It is not price, but what value you are getting for that price that a Value Investor looks for.

What is needed to be a Value Investor? Tremendous discipline and tremendous patience to sit on cash for long periods of time. Every day that you do not buy the market mocks you. You look like a short term idiot.

I can openly admit that I do not know of ANY value investor in the public space. It is just not allowed. Can a fund manager in India sit on 40% cash? He would be killed. So in the public space you cannot be a VALUE INVESTOR, Yes you can be influenced by value investing principles, but you cannot be a value investor – Naren Included. Sorry Naren Sankaran.

It is like if you had sold Hdfc bank – assuming you had 50,000 shares – and you sold 1000 shares from 1650 to 1900 in jumps of 500. Your analyst is going to scream at you, and your portfolio is going to look much worse than if you had just held on. As a value investor when YOU CANNOT see how value is going to be unlocked, you are just pretending to be a Value Investor. Just an impostor.

My definition of a value investor – pays an inordinately amount of attention to risk, sits like an alligator – stalking a prey, can wait for a long time for the right price to show itself, can sit on cash without worrying about yield. For example in the Indian context 2008 was a great year to buy like 2002, 2008, 2013 – what Naren calls the BUST years. Which means 2011, 2012 you had to sit in cash. Which means now you should be sitting on cash. However Naren has shifted from banks and nbfc to shares that have not run up…PJ on the other hand in his value fund has still stuck to some of the big finances…big bfsi.

Value investing is not expected or designed to outperform in a bull market. By definition it cannot outperform. However in a bear market value investing discipline becomes important and should help you find your bearings. None of your landmarks are visible and the word around you is falling! Exactly what Warren Buffett says has to come into play – the world is falling and YOU HAVE TO BUY.

Sadly India is not a great country to be a value investor – our books of accounts are not exactly the cleanest. So companies whose market value is less than the cash on hand cannot be trusted, so the value investor just runs away. Be careful.

Value investing, deep value investing, etc. are easy to explain and even understand, however implementing it is not easy. It is like giving up smoking. Everybody understands the benefits of giving up smoking. It is difficult to actually give up smoking. Or eating less.

Staying in the market during sustained bull runs when all your friends portfolios are doubling you have to sit tight. That is not easy. Also in the Indian context when everybody was buying banking and infra you had to buy fmcg and pharma. Just after that you had to sell fmcg and pharma. You had to buy infra. So value investors have to have tremendous adaptability and understanding of various balance sheets. You cannot go just on p/e. In fact p/book value is a better ratio to chase for a value investor. Try it.

I do not claim to be a value investor. I have been influenced by Graham, Seth Klarman, Vallabh Bhansali, Rakesh, but have also been skeptical even when they were taking stakes. I remember seeing the Spice Jet balance sheet – and missing out the turnaround – even when RJ was picking up a stake. However I did pick up Indigo – and am sitting on profits. However as a deep value investor I could have picked up both!

I picked Bharti Airtel at 200 and sold at 2000 – and I saw the value in the growth that the telecom sector was going to get. Great. thrilled. I now have 400 Bharti – planning to sell at a much later date. Ditto Tata Power.