame, and when it satisfies all our technical criteria, then we would definitely look into buying again into the stock. But there is, there is actually, we have re-entered stocks that we have sold before after more than generally a year or a year and a half, because we feel that once a company goes on a slightly wrong track, the management needs to take notice, and for them to really do anything to bring it back on the right track, it takes like more than a couple of quarters, because generally the change that takes place is a fundamental change, and to reverse any fundamental change takes a really, really big effort on the part of the management.

Yep, no, that's helpful. That's good clarification. Perfect. What's the next stock?

Next stock that I have again is a winning trade, Ethos. So, I think in India, the number of people who are well-to-do is constantly increasing, because like I told you, every person who has a certain thing wants to buy more something that is of higher. So, let's say somebody who owns a $1,000 watch aspires to own like a $5,000 watch, and someone let's say owns a $5,000 watch aspires to own like a $50,000 watch, because everybody is looking to grow. So, Ethos is like, I told, the only branded retailer. And when you're paying that kind of money for like a luxury item, you want to make sure that you buy from a branded company, that is an authorized reseller, and you get the worth of your money from that particular company.

So, basically, Ethos, it's also, it's also opening up a lot of new stores. And it opened up a store in the city as well. And when we noticed it, we got really interested because a lot of people would we know want to buy watches. And because Ethos opened up a store in the city, a lot of my friends were also talking about like buying something from there, either for like gifting or, you know, for like just like giving to their parents or something like that as well. So, we initiated. So, this was actually one of the first trades in our account. So, interestingly, if not the first trade.

So, again, the earnings came out over here. Post the earnings came out, we initiated a very small tracking position. Post the tracking position coming out, and we start starting to scale back into the market, we added a larger position. We wanted to add a position at 5% above that particular buy level, but the stock really broke out with high volumes. And because it broke the 5% rule, we couldn't add the position. So, we waited for it to consolidate again, and once it was consolidating, we bought higher positions again over here. The management also re-bought some stake, that's why you can see there is such a big candle. As well as earnings, earnings were there. So, this also gave us further confidence that the stock will continue to perform, and the management is also very confident of the company that they have. And you can see we continue to write this trade. Post an earning coming out over here, the stock really gapped up like crazy. It almost went up like 17 or 20% that day. We felt that the stock was significantly overpriced now for the stuff they sell and the work they do. Like if a company's P now becomes 70 or 80, and it's delivering a 40% growth, it may not be fairly priced or valued anymore. Therefore, at that particular time, we decided to exit the stock. As a risk precaution, we also sold a small quantity right before the results, but post the results, we exited all our position in the stock because we felt that it was highly valued now.

Mhm. After we sold the stock, it continued to move up, and it's up about 15% from when we sold the stock. But again, what I would like to highlight is that first, the company was giving significant growth, so it's about 30%, 30%, 30%, 30%. Now, while the company continues to give 30% growth, the growth in the profit has slowed down, which means margins are no longer expanding. And even though the company now has a much higher valuation, it's giving a same revenue growth and lower profit growth, which means that it should derate from the current level. Of course, that didn't happen, and the company continues to go up. So, I think that after you sell, it's always a, it's always a toss-up. So, again, in this case, we were happy with what we had, and we were okay to exit the stock.

So, I think these were four stocks that we traded in, and we booked a decent profit. On average, we must have booked about 100% plus profit in these stocks. Now, I want to present like three stocks which we actually made a loss in, and like I can also explain like what is the mistake that I did in selection of the stock itself, and why I would like to eliminate such mistakes. So, any questions on until now?

No, no follow-ups. I think it's good to show the winners, it's good to show the losses as well. So, this is great.

So, this is a stock called Delhivery. It's it's like a delivery company. It's India's leading integrated delivery company, basically means that it does everything under the sun in logistics. So, whether like it delivers a package that you have ordered from Amazon, if let's say like you want to move your home furniture through an A through a plane, it can also like move your furniture through the plane. So, basically, it's an end-to-end logistics company which is focused on providing like end-to-end logistic solutions.

Now, this was our biggest losing trade, and there are a couple of reasons that I want to highlight. Firstly, this was a wrong buy because when we did our first two buys, which were at the same price of around 4003, 4004 rupees, the 200-day moving average was still trailing down. And logically, I should never have bought a stock. As how to make money in stocks says, until the 200-day moving average is moving up. And I think this was a mistake we did. And then, but since it went up, we also added on our position in our level to buy, which was on average around 5 to 6% above our first buy. So, we compounded the mistake.

Now, because this became like a significant stock in our portfolio, and we felt that, oh, this stock can do really well, we continued to hold it. But we should have exited somewhere around here. But I think this is probably the only trade in the whole year where we failed to execute a sell because we felt it would rebound from the 200 days, which didn't happen. And once it crossed the 200 days, and we just had to sell it because it's a principle that you cannot hold anything below the 200-day moving average. So, ideally, this should have been a loss that should have been around 1% and maximum of our portfolio. But because we got very slightly sidetracked, this ended up being like on an average 8 to 9% loss on the position, which translated into a 1.8% loss on our capital, like I highlighted before.

So, I think there were like a few learnings for us. Number one, like I said, that we don't want to buy anything that doesn't perfectly fit into all our criteria. In this, we continued buying even though it did not fit into all of our criteria. So, it's not about the fact that if I did, let's say, 75 trades in a year, I did 74 of them according to my criteria. If I did not follow my criteria on one trade, which may have also happened because of slight overconfidence, I think it's important for me to understand what I was thinking at that point of time when I bought the stock and as to why I entered that trade. So, I think that was a mistake. Second mistake was when we lost 1% of capital on this trade, we should have just just just squared off the position and not think that, oh, like it's okay, we'll sell tomorrow, because by the time tomorrow came, the stock had gone down more. Now, I also hold this as a mistake because our average loss on average across all our losing trades was about 4%. And if you were selling at an average of 4%, and this stock made it down far more.

I think it's I think it's it's a mistake that deserves to be highlighted and something for us to really introspect upon. Also, what I want to highlight is that, uh, we expected the company to give good revenue growth. Uh, even though the company did do a turnaround, its profits are expanding significantly. It finally has come into profit. Uh, we should have waited until the company actually came into profits instead of anticipating something that, uh, the management did not clearly guide for or could have happened. So, we were slightly emotional on this stock. Uh, you can see the earnings in this are also not as stellar as all of the other companies that we have showcased are giving. Uh, almost every other company that we showcasing is giving like growth which is almost at 100% on average, and this company is far lower. So, we played this as a margin expansion game, but when it did not give significant earnings for two quarters, we should have not even looked at this stock, but we did, and that in itself is a large mistake.

So, but I think the good thing is that, uh, we keep our allocation of, uh, the stock to a minimum, uh, up to maximum 7%. So, we were spared of having a larger drawdown, otherwise, it could have had a larger impact on our capital. Uh, another mistake we did is that, uh, we maybe didn't understand the earnings of a company as well. Uh, so we thought this was a breakout and we bought the stock here. Uh, the, the, the 200 days was continuously moving down. So, again, the same mistake. We should have waited for the 200 days moving average to turn, and once the 200 days moving average turned at that particular point of time, we should have bought the stock. But we didn't really wait for that turn to happen, and we just thought, "Oh, let's just like buy, this is going to go up." And like, uh, so of course, that didn't happen. There were also no significant volumes or accumulation to, uh, indicate that we should have bought the stock, unlike in all the other stocks that we have bought where there is a significant volume accumulation taking place. Uh, so we just bought it, and the stock went down like, uh, 7, 8% in the next, within that same week itself, within like, I think, 10 to 12 days, 10 to 12 trading days. And as soon as it reached at the 7, 8% mark, we were like, "We have to sell this and get out." So, we got out, and I think that was very lucky for us because after the earnings came out, they were weak, and the stock fell down further. So, I think like this continued on the thesis that stock prices showcase how the earnings of the company would pan out, and in, in this case, the prices were clearly showcasing that something negative might take place, uh, because there is no significant buying that is showcasing the signs of a positive earnings in the future, uh, and informed investors taking a call accordingly, or informed funds taking a call accordingly. So, this was a major mistake that I felt was committed. But at the same time, the positive part was that we used our stop-loss and we got out, uh, without having a drain on our profits, and being under the 1% rule, we had also only taken 50% of the position, so there wasn't any drawdown at all.

Uh, you can again see that there was some slight erratic earnings that that the company gave. Uh, we bought it because we thought the company would give a turnaround in profits from now. And because this company is basically a kitchenware company, uh, it was opening up retail stores everywhere across India, and they were really advertising. But, uh, I guess just opening stores may not always translate into higher sales for the company. People who are its target audience should also be receptive to the advertising that the company is giving. So, and we should have looked at the numbers in more detail and then bought the stock, and really understood that, and really waited for the company's earnings to improve, and then bought the stock, and not just buy the stock because the management guided that, "Till now, we haven't been doing that well, but from now, we'll do like amazing." So, I think that's a, that's a mistake that we understood, and we hope not to commit. Yeah.

Question for you. Yeah, when you're looking back on a trade, especially losses, how do you determine what's your process for determining whether you, you truly made a mistake and there's something that you should fix in your process versus just, you know, it's trading, there's going to be losses that happen, stocks are going to go down. How do you differentiate between it was a good sell, you followed your process, versus, uh, there's actually something that you have to go and fix and and change about how you operate?

So, uh, I think like the basis of forming any decision is the information that you have at that point of time, okay? Right. So, the way we look back is that, so like I told you, we make notes of like, uh, everything that we do, okay? Like, uh, my journal is kept like right here. Uh, y, we, we, we fill a checklist when we buy a stock, okay? Mhm. Uh, which keeps us in check, check that the things that we are looking for are actually present in the stock. Uh, we, we, we technically study the stock as per our S criteria. Uh, try to understand that is it really at the right time for us to buy? Uh, but sometimes what I realize is that in most of the losing trades, uh, we give into temptation. So, even if a stock does not completely fill the criteria, you feel that, "Oh, let me just make this fill the criteria somehow," and because it now fits the criteria, because I made it fit the criteria, uh, I should buy it. Okay? So, I think what we do is that we go back to that particular day and we see what is all the information that is available to us. And if all the information that is available to us, we look at it in an unbiased manner. That if the same information was available to me today, what decision would I have taken? And in most cases, we realize that if that same information was available to us today, when we are more matured in our thought process and after the excitement of that particular trade has gone through, uh, we would probably not have taken that trade that we just took. Yeah.

So, also what I wanted to say is that, uh, I think in this, the management had been guiding for many quarters that, "Oh, next quarter we'll do this," and the quarter after that, "We'll do that." And of course, like the numbers showcase that they hadn't really been exactly delivering on the promises that they made. While in other companies, if the management was saying that, "This is the kind of growth we will give," they were like, the numbers were showcasing the intent of the management to grow the company. So, I felt while there was enough transparency from the management, uh, we should have realized that the management doesn't always deliver on what they say that they will. No, that's helpful. Perfect. Uh, so now I think I'll just highlight my third losing trade. Uh, there's a company called. So, I think, uh, we, uh, we should, uh, probably consider both the trades that we did in this stock. Uh, one was almost at the start of the year, uh, and because we thought that a lot of stocks were setting up and it was time for us to buy, uh, we bought this stock based on a certain earning update that came over here. And, uh, after we bought, because it was below 200 days moving average, uh, we had to like, uh, sell the stock when it went a certain percentage below our buy price. Uh, I say that this was also one of the loss-making trades that we did, and again, the reason for this was, uh, buying below the 200 days moving average and violating our principles. MH.

The reason I'm showcasing these three stocks is because these three stocks are, we personally felt, the three biggest mistakes that we have made. So, there are some stocks in which I just bought and everything was perfect, but the stock just went down. And but I felt that if I showcase that particular stock, uh, it would make no sense because that would not really bring out in my heart what is the mistake I felt I did. Uh, we tried to re-enter this stock and, uh, and, uh, uh, uh, because we thought again, this was, there is, there's a big range here, and the stock was breaking out of the range. Uh, but again, you see, there were no significant volumes on our buy, and we just had to exit it at a stop-loss level, 7 to 8% below the buy price on average. Uh, again, in no trade did we make more than a 1% loss on our capital. Uh, this is a very, very thinly traded stock, that's why you see that we have three to four buys, and we have two buys. Yeah. Uh, because we don't want to increase the price, so we were buying it in smaller quantities. Uh, again, you can see the reason we bought this stock was good. Uh, the earnings of the stock were exploding. Uh, it was going good revenue growth, uh, in the 25% range. Uh, the profits were going up, 136%, 265%. Uh, the company is in the glassware business, uh, where it supplies like glasses to pharma companies around the world. It had undertaken like some major acquisitions and now it was consolidating those acquisitions together. So, it was trying to, uh, it was trying to become a world leader in various different products under that particular industry. So, it was acquiring almost a new company every month and trying to turn it around to profitability. So, what they were doing is basically buying companies abroad and shifting their operations to India, where there is more low-cost manufacturing and increasing their margins. So, when we bought the stock, uh, everything seemed best as per our best criteria, such as like, there's a big market because it's a market leader in the last segment for pharmaceutical companies. Definitely, the earnings of the stock were just accelerating, and the management was guiding for further acceleration because of the synergy and the consolidation of operations. Uh, that management is very trustworthy, and the information they give out is amazing. But I think where it failed was our S score in the first buy, where we bought it without it having the particular characteristics that we look for in a technical S breakout. Second, second time I bought it, I don't think it was such a big mistake, except for the fact that there were not significant volumes when we bought it somewhere around here. Uh, but I think again, the positive thing is that we executed on it fast, and we exited both times with less than 1% stop loss. So, so, so that way, we were able to protect our capital even in the case that we made a mistake. Uh, so I think these are the three losing trades that I wanted to highlight. Uh, so, yeah, I now have four, uh, trades that we are still continuing, and, uh, that we have like, uh, what, so should I go into them, or are there any questions that you would like to ask?

Yeah, I've got one question on this one before we go to that, to those. Could you go back one slide to the previous chart? So, um, your, your second attempt at this, uh, buying in, uh, looks like late September, um, and, you know, just before October. Um, the, I, I guess, so why, why are you buying, uh, at that point versus after the earnings, uh, gave new information about the acceleration and, and good earnings, uh, more in late August, early September? I guess, what, what was your decision-making there to buy it, um, you know, later in September versus more shortly after that earnings report came out? Was it because the 50, it looks like the 200-day moving average, that one in red, is still slipping down at that point? So, yeah, I, I guess, uh, I won't put words in your mouth. I'd love to just hear, kind of, your thought process.

So, uh, like the earning came out here, uh, and the reason that we didn't buy it over there was because we made a mistake before, buying below the 200 days moving average, and, uh, we should learn from mistakes and not repeat them. Uh, therefore, we did not buy it at that point of time. Uh, but after that, uh, we noticed that there was significant volumes in the company even when the price was going up. So, that means significant, uh, acquisitions were taking place. On a longer time period, this company has been in consolidation in this range of around 1450 to, uh, 1700 for like almost two, two years plus. So, we thought that, "Oh, now that there's a breakout that's going to happen, this company has given exponential earnings, uh, and, uh, like a large breakout is just about to take place." So, maybe like, we should buy the stock. And that was truly the, the reasoning behind it. Another thing was that it did not fit into our S criteria, uh, until, until that price, because you see the 200 days and the 50 days also, uh, turned over over here, which is also one of the criteria that we strictly follow, uh, and is part of our S criteria. Yeah. So, I think, I think it's, it's because of this reason that we bought this company at that particular date. Okay.

Yeah, that's helpful. Um, oh, actually, I had one more question. Uh, do you, do you guys have a liquidity minimum threshold, a minimum average volume that a stock will trade, uh, you know, an average dollar volume that a stock will trade? Because as you mentioned before, a lot of the stocks in, in the Indian markets are pretty illiquid, and, and sometimes you do have to buy in pieces. So, I was wondering if that's a sell part of your selection criteria for potential trades.

Right. So, uh, almost every company I showed you, uh, until now, at the time of buy, was the ethos was the smallest company, and it might have a market cap of around 200 to, I think, around $220 million when we first bought it. And I think that was among the smallest companies that we bought. Uh, so, Zato, currently, is almost a $2 billion company. All of the other companies that I've showcased are almost a billion dollar or a billion dollar plus. So, it's not that we are buying like really, like small companies. Uh, we are trying to buy into companies that at least have like good amount of institution holding, have like a, have like a good track record of performance in the past, or have been existing for a long period of time. And also, like, what we're looking at is that the minimum volume that the company has, uh, should be at least on average about 2, 2.5X of the quantity that we want to buy. But sometimes the thing is that when we place an order to buy, uh, you know, the, because the volume is slightly lower, the price, the, the price fluctuates during the day. So, so, so, when our trader buys, like, you know, he doesn't want to buy a stock like a stock price, let's say was at $100, and then it went to $12. So, he can't place a market order for the whole quantity because that would just push the price from 102 to maybe 107 and 8, and we would lose that 5% buffer, uh, that we have just in buying the stock. So, what we do is that, uh, we try to buy like a small, small quantity so that we're able to average out our price over that particular period. So, so, I think that even if I bought these stocks in a 5X quantity, uh, I could still be still be buying them, uh, in the similar time frame that I bought them. But because, like I told you, one of our aims is that we want to open a fund, we make our thinking like a fund. So, so funds generally even buy stocks that are like whose volume is less than the total value of the stock they want to buy. So, we are like, "Okay, the stock should at least have like, maybe 2, 2.5X, 3X of the volume that we want to buy." And, uh, that is the reason that, uh, we are only looking at stocks that are at least above a certain threshold. Now, uh, another thing that I would like to highlight is that a company that is maybe 250 or 300 million in America would probably be a micro-cap company because, given there is a significant difference in the market cap between India and US, uh, but in India, generally a company that is between, around $100 million or $150 million to somewhere around 2 billion is considered a smaller cap company. Anything between 2 to 5 billion is a mid-cap, and anything over 5 billion is considered a large cap. So, like Zato, when we bought, was a large G. So, we could buy the quantity we want, wanted at a single order at a single time. But some of the small-cap companies that we invested into, we had to slightly process.

Yeah, yeah. Do you focus on a particular size company, or it, it, that doesn't factor too much? I was wondering, like, maybe you focus more on small-cap or or mid-cap because of their potential growth potential.

So, uh, majorly, our portfolio is focused more towards smaller companies because when I look at a best criteria, one of the most important things is E, which is earnings. Mhm. So, for a company, let's say that's making a profit of 10 million, let's say a million dollars, it's very easy for the company to grow their profits to 2 million. It's, but it's very difficult for a company that's making a billion dollars in profit to grow their profit to $2 billion. Maybe a company that is making a million dollars can double up their profit within a year, and at that time, the share price might go 3 or 4X, or, you know, something like that. But a company that's making a billion dollar profit might take 3 years, maybe, or, you know, two to three years or more to double up their profit because of the scale of their operations. So, uh, generally, what fits in a criteria are, uh, smaller cap companies. But if I look at our allocation for the year, uh, which I did not include on the slide, and my mistake for that, uh, generally we were about 20% in large cap, uh, 20% in midcap, and around 60% in small cap. But for us, the single most important thing is that the stock should fit our criteria, and, uh, and, uh, like market cap is not that important for us. A big factor.

Gotcha. No, I, I think that's a great explanation. Perfect. Uh, yeah, let's push on to, uh, the, the other trades that you had prepared, which, by the way, I just want to thank you again for for setting this up because I think it's a great way to show your process. It's one thing to talk about, you know, thesis and everything, but how you applied it is what I think is really helpful for everybody. Thank you again, Richard.

So, now I'm just showing four trades, and, uh, this is again, just to show our thought process and our best. These are all trades that we held till the end of 31st December. So, this is Fusion. It's a micro-finance company. It's owned by VOR Pinkis, which is one of the leading private equity firms in America. It focuses on lending to women in rural areas. So, money lending in India in rural areas is very, uh, is still a very nascent industry, and people generally take loans from local money lenders who give them at crazy rates of like 30% a year or 35% a year, like they try to like, you know, really like steal from those people. Fusion is one of those companies which is one of the leaders in the micro-finance space, which means that they give loans of from ranging at an average of $500 to $1,000 to, uh, PE women in villages. Their focus is mainly on women. So, the company had been expanding its operations very significantly. It's a new IPO. The revenues were growing very significantly. So, we knew we were studying this company, and we were confident it's going to give a good result. That's why post IPO came, and it was at a good valuation. We accumulated the stock before the result. Now, while the stock slightly dipped after our buy, uh, we continued to hold it, and we only sold it before, uh, before the, before the next earnings, uh, when we felt the stock was almost double of, uh, almost 70% up from the price we bought it at, and it was now fairly valued compared to other micro-finance companies. There is another buy that we did because we felt the earnings would come good, earnings would again come for the stock now. Uh, but unfortunately, that did not happen, and we exited the stock. So, I'm sorry, but I think I did not do the marking over here of the exit. Yeah.

No worries, but this is just an idea. Again, fits in a best criteria because there are hundreds of millions of people in India living in rural areas who don't have access to formal credit facilities. This company is one of the pioneers. It's expanding its network. The management is very good because, you know, it's like Bar Pinkus, it's a top PE firm. You can see the revenues of the company are growing exponentially for a finance company, so 70%, 43%, 55%. So, you see the, uh, even in this stock, the, the stock has broken the 200 days and it's come down because the growth when we bought it was at 70% or 40% or 50, 60%, and now the growth has slowed down to 25 or 30%. And if you see there was a re-rating in the profits of the company, 700%, but now it's like 9% or 133% EPS growth. And therefore, you see that now the stock has basically broken down. So, just another stock that we wanted to showcase.

This is RateGain, which was our biggest winner. Again, like I told, this is a very thinly traded stock earlier, that's why we bought it at a certain price range over a period of time. And we tried to sell book profits before one earnings, book profits again after second earnings, and finally exit the stock here. Of course, post our sale, it continues to go up. It fits a best criteria because it's got a big market. It's an IT services company that offers software to travel companies. Travel was growing again, so the services really picked up. You can see how exponentially the revenue is growing. The company was making losses on its products, but now it's moved into profits. And because it's a platform company, the profits grow exponentially rather than linearly from man for a manufacturing company. So, you can see the exponential growth in profits, and you can see that even after we sold the stock, it continues to go up because it still continues to deliver that 80 or 200% growth. But for us, the valuation of the stock was, uh, priced, and, uh, and therefore, we felt that it's okay for us to maybe exit the stock, even though it has continued to go up post that.

This is another example. This is a company called LIC Housing Finance, which is in the housing finance space. Because of bad loans, this company was giving negative earnings for some time. And the company recently appointed Bain & Company, which is a consulting company, to revamp their whole operations. So, they got a lot of tech, they got a lot of, uh, operational parameters improved. They improved their branch efficiencies. They fired the staff that was not really doing any work. They hired new staff. They changed their loan-to-loan-to-property value. They made like new housing mortgage products, etc. This is indirectly owned by LIC, which is a Life Insurance Corporation, life insurance company, which is indirectly owned by the government. So, you know that the management is truly good, because it's owned by the government, and there is a big impetus by the government on their companies to improve their performance. Because for many years, government companies were not improving their performance, but government has told their owned companies to improve, improve the performance so that they also get a higher valuation and better returns on capital for the government. So, we were very confident about this stock. So, we took this in one go. Breaks our thesis, but I think this was a stock that we were single most confident about. So, we took a 7% allocation in a single buy. And, uh, because the valuation of this company was really low, it was at like a 5 PE when it was projecting a 25% plus 30% plus growth. And we felt, because it's owned by the government, that just gives a lot of safety to any company you own. And you can see that after we bought it, the earnings have grown exponentially, like 300% rise in profit, 150% rise in profit, uh, a 40% CAGR in the sales. So, I think this is one of the trades that we are still continuing to hold, and we still see a large upside from here, given the very low valuation that the company had.

This is the, the last trade that we want to share today because overall, the micro-finance theme was doing well. This is another company called Spandana, which is similar to Fusion. So, like I told, one of the things that we look for is to see which industry or industry groups are performing well. And of course, access to rural credit is one of the big themes in India. So, post a blockbuster earnings, we bought the stock here. We topped it off over here on our second buy, and since there was another blockbuster earnings that was given by the company over here, we decided to discretionally add a slight bit of more position. Since then, the company has continued to do well. And if you see the profits and revenues have been growing exponentially. So, we book this stock somewhere in January, somewhere over here, because we felt that the, the sales growth had stopped increasing. So, if you see the sales was around 610 CR Indian rupees, and next quarter it just grew to 626, whereas in the quarter before that, it grew from 490 to 500, 500 to 600. So, there was an exponential growth that was taking place, and now the company sales seems to have stagnated, and the company itself was guiding for lower growth from there. And after seeing that and understanding that, post the earning result when it came out, uh, we sold the stock and exited, uh, our position accordingly. So, uh, all of these stocks that I highlighted fit our best criteria to some degree. Our winning trades maybe fit our best criteria to a larger degree than some of the other stocks. And, and I think, uh, through the 10 stocks that I've shown, I've been able to give some amount of understanding as to what is a practical implementation of what we think and how do we apply our best philosophy to particular stocks, and what's the earning profiles that we generally look at.

Yeah, great. Do you want to dive into this slide as well, kind of your, your identification process? Because I, I think also people would love to hear a little bit about your process once you come up with an idea, how does it go from, you know, sourcing as you mentioned here, to finally you guys decide to take up a position in the stock?

Great. So, basically, first, first, I think I'll just give a slight overview about my routine and what is the, what is the time that I spend and how much time do I spend. And after that, I think I'll explain my process. So, because based on my routine, people will be able to correlate as to, or what other different things I do and when I do them. So, basically, the main reason, like you would have understood by now, uh, we buy is by looking at the earnings of the company and looking at certain, like volume price action that is indicated by our S, in proprietary S indicator. So, so for us, the single most important thing is the earnings and how would that company perform for the next three to four years from there. So, uh, generally on weekends, that is like Friday evening, uh, or generally Saturday, Sunday, I spend a lot of time scanning through earnings of companies. So, when companies give out quarterly earnings, I, I go through like a lot of different charts, uh, I go through a lot of different earning reports of different companies. There are certain screeners that help you, uh, narrow down what is the, what is the earnings that different companies have given. If certain companies have been outliers, you can identify them. If certain sectors have been outliers, you can identify that as well, because if all companies in a sector are giving like amazing earnings, there is definitely something that's going on in that sector that might be worth looking into. So, I do that. So, I do that on a, on a weekend basis, and generally every weekend, we only come up with like a really, really small number of ideas because if anything does not even fit my criteria like 1%, my idea is to eliminate that because there are so many more opportunities available. So, that is how I generally spend my weekend. Uh, we have like a short checklist. We generally fill that checklist out after we think that a stock is worth looking into. That checklist helps us ensure that the stock that we look for has all the parameters that we're looking at, as well as it makes sure that we have spent enough time researching the stock. So, like one of the items on the checklist is, "How do you know that this management is of high quality?" Okay? Now, I can only know that when I read a lot of like management transcripts, when I see the presentation, when I see the interviews of the management, when I see the performance of the management, right? And if I do all of those things, I have researched that company enough. So, basically, our checklist is to make sure that we put in the effort that is required to to buy before buying a company, into the process of selection. And like I told, our biggest stop loss is at the point of buying, so we really work hard on this part to make sure that we buy the right company.

Now, uh, the, the, the interesting thing that I want to highlight is that, uh, generally every weekend, we just come up with like three to four companies. But because now we have been doing this over and over, like I think we just, it's like in your mind, you understand that this is what I'm looking for, and these are the particular trades. So, now it has become much more easier for me to understand as to what companies we're looking for. So, since last year, I, I was the portfolio manager. So, what I used to do was, I used to make reports on all the new ideas that I got and P on the checklist internally that we have, and I would like share it with my brother, who would also try to understand what I've what I've written, and also with my parents. So, if, for example, there was any anything that I missed, let's say, for example, I bought a company where the, I shortlisted a company where the management had not performed well in, in the past, or, or the earnings were not up to the mark that we generally expect in a company to be, or certain technical parameters were not there. So, when, when, when you write something, you're always biased towards it because you feel that since I've written it, how can it be wrong? Or, or you can be subjective, you can be like, "No, no, no, this company has has done like this, but now I know that this company is totally turning around, even though there are no signs of of that happening." Okay? So, it's important to have a sounding board, wherein, wherein you're able to discuss and understand, uh, if there are any gaps in your thinking. So, I think what, like makes my process unique is that, uh, I have the benefit of having, uh, my brother, who I can like discuss with, uh, and also my parents, who I can spend a lot of time discussing this with. So, so the main idea is that even while the ideas are generally generated, uh, are generated by me, I can understand the gaps in my thinking. And second, if I haven't done enough research on an idea, my brother will tell me that, "You don't know the answer to these questions, so how do you say that you researched the stock?" So, I know that before every stock that I pick, I've put in the effort that is truly required. After we have shortlisted a company, uh, based on our checklist and study, we put it, uh, in our S screener. And after we put it in our S screener, uh, we watch until, until a score of 8 on 10 is given by an S screener. So, when a score of 8 on 10 is given, uh, only then do we really buy the company. So, it just uses some, uh, really simple technical parameters that we use to assess, uh, mainly focus on price and volume action, but it's something that we have created ourselves. So, this is only to make sure that we're buying at the right time. So, generally on the weekday, I spend time just researching more about companies that we buy, or looking at updates that a lot of my companies are giving, or if there are certain trades to be put, I instruct my trader that, "These are the trades that you need to put in for today," etc. So, generally, I wake up at around 7:00 a.m. and, uh, after waking up at 7:00, uh, I, I for an hour after waking up, review my work for the day for about half an hour to an hour. If there are any new ideas at this time, I, I, I pitch them to my brother, who joins in from call from college, and also to my parents, uh, who give their comments and feedback on the idea and my thought. After that, trading in India starts at 9:15 a.m. So, generally at that time, before that, I put in the orders for the day. I instruct my trader the orders for the day, based on which during the day, he executes the orders. So, I don't really spend too much time in front of a screen because I think, uh, in India, there's a lot of people available, and you can hire like, uh, someone to punch in your orders. And, uh, because I feel if I spend the whole day doing that, then it's not the best use of my time because if I spend that same time researching about companies, uh, I can come across like a lot more ideas that can lead to better profitability in what I'm doing. So, generally, I research companies before lunchtime. And post, in, during the day, I also try to understand more about business, uh, from my dad. We discuss a lot more things. I try to talk to more people to understand what they're doing because I feel that now for us, what we're doing is a repeatable process, and, and as long as, like, you're doing everything in a systematic manner, and you're keeping your emotions under control, and keeping your discipline on, there is no reason that the market should not reward you, or hopefully, hopefully it should reward you. Is that what I think that's the better thing to say? But, so, I think that's how I spend most of my days. But, uh, I think most of the research, all the research that we do is ourselves, because the way we look at things, I cannot train somebody else's mind to look at things in a similar way, because the way I interpret something could be very different from the way that ABC person could interpret it. So, we only rely on our research. We have never, like, we have met a lot of different people, but we never talk to anyone else about our stocks. We buy what we think is correct as per our criteria, we sell what we think is correct as per our criteria, and basically, the routine is research on the weekends, more research on the weekday, and execution of trades on the weekdays. So, I think that's a basic routine.

Now, how does the, how does the identification stage fall in our routine? Okay. So, first, we have our screeners. One of which is this company called Trendline. It's a widely used, like, stock screening, sourcing, algorithmic, etc., company that's generally there in India. It's one of the most popular, like, screening services. So, we use that, and we create a few screeners using that. Based on that, we get certain stocks that we could look into. So, we look at through the screener, as well as we just scroll through a lot of results to see which is the companies or the sectors that are gaining traction. So, that is how we source the ideas. Now, all the ideas had come. We do a 2-minute overview using MarketSmith, and the best ideas that we think exist, we shortlist them. And after we shortlist those ideas, uh, we research them through the checklist that I mentioned, and we analyze them based on a best criteria, and we create the report or the checklist, as we call it, for critical evaluation of the company. Now, after we do all this research, we enter the company into our watchlist, which is basically on a trading platform. Now, that trading platform is also enabled to work with our S factor score. So, then we, then we put the company on a watchlist, and when it comes to an appropriate S factor, we get certain alerts, and based on that, we can take a call on whether we want to buy the stock. So, even if a lot of companies in a sector look promising, we won't go over that limit because we still want to keep our attribution and we want to keep our risk in check. Because let's say if a certain news comes in that sector, like all the stocks would collapse at once, and a portfolio could collapse accordingly with them. We monitor these companies for corporate earnings, valuations, price movements, overall trends. Like I shared before, we look at when the earnings are coming, what are the earnings estimate, what did the company say in the con calls. We collect a lot of statistics on every trade. We document every trade. We, we write notes on every trade in an organized manner. We, we at the end of the day, there are like sheets created every day on which which give an overview of our position, which give the profit or loss that we have on every specific position, which give certain technical parameters that we look at. Then, then we have a daily sheet that's created on the, on the index and the movement of the index, like, is the index accumulating, distributing, is it below certain important levels that we're looking for, is it above those certain important levels, etc. So, so what we want to do is that we want to collect as much data on our trades as possible, like I mentioned before, so that we are able to analyze and understand our mistakes. So, I think that's what, that's what we, we, we really, really focus on, and, uh, we want to continue keep updating ourselves, and, uh, in the process of updating ourselves, ensure that, uh, we update the portfolio based on the knowledge we are gaining through updating ourselves about the performance of the companies that we're holding.

And what do you think are the biggest areas of improvement that you guys can make in your process right now? What are some of the mistakes that you find yourself making now that, uh, you're, you're looking to improve, you know, this year and, and into the near future?

So, uh, I think, I think there is one, one area that we really, really, uh, looked at. Okay. So, I'm sure you know the 80/20 rule. So, 80% of your profits come from 20% of the trades you take, okay? Or maybe, uh, in stocks, it's maybe more skewed. If not, so even if you look at our trading last year, 20% stocks did produce more than 80% of the profits. So, then we asked ourselves a question, okay, like, if 20% stocks produce more than 80% of the profits, why would we not be buying more of those 20% of the stocks? And why were we buying so many different stocks which may not fit our criteria, but we subjectively thought they fit our criteria? And like, like, what was the mental block that was making this take place? So, this year, when my brother is participating, we want to keep our trades to a minimum, our turn to a minimum. Our aim is that we trade less than one, one trade, trade a month, or, or, or one trade in a fortnight. MH. Because we want that every stock we select should be so perfect in our criteria, should be, should be so perfect at the point of selection, that the trade goes well. Now, of course, stocks is a game of probability, and there is nothing that's perfect. So, we want to make sure that we're looking at everything in a right manner, so that the probability of achieving a high return, uh, or a good outcome out of that particular trade, uh, increases. So, I think that's basically the largest improvement that we want to do. And I think the second thing that we want to improve on is, uh, just to make sure that we don't get carried away, like we did in some stocks this year, which I also shared as my biggest mistakes and my biggest learnings, and make sure that at every, every, every moment, we follow the criteria that we have set out for ourselves. MH. So, I think these were the, these were the two main learnings. And, uh, our idea is that next year, we want to, we want to run a hedge fund in the, in the near future, open a fund. So, in that, we feel like if you have higher quantities of money, you can't trade as much. Like, if let's say I have like $100, I can buy and sell every minute. If I have like a million dollars, I can still buy and sell every week. But if, let's say I have like a fund that has potentially hundreds of millions of dollars, one day I can't buy and sell every week. So, my, my, my investment decisions have to be so strong and so well thought out, and my horizon and vision needs to be so long, uh, that I'm able to, uh, see the growth of that stock, and at the same time, make sure that I invested in it at the right time, and at the right cyclical position, still in the right S factor, which is right technical going for the stocks on a longer basis as well. And I think that is how, that is how we are really, like, changing our outlook and our mindset. And we definitely feel that given a lower number of trades, we can make the same profit, but we'll be far less stressed or worried about our portfolio or its performance, then we are today, because then we can put so much more time into every stock and making every trade into a perfect trade.

Um, no, perfect. This has been really excellent. May, to kind of close it out, just a few key questions. I'd love to hear, kind of, some key takeaways from your trading career up to this point, as well as, kind of, any advice to any traders out there watching this, to help them improve their process.

Right. So, I think there are three things you should avoid. We did all of these three things, so that's why I'm putting it out here again. Uh, if you remember when I told my background, I said that we were trading in futures and selling 2% below 50 DMA. So, so, one mistake we did was that we were highly leveraged. Second, uh, we were buying like, like, just like very few number of stocks, like four, five, because we were churning very fast, so we had that concentration risk in our portfolio. And, uh, I think two of these things led to a disaster in, uh, in, in basically what, what could have been us nailing down like really, really good profits. So, MH, all I want to say is that I think there are three risks that we personally think exist. One is an illiquidity risk, because not every stock you own can have the liquidity to sell your.

positions, second is a leverage risk, and third is a concentration risk. And we believe that if any of these three risks are present in a portfolio, uh, it's going to end in disaster. So, if, if, if my portfolio is illiquid and stocks start going down, I can't sell them. So, like, it, it ends bad for me. If I'm leveraged and concentrated and those stocks are going down, it won't end well for me. If I'm in illiquid and concentrated stocks but not leveraged, I still can't sell those stocks, and if those stocks are going down, my portfolio would go down with that.

And, uh, I think there was a particular fund, uh, which took more than $2 billion of leverage and put it in very select eight or nine Chinese companies. So, and that was, I think, the biggest blowout of the past, uh, two years, or maybe of the financial market. And I think they had illiquidity in their positions because they were earning significant chunks of the company. They were really [Music] concentrated, and they were really, really leveraged on their positions. And I think they had all three, and it ended up in like such a, a big disaster. So, I think there are three risks that people should try to avoid.

And, uh, right, like I told you, I'm not here to give any advice, but just to share what I've done. Uh, there are four things that I feel people should, uh, try to implement. One is that, uh, you can continue to learn. And, uh, in this business, it's always important to learn, learn, learn, learn, learn, because the moment you get complacent is the moment that things are going to start turning bad for you.

Second point is, always be a student of the market. Uh, because first thing is learn, but when you are a student, you try to implement what you have learned. So, like, like when we are in school, if you learn a math, math problem, uh, and we have an exam, we have to go and implement it in the exam. Only then do we get the marks. But many times, people do learn from all the resources available, but they don't implement. So, we believe that from our own personal experience and the mistakes we did, while we read a lot of books, we didn't implement things as much. So, it's important to be a student and absorb the knowledge that you get from learning and implement it.

Third, uh, like we said, our biggest, biggest stop-loss is the stock we select. And, uh, so we focus on the selection of the stock. And, uh, fourth is, keep your trading logs. Because I think it's important to know how your portfolio features in every way. It's like, it's like, I feel people would take so much time to decide on, on, like, a shoe that might cost them $100 or $200, but people may not spend enough time even analyzing a stock they would potentially bet $100,000 on. And I think that's just like a, that's just like a, not a good thing to do. So, I think people should really spend time analyzing their portfolio. Uh, continue to revisit the stocks, look at, like, why should you hold it, why should you sell it. And, uh, you should let, let, let this be a continuous process. So, even if someone is working full-time, uh, I think they can, they can, they can still, uh, check their portfolio on weekends and see if there is any particular problem with any stock. Uh, they should know how much money they have invested, what is their return. Many times, there are people who just keep trading, but they have no record of, like, what is it that they have earned. And I think, like, if you don't know, like, how much you have earned, then, like, why are you doing it, uh, in the first place? And, and investing or trading is a business, and if it's a business, it should, like, make money for you because you're spending time on it, and your time has value. So, I think, uh, people should work hard to ensure that their capital grows, and they should be able to track not only their portfolio, but the way the capital is growing as well. So, I think that's all what I had to say today.

And, uh, please let me know if you have any other further questions. No, I think, I think that's a good spot to end it, and some really good advice here. I just want to re-emphasize studying your past trades and and seeing, as you have done, you know, what are, what are the mistakes that you're making? That's how you get better over, over time. Um, and I like what you said here, you know, it's one, it's one thing to kind of read books and and learn from market wizards, but you have to actually implement what they're saying, see if that works for you, see how you can tweak it, all of that, uh, so it fits your own process. Your process is uniquely your own. It's different than any other trader that, uh, I've interviewed before. Um, but that's why it's going to work for you over time because it matches, you know, your goals, your vision, all of that. So, Tommy, may I want, I want to wait. Thank you very much for your time today, uh, putting together this presentation. Um, I, I think it will help a lot of people out there. Uh, I'm definitely impressed with your process, and I, I think you'll only continue to improve. And congratulations again on, on being the US Investing Champion of, of 2023 in the million-dollar division. That's, that's really cool. Um, so, so thank you again for your time. Um, everybody watching, I hope you enjoyed. If you did, please go ahead and leave a like down below. Subscribe if you're new to the channel. Um, all that good stuff. Share it on social media if you can. And, uh, Tommy, where can people reach out to you if they'd like to get in touch or, uh, yeah, want to connect with you further? Right. So that was just on the last slide. Uh, so Richard, I really want to thank you for your kind words. Uh, all I can say is that I'm 24. My younger brother is 21. Uh, he also turned 21 recently. So, I think we've been trading for a shorter period of time. I think we've been living for a shorter period of time than most traders who come on this show have been trading for. So, yep, I think we feel very lucky to be here. And for us, every word of encouragement is only a motivation to perform better and, uh, improve ourselves on a consistent basis. So, uh, I just want to end with saying that, uh, the internal motto of our company, uh, is, is basically that we want to improve like 1% daily. Because if we improve 1% daily, it really compounds up to a really large amount at the end of the year. Uh, and we believe that every day we ask ourselves a question, how can we do better what we are doing? And, uh, I think that that just really defines us and our desire to improve and learn and, uh, really, like, make a mark for ourselves. So, uh, I would also like if all your audience visited our website, 2xcapital.com. Uh, we have also put out, uh, some blogs, uh, about how we think about different things in the market. Uh, there is no stock advice, only some general thoughts, uh, and articles. Uh, we no longer have kept up the book reviews because it's no longer allowed for us from a copyright perspective. That now, once we have a brand copyright, we cannot use other people's resources on it. Uh, so I would encourage people to visit our website. This is my, and my brother's email. That's my Indian phone number. If anyone is looking to reach out, thank you. Yeah, perfect. Tommy, thanks again. Um, I think your process is very mature and, and as I mentioned, will only get better. And I, I think your internal motto is perfect. Uh, I think everybody can learn from that who's watching this. And if you're, if you're watching up to this point, I think you are, uh, you're of that same mind. You want to learn, you want to improve. So, props to you. Um, everybody, so thanks so much for tuning in, and I'll see you guys in future interviews. Take care. Bye. [Music] No.