Chandrakant Sampat

Lessons from one of the first gurus of value investing in India

An extra post this week.

“Knowledge is that which liberates and not captivates”.-Chandrakant Sampat

Chandrakant Sampat is someone my father told me about as he was his mentor. My father is a full-time investor who got into investing when he met Chandrakant Sampat. He wrote a weekly review of The Economist magazine on capital ideas online. They are a little complex to read but I highly recommend you read them. Find the articles here. His life was very simple. He used to use the bus and didn’t even have an office.

That was a snapshot but let’s see what we can learn from him:

1. Obsession with FCF(Free Cash Flow): He had an obsession with FCF. His investment strategy was really simple and he said one of the main things he used to look for FCF. This limited his choice of businesses to only FMCG businesses.

2. Low/Zero Debt: The companies he bought had NIL debt or very low debt. This was because of him not wanting a company which has the risk of closing down and also low debt meant the business was pretty much self-sufficient.

3. Low P/E ratio: He preferred companies with a low P/E (13-15) as he believed in keeping a margin of safety for his investments. He had a conventional belief of buying stocks when they were at least 40% below their 52-week high. (note the business aspect was also given importance).

4. Compounding: Chandrakant Sampat’s investment philosophy was to keep expenses low and have faith in the power of compounding.

5. Concentration: “In the strategy that I follow, I don’t cover more than ten companies in my investment portfolio. If you spread it out, so many of them will go wrong and very few will come right. So, it will be squared out. But if you are in eight-ten companies, even one giving you everything, will cover your wealth”.

6. Valuations: “I don't believe in valuations. I follow a migrationary path for the companies I invest in. We must be able to visualise the future. Take Gillette for example. 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. That is the migration path that a valuation cannot show.”

7. Innovation: He was a Peter Drucker fan and believed that a company which does not innovate has no future. To quote Drucker here, “If we achieve profit at the cost of downgrading or not innovating, they are not profit. We are destroying capital.” On the other hand, if you innovate you don’t get profit today but you will get profit tomorrow.

More than anything I love his take on life:

Diet: “I have not eaten sugar, fatty foods or salts in the last 50 years! I just have my salads, bananas and sprouts”

Fitness: He used to go to Hindu Gymkhana to stay fit. He was very active till the end of his life.

He was disciplined in whatever he did and at one point he even had more than 70% of his wealth in cash and cash equivalents. He used to save a lot and he was disciplined with his spending. He also did not believe in any type of accrued spending if you cannot incur it. There is a lot to learn from him as an investor but even more as a human. He lived a happy life and he managed his finances well.

That’s it!