When we talk about stock market, it is all about Buying and Selling of stocks. The most hyped of the two is buying. Investors focus too much on Buying side as when I meet my friends and relatives they frequently ask me this  question in Gujarati “Shu Levanu?” meaning what to buy. Too much has been written about what are the different aspects to look at while buying. Of course buying is a very vital component of investing but one should not ignore the other aspects of investing as well. Selling is again very important decision for an investor as doing it much early or too late can change the course of investing returns. But as these two terms are much talked about I am going to focus my write-up on “Holding” the stock which is the most under-rated term. Not much has been written nor thought about it. Renowned Fund Manager Prashant Jain of HDFC MF once told that after 10 years only 2% of the assets remain in their flagship scheme “HDFC Equity Fund”. NYSE data shows that average holding period of stocks in USA in 1960 was 8.3 years. It has dropped down significantly to 6 months in 2010. In contrast legendary investor Warren Buffett’s holding period is 20 years.

As Charlie Munger famously said “Big money is not in the buying and selling… but in the waiting. Investing is all about compounding your returns year after year”. As investors we focus too much on “R” i.e. returns and ignore “n” i.e. number of years. Art of holding does not mean “Buy and Forget”. One has to be vigilant and keep a hawk eye on his investments. In my investing career as a Fund Manager my experience says that Multibaggers donot come easily. When bought nobody knows if this company will become multibagger but gradually with time we notice it. Immense patience combined with conviction is needed for a script to become multibagger. In short Art of Holding plays a crucial role in making of a multibagger.

I would like to discuss a case study of a stock which is in our PMS. We have been holding Titan Ind for last 7.5 years and it has given us 6.5 times return i.e. CAGR of 33%. During this holding period there have been many instances when jewellery industry was going through a rough phase because of change in government policy. Even the recent demonetization had a big impact on big ticket items which were mainly done through cash transactions. Many investment pundits thought that this sector would be out of flavor and will take a long time to revive. But to everyone’s surprise Titan bounced back much faster than anyone anticipated. Now many would question as to why I kept on holding this investment even when the sector was going through a rough patches. Below are the reasons:

• Titan being a leader in jewellery sector, they kept on gaining market share even in tough time. When on one hand there was a de-growth in sales in jewellery sector, Titan on other hand had a decent sales growth.
• Most channel checks suggest that Titan is the most transparent company when it comes to selling its products. They deliver what they say. No one ever feels cheated when they shop at Tanishq store.
• They ventured into eyewear market where there are only 2 to 3 serious players pan india and where the unorganized market is huge. They have always focused on Life-style products and has never ventured into unrelated businesses.
• Also company valuations never went out of whack. Although Titan was never a cheap stock and was always a bit expensive, it is a great business with decent return ratios and commendable past track record.
• Management never did any silly thing on capital allocation front.
• I used to attend management’s conference calls every quarter which grew my confidence in them over time and helped me pass through its tough time without much trouble.

In short no multibaggers would ever go through a clean secular move. Every stock will have its own share of difficulties and tough times. We as an investor need to get convinced that the problem is cyclical and not structural and the business has the capability to bounce back. There may be instances when for 2-3 years a stock would not move in terms of prices, but that can be just maybe because the sector is out of flavor or market may not have identified its potential. Ultimately as Buffett says, ‘if the earnings continue to come, price will eventually follow.’ This means we should be fundamental driven and not price driven. I have seen in many cases where return of 5 years can come in 50 days but the sad part is we do not know which 50 days. Warren Buffett has said it very aptly that “Business seldom operate in tranquil, no surprise environment, and earnings simply don’t advance smoothly”. Finally always keep in mind that a lot of emotions are tested while holding a multibagger and many times you will be the lone person having conviction in that stock.

Siddharth B. Mandalaywala

Fund Manager