Tribute to the Father of Value Investing in India

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Everybody knows about the following legendary Investors like Rakesh Jhunjhunwala, Ramesh Damani, Radhakrishna Damani, Parag Parikh, Porinju Veliyath

Do you know what is the similarity among all this legendary investors?

All of them are connected with the same link the same inspiration behind their success. All of them have learnt from the same person. An inspiration to several of today’s investment gurus.

“to be a good investor all one has to do is dream.”

The advice may seems cliched, but Chandrakant Sampat, known as the “father of value investing in India,” inspired a whole generation of investors with that line.

Late Shri Chandrakant Sampat was Born in 1929 in a Gujarati family, he began investing in the Indian markets at the age of 26 after leaving his family business in 1955. He was often compared to Warren Buffett for his successful investment strategies.

What legendary Investors said about Mr. Chandrakant Sampat

in 1st Feb 2015, when Sampat passed away at the age of 86, Value investing guru Parag Parikh, CEO of Parag Parikh Financial Advisory Services (PPFAS) had remarked that “Whatever I am is because of him, he was my inspiration to enter the capital markets.” – Parag Parikh said

“He was the Warren Buffet of India, who followed his advice to be fearful when others are greedy and greedy when others are fearful. Sampat was disciplined, not just about investing but all aspects of life,” Parikh said.

“If you listened to him, the only thing you would get is wisdom,” Parikh adds

This is not the only legendary investors in India who quote Mr Sampat like this.

Every success story of an entrepreneur is often due to the guidance of a mentor. Radhakishan Shivkishan Damani looks at Chandrakant Sampat, the first-generation investor as his guide and mentor.

The former says that he has learned the hacks of dealing with risky business situations from Chandrakant Sampat.

Radhakishan Damani, founder of supermarket chain DMart and fabled value investor, started his career on Dalal Street as a speculator. it was only after getting inspired by Sampat he realized that long-term investing was the only way to grow and preserve wealth.

According to Ramesh Damani, who counts himself as one of protégés of Sampat. According to him, his mentor was first investor in India who understood the powerful impact of compounding on investments. “His investment philosophy as simple; identify great businesses and let the power of compounding do the rest,” he said. Dean of value investing in India.

Chandrakant Sampat, considered by many to be the pioneer of value investing in India
His greatest contribution to the Indian market was that he shared his immense knowledge about investing by mentoring many aspiring investors,” Ramesh Damani, BSE broker and a value investor himself, told moneycontrol.com

“We have become clever, but the wisdom is missing,” was what Sampat said, in a near-two hour long interaction with our team – Forbes India.
“Markets and mistakes are the best education. The conventional education just closes the mind” — Chandrakant Sampat

Sampat’s Success Mantras

Capital Allocation – According to him, capital allocation is the most important aspect of a business. He believed capital and innovation gives value to the company, and a good business should be able to grow with minimum cash.

Portfolio Concentration – He believed in keeping only 8-10 great companies in portfolio, he never covered more than ten companies in his investment portfolio. According to him, in a spread-out portfolio, many companies will go wrong and very few will come right. While in a portfolio of only eight-ten companies, even one great performer will cover the wealth.

Valuations – He never believed in valuation, he had his ability to visualise the future and assign value to the company accordingly, he once said

“Twin blades constitute mere 10% of the Indian market. Bangladesh has 33% penetration. If India catches up with Bangladesh, Gillette will be a Rs.15,000 crores company having a net profit of Rs.2200 crores. At 40 times discounting, that is Rs.27,000 per share”

He called his valuation approach ‘migration path for the companies’ this helped him get multi-fold returns on his portfolio of stocks.

Significance Of Innovation – He was a proponent of innovation and resonated with the Ideas of Management theorist Peter F. Drucker. He believed technological innovation was resulting in shorter business cycles, which were leading to shorter life spans for companies. Before investing in a stock, he would weigh it on a rigorous scale of productivity and innovation.

He believed in Drucker’s perspective that “if one achieves profits at the cost of downgrading and in companies without any innovation, then they are not profits.”  It simply means that one is destroying capital. Invest in companies which are continuously improving productivity and are focusing on innovations.

Company’s fundamentals

Studying a company’s fundamentals before investing is the reason behind the high success rate of Sampat. Moreover, he followed his investment principles religiously, helping him to stay ahead of his peers. Even today, modern investors follow Chandrakant Sampat’s investment philosophy to build multi-bagger portfolios.

Businesses with little debt

He gave importance to two things. Firstly, free cash flow and secondly, the longevity of a business to create wealth. He also advises investors to invest in companies with little or no debt.

Choose companies with a good management team

He believed that investors should pick shares of a company that has a good management team. Moreover, one should invest in shares when they are at their eight or ten-year low.

His investment philosophy was to keep expenses low and have faith in the power of compounding.

Investment Philosophy

He was inclined to invest in businesses with sustainable cash flows, which he called as investible. His favorite quote was ” No one is resource poor. We are all imagination poor. We have no courage to dream – Prof. C. K. Prahalad.

“I will buy only those companies that are in a business that even fools can understand, have very little debt, have free cash flows or do not have much capital expenditure, which is nothing but deferred cost. Additionally, companies with low debt, good ROCE, good track record of dividend payouts and low capital expenditure are eligible to invest.”

Chandrakant Sampat’s investment philosophy was to invest in such companies that are in a business that even illiterate people can understand. Additionally, companies with low debt, good ROCE, good track record of dividend payouts and low capital expenditure are eligible to invest.

In 2013, Chandrakant Sampat told MoneyControl that he stopped investing because the capital markets became gloomy. At the time, he said, ”Today, capital markets are blindly chasing growth achieved through reckless consumption, greed and Fiat money.” “There was a time when I was 70% in to the Market.”

Personal Life

Mr Chandrakant Sampat was living an active and simple life, including Yoga and Jogging. He was a fitness freak. His daily routine was to run a mile in just 8 minutes. In spite of having a car, he often uses BEST buses to the office.

Conclusion

To sum up, Chandrakant Sampat’s investment philosophy was to invest in multi-bagger companies with less debt and capital expenditure, regular dividend payments, and strong fundamentals. Moreover, he followed a long term investment strategy with low expenses. Also, he had faith in the power of compounding. In his investment journey, he used to pick up stocks before other investors could realize the true value of the company.

Chandrakant Sampat: Quotes

“To be a good investor all one has to do is dream”

“All you need is a cheque book and a pen”

“Knowledge is that which liberates and not captivates”.

“Markets and mistakes are the best education. The conventional education just closes the mind”

“If we achieve profit at the cost of downgrading or not innovating, they are not profit”