Wisdom From The Heart

I just finished reading Wisdom From The Heart, a short form biography written about Om Gupta, founder of Ashiana Housing Limited (see book here).  The book traces Mr. Gupta’s start in the housing construction business until his death in 2013.  There are many lessons to be learned from the way he conducted his life and the culture he set forth at Ashiana.

For context, Ashiana Housing is a homebuilder which develops housing projects in up and coming tier II Indian cities. It is widely respected for its customer service, on time deliveries, extreme capital prudence (no net debt), world class rates of return on development (30%-125%), low employee turnover, and business ethics.

Below are some principles Om Gupta followed in leading his life and building his company.  Dale Carnegie would be proud.

  • Always smile
  • Don’t sweat the small stuff (money, being cheated, temporary disputes)
  • Be tidy and organized
  • Collect facts, verify information is accurate, and be decisive
  • Don’t be in awe of extremely wealthy, successful individuals; show tremendous respect for those less fortunate
  • Listen with the intent of understanding the other person; show genuine interest in others
  • Inspire others through magnanimity, trust, and confidence
  • Delegation is the art of clear instruction, tolerating mistakes, and trust
  • Pay your employees, suppliers, and creditors on time, no exceptions
  • Live / operate within your means; never extend yourself with excessive leverage
  • The only way to benefit from other human beings is to give abundantly
  • Always do what’s fair or even what’s more than fair; the returns will come down the line
  • Always focus on what’s going well; block out the small disturbances in your life
  • Don’t be poisoned by greed and growth; build something the right way which will live beyond you

A homebuilding operation is mostly a capital allocation operation.  The best operators purchase land when prices are favorable and sit still when there’s excessive optimism.  In addition, the best homebuilders are able to fund projects in advance through customers’ capital as opposed to shareholder equity.  Ashiana’s model is very similar to NVR in this regard.  The company has also added significant value by providing an incredible customer experience (leading to repeat purchases and referrals), supporting local communities, and empowering employees.  In a highly competitive industry, it has managed to thrive by sticking to the values outlined by its founder, Mr. Om Gupta.

Ashiana is a name which is worth tracking.  I’m doing more work to see whether valuation makes sense.


Cox & Kings – Q3 Update

COX released unaudited Q3 numbers yesterday.  We won’t know some of the key metrics, segment info, and outlook until the company’s quarterly call and investor presentation, but the numbers should give us an idea of directional performance.

Q3 and Q4 are slow quarters for COX.  The Indian holiday season typically runs from March-June and the rest of the world runs from June-September.  Nevertheless, performance was quite strong in Q3.  Most notably, the company managed expenses well in the context of a growing operation.

I’ll be able to provide more color in a few days.

Links: February 10, 2015

Portfolio Update

I’ve updated the portfolio page to show the full transaction history and entry / exit prices.  Note, my explicit goals are not to beat a benchmark index or generate positive returns on a quarterly or even annual basis.  My goals are (i) to buy high quality businesses at a good or reasonable price, (ii) limit risk (I define risk as the probability of a permanent loss of purchasing power), and (iii) patiently wait if I can’t find anything interesting which fits within my circle of understanding.  I believe this strategy, over time, will produce superior results.

After doing more work, I sold out of a small position in SolarCity.  I remembered one of Buffett’s quotes (full quote is in the quote repository) which states in so many words – if you are struggling to make things clear in your head, you probably don’t understand the business.  I went through my checklist and couldn’t provide logical answers for many items.

A few key areas I can’t grasp include (i) competitive threat from utilities and banks, (ii) long term cost advantage versus Asian suppliers, (iii) future policy implications including net metering policy, (iv) accounting, (v) the impact of rising interest rates / tough financing markets, and (vi) long term capital needs to build out manufacturing capacity and investments in marketing.  I also think back to all the lessons I’ve learned from reading business history.  In most instances, a new technology provides a wonderful outcome for humanity, but lays waste to many industry participants. The automobile was an incredible invention, yet hundreds of car companies have failed over the years.  The commercial aircraft was also revolutionary, but most airlines have gone out of business.  Solar is a game changing technology which is driving us toward a carbon neutral future, but the markets are simply too large.  You’d rather own a small company dominating a slow growing niche than a large one playing in a trillion dollar market.

The only time to invest is when something feels like an absolute no-brainer.  If you are handicapping too many items, you should stop and look at something else.

Fairfax India Holdings

Most individuals don’t have the time or desire to sift through annual reports, earnings call transcripts, and industry trade publications to find the next great investment idea.  They’d rather turn their money over to professionals or invest in index funds.  In most instances, I suggest passive investors invest in a handful of broad market index funds through a systematic investment program (Wealthfront, Betterment, and Future Advisor are great online platforms which automate the process).  One way to beat the market over time is to increase exposure to the market during severe (20%+) corrections.  History shows that the nominal value of the market has never failed to recapture prior peak levels.  Having the proper temperament over a long period of time can produce superior returns.

For those investors seeking a bit more alpha, there are a handful of good funds to invest in.  I’m not a thematic investor by any means, but having lived in India for 2 years, I am optimistic about the country’s long term prospects.  A young working population, vibrant democracy (exhibited by last year’s election), a once in 50 years leader, a culture focused on education (particularly science and engineering), a high savings rate, rising consumption, and continued adoption of free market policies could result in a golden era for the Indian economy over the coming decade.

North American investors don’t have any easy way of trading Indian stocks.  They must either be an Indian citizen with an overseas account or go through an expensive broker.

Now, there’s an opportunity to invest in India alongside one of the great investors of our time.  Prem Watsa, proprietor of Canada’s Fairfax Financial, recently launched Fairfax India Holdings, a publicly traded SPAC which will invest in Indian companies, public and private.  Fairfax will own 30% of the vehicle with a 10 year lockup.  Moreover, the fees are quite reasonable for such a vehicle – a 1.5% management fee and 20% performance fee after a 5% hurdle rate.  I particularly appreciate the 5% hurdle rate because it guarantees investors a 5% return before Fairfax is paid, similar to the Buffett partnerships.  A high watermark also applies.

I’m attaching the investor presentation and long form prospectus.  The sections on India are particularly insightful.

I worked with TD Ameritrade to get the ticker symbol added to their system.  The subordinated voting shares trade on the Toronto Stock Exchange under ticker: FIH.U.  The CUSIP number is 303897102.  If you can’t purchase shares online, you should be able to call in and have a broker execute the trade.

As a disclaimer, investors should read the prospectus and understand the risks before investing in this vehicle.