Mark Mobius interview ET NOW by Tanvir Gill

Recently Tanvir Gill spoke to Mark Mobius about how to pick stocks and he gave some important tips. He also said that the Indian markets are in for a multi year bull run – but hey he has a few Billion US $ invested here, so that has to be taken with a caveat. I am fine with that.

Mark Mobius is bullish on NaMo – Knowing Franklin Templeton, the tweets are brilliantly written, politically clean, sanitized and then delivered to us. Obviously when I have a few billion dollars at stake I cannot make ’emotional’ statements and regret it for the rest of my life.

I have been a value investor and have liked the performance of Icici Prudential Value Discovery fund, Templeton India Growth fund, and Templeton Equity Income fund – the latter two run by MM and Chetan. However I do not think TIGF has gone down as a great fund in India – and has just a decent track record. Let us see what MM said…

(i) Ensure that the Company has very good management. The management must be people with integrity. They must also be people with good management know-how and with a deep understanding of the market. They must also know how to relate to investors.  He also said “The corporate governance of the Company must be impeccable.”

Mobius emphasized that quality of management is “very, very important”. He added that his fund does a lot of intensive research into the people behind the companies before investing any funds in it.

I have also ensured that I invest only in companies with extremely good management. I did stick through thick and thin of Hindalco – because I thought it had/ has good management. I invested almost blindly (and continue to hold) Tata Power – despite the one single bad decision in ONE power project. I held Indian Hotels for a long time – from time to time wondering why the ROA is so low. In my portfolio Murugappa group companies are a big chunk. I honestly do not know how much to believe that the Corporate Governance is impeccable.

Let me put it this way “If the Promoter brought a big animal after a hunt…how much meat does he leave on the table for me”. Honestly, I do EXPECT him to take the lions share – I hate it, but I have no choice. Companies where I have had the luck of knowing a few members of the board tell me how Corp Gov is a serious joke even in some of the top companies. So I will not be too much worried about CG the way the text books tell us it is ‘supposed to happen’. I have seen the FT portfolios for too long – and I am a happy investor. In a few of those companies I could write a book on CG – or the lack of it. So taking this point seriously is difficult, sorry Mark.

(ii) Ensure that the management has a “vision for growth”. The management must have a clear-cut road-map on what they will be doing for the next five years and where they expect the company to be in that time;

Seriously? I know one start up which thought that it had 5 important offerings – ranked say A to E. It has ended up creating ‘E’ – and almost dropped the others. When you start off a new venture, you are only hoping that the strategy will work. Pricing, product and strategy are constant dialogues with the market – and YOU better listen to the market. One famous research company realized that money is to be made in brokerage not in research, so it went into research. It soon realized that brokerage is a commodity, it needs to get into money lending – basic simple money lending. Once it realized that it had a limit to fleecing, it wanted to do product distribution. To do the product distribution it needed clients. To get to the clients, it bought people with asset books. Each step of this business model looks at life from a 3 year perspective. That is fine. It has made money for its shareholders. I will not buy its shares. Also once in a while one s.o.b CEO will come and do some ego building exercise which will s…w the shareholders. LnT has done it, Cholamandalam Investment did it (corrective action was swift too!), Jain Irrigation did it,  – the list is endless. Vision is not easy. I know investors with vision who bought EICHER MOTORS for its trucks – face it the fancy PE is because of the Mobike. In fact in what looks like a strategy copy Mahindras are launching the YEZDI bike…

(iii) Three, the management must be aware of the legal framework of the Country where they are working. Mobius emphasized that the rules and regulations in India are very complicated in India and one can unwittingly get into serious trouble if he puts a wrong step. The awareness of how to work within the legal framework is very important, Mobius added.

I completely agree. I do think all big groups should have (all of them have) a Group President (Legal and Company secretary) who has a great relationship with all the top lawyers. He should know what to do in house, what to outsource, and what is legal and what is not. Some tasks are outsourced just because there is muck to be handled. Getting top quality law people – a team perhaps is not easy, but it is worth every rupee. However, as a small investor there is no way you can make out how good they are. At least in case of banks you can get some feed back about how good the head of risk is – for example Hdfc bank has the best risk person in the Industry – but in case of legal people it is a challenge to create ‘the team’ for smaller organisations.

My take on the Tanvir Gill and Mark Mobius interview? I think TG is excellent, and MM of course is a great fund manager and has kept himself in great shape – physically and mentally. My problem is I have no clue how to use the stuff I saw there…my problem I guess.