Career Development Finance Personal Experience Career Education
Vishal Khandelwal
Vishal Khandelwal

@safalniveshak

25 tweets 156 reads Apr 04, 2022
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Part 1 - Lessons from My Career as a Stock Market Analyst -
4th April 2003. My first day in my first job as equity analyst, and the first day of my career in the stock market. The job paid peanuts (less than what my office’s senior peon was earning), but I was also a monkey...
...without any inkling of what the market really was and what made stocks go up and down. Joining this job straight out of an MBA was an accident. I wanted to get into the forex market, but this was the only job on offer.
I had made a promise to my to-be-wife that I would get a job quickly after the MBA else her parents would have gotten her married somewhere else. And so, I got started. I realized very quickly that my boss had not hired me for my research skills, because I did not have any.
I could not differentiate between market cap and book value, or P/E and EPS. Years later, I got to know that they liked my EQ better than my IQ and so I was hired. In short, I got lucky because you do not get stock market jobs for your EQ.
To start with, I was allotted the software/IT sector to analyze. The first company that came my way was Infosys. The company was slated to announce its FY03 results on 10th April, and I was required to write an analysis of the same.
The results came, and the company missed its 4Q β€œestimates” and warned that earnings for FY04 would also disappoint investors. The stock crashed 32% on that day. Remember, this was just the 5th day of my job as a software analyst, and I had to reason why Infosys fell...
...and what should investors do with the stock. I β€œmade up” my report, thoroughly edited by my senior. It sounded intelligent, but if I were to look at it now, 19 years later, I would see β€œI don’t know anything!” written all over my report.
Lesson number one for you – When you see an analyst report and get impressed by the analysis, know that the analyst may just be into the first week of his/her job and may not have any real understanding about whatever he/she may have written.
Lesson number two – Stocks, of even the best companies, may crash for funny reasons, like missing past estimates and forecasting a weak next quarter or year. That is what is the investment horizon of most people working in the market.
And so, if you are playing the long-term game, you must use such opportunities to get into high-quality businesses suffering short-term issues. Guided by my wiser seniors, I learned it early, though I was not allowed to buy Infosys’ or IT shares as per my job requirements.
Time passed, and I learned to create excel spreadsheets to analyze companies’ past and forecast their future. Most of the time, forecasting was easy. I just had to look at the past, work around growth and margin numbers close to how they looked in the past...
...and then create the future while believing that I made them with a great amount of certainty. I still had to come across the learnings of Graham, Buffett, Munger, and Fisher, and so had no idea was value investing was, or what margin of safety meant.
I was analyzing businesses and estimating the future with zero margin of safety. But things were working out well, as we were in a bull market. In fact, the first five years of my job (2003-2008) were probably the best bull market years India has ever seen.
Sensex was around 3160 on the day I started in April 2003 and it reached a peak of 21200 in Jan. 2008. By 2006, I was also handling power, engineering and infra sectors. Given the way these stocks performed in the 2006-2008 period, my ego also magnified along with my body frame.
But the fact that I was working with an independent research house, and not a broker (thankfully!), there was not a time when I even thought about writing reports to fleece clients.
Our incentives were in writing well-analyzed and honest reports, and not indulge our clients in excess activity/trading. I thank my stars for that because it was in that firm and job that I learned that honesty can be practiced even while working in the financial market.
And so, in hindsight, I realize I was honestly stupid in recommending investors to β€œhold” on to excessively priced power, infra stocks. We had stopped giving buy calls somewhere around mid-2007. But we were not even giving sell calls.
We were stuck at β€œholds,” which I am sure caused a lot of wealth erosion for our clients in 2008.
Thankfully, I had completely avoided the scam stocks, and that was a saving grace. In fact, when I wrote the IPO report of Reliance Power...
...and after a 25-year DCF had arrived at an intrinsic value of β‚Ή 40 (forty) per share when the IPO price was around β‚Ή 450 per share, ours was the only firm that had an β€œAvoid” rating on that IPO. We were even called by some β€œhigh authorities”...
...and were questioned about our bad rating on the IPO. But we stuck to our voice, and it paid off. Reliance Power never went higher than its IPO price, ever. That was one of my moments of β€œbeing right” on a stock, and I look back at that with some pride.
My research role got me entry to a lot of analyst meets and a few investor conferences, but since were a small-time research firm and not a large brokerage that can β€œmove” markets, we were always working on the sidelines.
In fact, once when I called India’s largest power company to seek a management meeting, I was asked point-blank – β€œWhat report would you be writing on us?” I said, β€œIt depends, and would be based on my analysis after this meeting.”
The Investor Relations lady on the other side asked, β€œSo it could be a sell report as well?” I said, β€œYes.” She banged the phone down. This was not just one incident. We were asked quite several times about what we would do in return for the favour of a management meeting.
It was a lesson in how companies that publicly look sane and sound, may be seeking market cap gains and nothing else from analyst reports. Such experience put me off enough to not meet a single management after I quit my job in 2011.
I now make my investment decisions based purely on publicly available decisions – no conference calls, management meetings, AGMs, or factory visits. And that has not caused any difference in how I have done as an investor (and I have done reasonably well).
-- Part 1 Ends

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