[00:02:34] Intro: You are listening to The Investor’s Podcast where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected.

[00:02:54] Clay Finck: Welcome to The Investors Podcast. I’m your host today, Clay Finck, and I really couldn’t be more excited because I’m joined by Gautam Baid. Gautam, it’s great to have you today.

[00:03:06] Gautam Baid: Thank you for having me on the show, Clay. 

[00:03:09] Clay Finck: Well, this episode really feels like a long time in the making. I’m such a huge fan of your book, and I know countless other people in the audience are huge fans as well. So, first of all, I just want to personally thank you for making such a huge impact on me with your book and for sharing it with the world.

[00:03:34] Gautam Baid: Thank you, Clay. The love of readers like you just keeps me going. 

[00:03:38] Clay Finck: So to kick off this discussion, I thought the best place to start would be to talk about your background. You started in Calcutta, India, and now you’re here in Atlanta, in the US. Talk to us about your journey and where this passion for investing came from.

[00:03:57] Gautam Baid: Sure. So, I was born and brought up in a family of four in Karta, in the state of West Bengal, India. I’m the youngest of the four siblings in my family, and my family belongs to the Marva caste. Anyone familiar with the Indian community culture knows that within the Marva community in India, we have business in our genes from the very beginning, since childhood, because we generally tend to embrace entrepreneurship and business.

[00:04:27] Gautam Baid: So, my father has also been operating a small business since my childhood. Ever since my childhood and teenage years, I was very fascinated by the concept of entrepreneurship and business, especially by the fact that once a solid foundation is established for a business, the owners do not work for money; rather, money works for them. I did my graduation in commerce from Calta New University, so pursuing higher studies in the field of finance seemed like a natural extension. I went on to do my MS in finance from ICFA University, Hyderabad, India. I then pursued my MBA in finance from Naba University in Ambar, India, and later on, I also obtained my CFA charter from the CFA Institute in the US.

[00:05:16] Gautam Baid: After completing my MBA program, I got a campus placement with Citibank in their Mumbai, India office, where I worked for three years as an investment banking analyst. After that, I joined Deutsche Bank as a senior analyst and worked at their Mumbai, London, and Hong Kong offices for four years. Throughout the initial seven years of my investment banking career, I was making a decent salary income, but I was not really happy with the work that I was doing because the field of investment banking is basically characterized by a lot of perverse incentives and incentive cost bias.

[00:05:56] Gautam Baid: And I like to play win-win games rather than win-lose games. So, during this particular time is when my interest in the stock markets and investing in general also went up significantly. There is a backstory to this. Just like most investors, I was initially attracted to the stock market during the final euphoric phases of a bull market.

[00:06:20] Gautam Baid: In my case, it was the 2003 to 2007 market in India. I still remember purchasing a mutual fund called Reliance Power Sector Mutual Fund in late 2007 and acquiring a stock named Espar Steel in January 2008 because both of these belonged to the hot and fancied sectors of power and steel at that particular time.

[00:06:43] Gautam Baid: Both of these investments had sharply appreciated in a short span of time when I first noticed them. So, I engaged in blind extrapolation of the recent price trends without paying any heed or attention to their valuations or business models. And I eventually paid the price because recency and weightness biases are very powerful but highly costly behavioral mistakes.

[00:07:07] Gautam Baid: Both those investments crashed 70% to 80% within the first 18 months of my purchase. However, despite this bad initial setback and experience, my interest and curiosity about the stock market remained very high. For the first seven years of my professional investment banking career, I came to the realization that we have just this one short life to live our dreams, and I did not want to waste any further time working in a field that I was not truly passionate about.

[00:07:40] Gautam Baid: I was so keen on a career shift that in 2015, I relocated to the US without any job in hand. One of my close relatives sponsored my green card to come to the US, and I was firm and adamant that I would not go back to my previous field of work, investment banking. I wanted to work as a generalist on the buy side in the stock market, and I was under the impression that since I’m a CFA charter holder and this degree is highly valued in the investment industry, I would easily land a stock market job.

[00:08:20] Gautam Baid: But, as you know, life is not a bed of roses for those who are trying to carve their own destiny. I got rejected in my first three stock market job interviews within the first six months of coming to the US. At the same time, I ran out of the little money I brought with me from India to take care of my living expenses.

[00:08:47] Gautam Baid: I did not want to sell a single stock from my portfolio of Indian shares because I did not want to interrupt the compounding process. So, to take care of my living expenses in the US, I took up a minimum wage job as a front desk hotel clerk at a hotel in San Francisco, where I worked for 15 months in the graveyard shift.

[00:09:13] Gautam Baid: For those of you who are uninitiated with this term, the graveyard shift refers to the shift which runs from 11:00 PM at night to 7:00 AM in the morning. Even though it was a big physical, emotional, cultural, and intellectual challenge for me, today, in hindsight, I highly value those days of my life because, for the first time since the beginning of my busy investment banking career, I finally had a lot of free time for myself.

[00:09:44] Gautam Baid: During the late night to early morning pace of work at the hotel, which was pretty slow, I made full use of the free time I had to read every single blog article published since their inception on blogs like stuff.com, fundprofessor.com, Saber Capital Management, and Basic Investing Macro Cap Club, which is run by Ian Castle. There’s also a blog by Jana.

[00:10:10] Gautam Baid: So, the passionate pursuit of lifelong learning at FAN began. Now, here I would also like to take a moment to discuss the importance of passion and persistence. During those 15 months at the hotel, every single night, I used to apply to a minimum of three stock market jobs online.

[00:10:30] Gautam Baid: If we do the simple math over those 15 months, I applied to more than 1300 stock market jobs in the US. And as you know, Clay, every time we take the time to fill up the application, attach our resume, and click the submit button, there is so much hope attached to every job submission.

[00:10:52] Gautam Baid: Facing rejections more than 1300 times and still continuing requires fierce passion for what you want to do in life. So, never give up because compounding will bestow its magic and benefits upon you only after testing your patience and conviction to the fullest. Now, luck, chance, serendipity, and randomness have always played a significant role in various aspects of my life to date.

[00:11:18] Gautam Baid: One fine night, during November 2016, while conducting my routine online job search, I clicked on the “quick apply” button on a job application on LinkedIn. Wonder of wonders, unexpectedly, I received a job interview call for a senior role in an investment firm, even though I had zero formal stock market work experience. This was the phase in my life during which I was about to experience the power of compounding knowledge in action.

[00:11:48] Gautam Baid: You see, all those previous 15 months at the hotel and all those hundreds of hours spent reading all those blog articles and white papers had built a strong intellectual foundation for me in investing.

[00:12:02] Gautam Baid: This is what I was lacking during my first three stock market job interviews when I got rejected, and this time I was able to excel in all three rounds of my job interview. I landed the role of portfolio manager at Summit Global Investments, handling global equity strategy, and it was like a dream come true for me.

[00:12:26] Gautam Baid: Never in my wildest dreams had I thought that I would straight away land the job of a portfolio manager. I thought I would start as a junior analyst, then get promoted to an analyst, then further promoted to a senior analyst, from there to assistant portfolio manager, and finally become a portfolio manager after 13 or 14 years.

[00:12:49] Gautam Baid: But this is how compounding works. The power of compounding is backloaded. And if you can just sustain yourself slightly more than the competition and stay the course, have the conviction, you can make it big in life. So I worked as a portfolio manager there for four and a half years. While tracking global equity markets as a portfolio manager, India, as a stock market, very clearly stood out to me in terms of the number of high-growth opportunities it offered.

[00:13:22] Gautam Baid: So, in July 2021, I quit my job at Summit Global to start my own India-focused fund based out of the US, to bring the India investment opportunity to investors here. The entire process of setting up the fund and obtaining all the regulatory approvals took around a year. Then, in July 2022, we launched the fund to the public, and our portfolio went live on the 3rd of October, 2022.

[00:13:50] Gautam Baid: Alongside this particular India fund, since it was open only to US citizens, a lot of non-resident Indians (NRIs) who live in foreign countries and a lot of Indian citizens in India basically wrote to me, saying that they would also like to participate in my investment philosophy. However, my fund is open only to US citizens. Therefore, to cater to the global Indian citizen community as well,

[00:14:18] Gautam Baid: I recently launched Stella Wealth PMs in collaboration with Complete Circle Wealth Solutions in India. So, both the India Fund and the US and still level PMs in India have the same portfolio. One caters to US citizens, and the other one caters to all Indian citizens living across the world.

[00:14:38] Clay Finck: Amazing! I’m sure we have a lot of listeners in India as well as in the US. I want to transition to your book, “The Joys of Compounding,” and the very first quote in your book is from Charlie Munger. It says, “The best thing a human being can do is to help another human being no more.” I’m super grateful you shared all of this knowledge in the book, and I’m curious about what led you to writing it because it’s not a short book, and it’s very dense.

[00:15:14] Clay Finck: It’s 400 pages, and it feels like every page is just full of so much wisdom and knowledge. So I’m curious about what led you to writing this and what the process looked like.

[00:15:28] Gautam Baid: As with most big events in life, this also has a very interesting backstory to it, which I’ll share with you here. I joined Twitter in late 2016, specifically in November 2016, and I started posting my thoughts on various subjects such as philosophy, psychology, history, investing, business, and more.

[00:15:48] Gautam Baid: Within three months of joining Twitter, two people from India flew all the way from India to Salt Lake City, Utah to meet me and personally thank me for the content I was posting on Twitter. They were the ones who suggested the idea of writing a book to me. They said, “You write so well. Why don’t you publish your thoughts into a book now?”

[00:16:14] Gautam Baid: Steve Jobs has rightly said that you cannot connect the dots looking forward; you can only connect the dots looking backward. For many years, I had a habit of curating great content into a Word document and not maintaining an investment journal, just collecting my thoughts. I thought I already had all the content ready with me.

[00:16:37] Gautam Baid: Byron simply segregated these into different chapters and published them as a book. At that time, I self-published the first edition of “The Joys of Compounding.” I covered the entire initial cost for marketing, production, logistics, distribution, etc., from my own pocket, and I did not charge any royalty or fee for the first edition of “The Joys of Compounding.”

[00:17:01] Gautam Baid: The only idea was to give back to the investing community from whom I’ve learned so much over the years. I thought that if I could even sell a few hundred copies of the book and help a few people, as well as attract a few like-minded investors into my circle

[00:17:21] Gautam Baid: That would be a decent enough outcome, and there was no other objective at that particular time. But Clay, when you help others unconditionally, the universe works in such a way as to come back and reward you multiple times over. The self-published edition of “The Joys of Compounding” sold a lot of copies and gained a lot of popularity in the US and Canada. In May 2019, I was at the University of Omaha signing copies of the book when, lo and behold, Miles Thompson from Columbia University Press, a very big name in the publishing industry, flew from New York to meet me and offer me a publishing opportunity with Columbia Business School Publishing.

[00:18:08] Gautam Baid: It was like a dream come true for me because as valued investors, we always have a quiet dream of working with Columbia someday since that is where the value investing discipline originated with Benjamin Graham. This was a great example of compounding goodwill in action. I initially started with a simple thought of helping others, and eventually, I got this great opportunity to further expand on that by collaborating with Columbia. And the rest is history. Today, “The Joys of Compounding” is an international bestseller in seven countries.

[00:18:43] Clay Finck: Amazing, an amazing story. In your book, you describe that you want to own a high-quality business with high-quality earnings growth, and I know you’ve thought about this a lot. You understand what constitutes a high-quality business, so I’m super curious about your definition of a high-quality business.

[00:19:02] Gautam Baid: Yeah, a high-quality business has three fundamental attributes.

[00:19:06] Gautam Baid: Number one, the business has to be earning. The return on capital employed should be far above the cost of capital. The difference between the return on capital employed and the cost of capital gives you the free cash flow yield.

[00:19:22] Gautam Baid: Number two, the business has to have a strong competitive advantage or what Buffet calls a “moat” in order to protect and sustain higher returns on capital for a long period of time.

[00:19:35] Gautam Baid: And number three, and most importantly, the business has to have sufficient reinvestment opportunities within itself at higher returns on capital. This is how the business becomes a compounding machine.

[00:19:47] Gautam Baid: Many stocks with higher returns on capital pay out large dividends. They have very high dividend payout ratios, but those kinds of businesses are good for preserving wealth.

[00:19:58] Gautam Baid: However, if you want to grow your wealth and increase your purchasing power over time, you have to find these compounding machines. They are very rare because many of these high ROC businesses eventually end up diversifying or venturing into low ROC business initiatives because they want to start building an empire.

[00:20:19] Gautam Baid: They start focusing on size instead of the economics of the business. So you have to be very careful and have a razor-sharp focus on the capital allocation the business is following.

[00:20:32] Clay Finck: One of my favorite parts of your book is where you talk about how quality is much more resilient during times of market tribulation, and it’s what matters most in retaining long-term wealth.

[00:20:45] Clay Finck: Another interesting concept is that there’s always a market for quality because people who appreciate quality always seem to have cash at their disposal. Could you talk about this idea of putting our focus on quality businesses for long-term wealth creation?

[00:21:01] Gautam Baid: Sure. So Peter Bernstein had very rightly said, “Survival is the only road to riches.”

[00:21:07] Gautam Baid: And what did he mean by that? As an investor, how can you be best prepared to handle periodic severe market corrections and bear market crashes, which you will definitely encounter during your lifetime? Ensure that you have tennis balls, which are high-quality businesses, rather than eggs, which are bad-quality junk stocks that splatter after they fall onto the floor.

[00:21:31] Gautam Baid: Many of us make large paper fortunes during a bull market but eventually lose all of it when the bear market arrives during a market crash. Both quality and junk stocks fall, but quality eventually recovers and goes on to make new highs, whereas junk stocks lie low for many years and never recover.

[00:21:53] Gautam Baid: How much you are able to recover after a bear market is far more important than how much paper profit you make during a bull market. The quality of the business and the quality of the management matter the most in retaining long-term wealth. This is why Atwell Partners India Fund focuses not only on making all our investors rich but also on helping them stay rich. And for that, you need to have a razor focus on quality at all times.

[00:22:26] Clay Finck: And you mentioned in your book that you’d limit second-line stocks to less than 20% of your portfolio because plenty of rising stars have vanished without a trace. That’s a quote I pulled from your book.

[00:22:40] Clay Finck: Can you talk about what that sort of second line looks like? What sort of segments or what types of companies are you looking for there?

[00:22:50] Gautam Baid: For second-line stocks, which include macro gap stocks, deep cyclical stocks, and commodity stocks, the returns may not be spectacular, but they tend to be more consistent over time.

[00:23:02] Gautam Baid: In my book, I’ve talked about the importance of realigning your portfolio once you’ve achieved financial independence. It becomes imperative to have a majority allocation in high-quality businesses once you attain a state of financial prosperity in life. Once you become financially wealthy, it’s crucial to take all steps necessary to ensure that you don’t end up back at the starting point.

[00:23:27] Gautam Baid: And for that, you need to maintain a razor-sharp focus on high-quality businesses in your portfolio. In my India fund, for example, since I only accept accredited investors who are already financially wealthy, these individuals have already achieved success in their financial lives. They don’t want to risk losing all their hard-earned savings.

[00:23:48] Gautam Baid: As a fund manager, it is my responsibility to understand this and ensure that my clients’ wealth is preserved at all times.

[00:23:57] Clay Finck: A lot of people, when they hear value investing, probably just think about companies that screen cheaply or associate it with Buffett’s cigar-type approach.

[00:24:06] Clay Finck: What is it about high-quality businesses that you’re willing to pay a premium for, which enables you to earn higher returns relative to the overall market and makes it a more reliable approach compared to the cigar-buying approach?

[00:24:22] Gautam Baid: Let’s add a bit of text to the end of your sentence: “…makes it a more reliable approach than the cigar-buying BA investing approach over a long period of time.”

[00:24:34] Gautam Baid: This is the key point that I wanted to highlight. The answer to your question lies in one single word: longevity. Longevity. Longevity. And that comes from the durability of the moat or the competitive advantage that the company has. This is what allows quality businesses with durable moats to enjoy sustained returns in excess of their cost of capital for a long period of time and create a lot of wealth for investors.

[00:25:03] Gautam Baid: Because the moment you invest in a lower quality business that is earning below its cost of capital, even though that business may be growing fast, it ends up destroying shareholder value because the intrinsic value reduces with each passing day. Any business that earns less than its cost of capital is actually destroying shareholder value over time.

[00:25:26] Gautam Baid: So it’s just a matter of time before such businesses blow up, as they will always have to tap into capital markets for financing and funding, relying on external capital. As Buffet says, they have to rely on the kindness of strangers. To the maximum extent possible, you want to avoid such businesses and focus on businesses that can grow from retained earnings and internal accruals. Those are the kinds of businesses I like to focus on for my India fund and for the PMs.

[00:26:00] Clay Finck: And another concept you talk about in your book is quality: businesses with high staying power. These are businesses that can stand the test of time and weather through black swan events, such as a pandemic that emerges unexpectedly. What sort of characteristics indicate that a business has high staying power and the ability to endure any storms that come its way?

[00:26:25] Gautam Baid: So, some of the notable characteristics include having stable product characteristics, deep customer loyalty, a strong competitive advantage, a growth mindset with a razor-sharp focus on long-term profitability and sustainability, a fragmented customer and supplier base, a corporate culture that encourages intelligent and measured risk-taking, very strong parentage which allows the company to access capital during periods of severe market stress, a highly liquid balance sheet, and finally, both the willingness and capacity to endure short-term sacrifices for long-term investments.

[00:26:57] Gautam Baid: Companies with staying power tend to have higher longevity and longer duration of cash flows, resulting in higher intrinsic value over time.

[00:27:06] Clay Finck: When we were chatting in Omaha during the Berkshire weekend, you mentioned that super-normal profits are earned by companies that are leaders in their industry and face little to no competition. Immediately, when I hear that, I think of all the FANG stocks in the US, such as Google, which has essentially had no competition in the search business. They’ve been able to earn super-normal profits, and the same can be said for the other FANG stocks.

[00:27:37] Clay Finck: Could you maybe expand on this idea of super-normal profits with little competition and how you’re able to find such a company in India? I know you’re focused on that country, which we’ll be discussing here as well.

[00:27:52] Gautam Baid: Right, Clay, this is a very important question. What matters for successful investing is not how fast a particular industry is going to grow. What matters is if you can identify pockets within the value chain of that industry that have supply-side dominance. You want to look for companies that have dominant market share and face little or no competition.

[00:28:16] Gautam Baid: And why is that? It’s because competition acts as friction for value creation, and the best form of competitive advantage is to have no competitor in the customer’s mind. The brand recall should be so strong that it’s very difficult to recall the next closest competitor. Buffett has taught us that the true test of a moat is pricing power.

[00:28:40] Gautam Baid: And where does pricing power come from? It happens when the brand becomes synonymous with the product category itself. Look at Jockey for underwear in India, Royal Enfield for leisure biking, or Symphony for air coolers, or Xerox for photocopying in its heyday. The brand has to become synonymous with the product category. That’s when you get pricing power.

[00:29:04] Gautam Baid: These kinds of companies tend to enjoy strong bargaining power with their suppliers and customers, and they tend to operate with negative working capital or other people’s money. And how can you identify such companies as a research analyst or a fund manager? Look for an item titled “Advances from Customers.”

[00:29:24] Gautam Baid: When you’re reading through the annual report, look for this particular item: any companies receiving advances upfront from the customer before delivering the product or service. It indicates that the business is operating on negative working capital, and there is something very special taking place in that particular business.

[00:29:44] Gautam Baid: That’s how you identify such kinds of companies.

[00:29:47] Clay Finck: Now, when you find the right company that can, you know, has all these attributes you’ve been talking about—a high-quality business—and you end up being right about the company, eventually the market gets really excited about the business and the multiple becomes extended.

[00:30:04] Clay Finck: And a prime example of this in the US is the fascination and the AI boom. You know, stocks like Nvidia and chip manufacturers, and other companies related to this, are just really taking off. I’m curious, what is your framework for selling or holding these companies when their valuation becomes extended after you first bought it.

[00:30:28] Gautam Baid: So, a two-pronged answer to this question. First, let me address the first part. I conduct a reverse discounted cash flow operation using a tool called Jury Finance when screening or analyzing companies in India. This tool provides information about the growth expectations incorporated in the current stock price and the current level of valuations.

[00:30:50] Gautam Baid: What are the market’s expectations for future growth? Historically, the probability of making money from stocks trading at more than a hundred times price-to-earnings multiple on a one-year forward basis has been very, very low. As an investor, I always strive to tilt the odds in my favor as much as possible.

[00:31:10] Gautam Baid: That’s what investing is all about—a probabilistic bet on what the future holds, right? So, I place a significant emphasis on base rates, and this reverse discounted cash flow operation informs me about the growth expectations while considering the current valuations. If they don’t make sense to me and there is no margin of safety, then I simply make an exit..

[00:31:35] Gautam Baid: The second part, so this answer is looking at what stage of the company cycle the business is in. So every business goes through four stages, basically: Introduction or the early adoption stage, then the growth stage, then maturity, and then decline. If you’re able to enter into a high-growth business at the introduction stage or between the introduction stage and the growth stage, and you have a long runway for growth ahead for the next 18 years, even if you pay a very high P multiple (a lot of price-turning multiple), you still end up making a lot of money in such stocks because in such businesses, the high growth tends to bail you out, even if the valuation contracts a bit along the way.

[00:32:25] Gautam Baid: But if you’re entering into such highly valued stocks just when they’re about to enter into a decline phase, that is when the sharpest pace of P/E de-rating happens, and you end up with a permanent loss of capital. So conduct a reverse discounted cash flow operation and also check which stage of the company life cycle the business is currently operating in.

[00:32:50] Clay Finck: What also really amazed me in reading your book was just your massive breadth of knowledge across various types of investing strategies. We talk about this quality approach and I feel like. I gravitate towards that. It really fascinated me. When you talked about these other approaches, you talked about cyclicals and commodities, and you tell some stories related to some really big wins you had in these different spaces.

[00:33:14] Clay Finck: So talk about the role that these other sorts of investing approaches played for you, because early on in your journey you were. Really focused on growing your wealth and growing your pie and achieving financial independence. Whereas with your fund, you’re maybe taking a bit of a different strategy.

[00:33:30] Clay Finck: So I’d love for you to expand on some of these other approaches outside of what we’ll call quality investing. 

[00:33:38] Gautam Baid: So, Clay, my personal investment opportunity set has significantly expanded over the years with time and experience in the markets. Initially, I started off like all investors do by reading Benjamin Graham’s “The Intelligent Investor.”

[00:33:52] Gautam Baid: So I started off by investing in low price-to-earning and low price-to-book stocks of inferior quality businesses. Then I read about Buffett, Munger, and Phil Fisher, and I shifted to investing in quality businesses at reasonable prices. But today, it covers multiple areas of the investment universe, including merger arbitrage, promoter management, and change.

[00:34:13] Gautam Baid: Deep value cyclicals and various other investment approaches. The reason behind having a diversified investment approach is that big opportunities in the market can spring up on short notice. And in order to capitalize on them in a significant way, you have to have the intellectual and theoretical framework in place well beforehand.

[00:34:34] Gautam Baid: And how do you develop that intellectual and theoretical framework to capitalize on such big opportunities? I’ll share a few personal examples here. There is a great book on special situations titled “You Can Be A Stock Market Genius” by Joel Greenblatt, in which he talks about how you can invest and make big profits in spinoffs.

[00:34:57] Gautam Baid: Promoter management change, merger arbitrage, etc., and implementing all the learnings from that book have helped me greatly in my investing journey so far. The same thing happened with a book called “Capital Returns,” edited by Edward Chancellor. In that book, you get to learn how to deploy the capital cycle theory and invest in deeply cyclical businesses for high capital gains.

[00:35:22] Gautam Baid: Now let me talk about a past case study from my personal brokerage account, and this involves a stock named Raj Global Buyer in India. During 2018 and 2019, the Indian auto industry was going through a severe down cycle, and the entire auto sector was out of favor. However, there was this auto company named RA Global Wire that was undertaking a significant capacity expansion despite the sector being out of favor. As a result, investors’ attention on this particular stock was low.

[00:35:56] Gautam Baid: But as soon as the capacity expansion was completed and the auto industry started experiencing a recovery from the middle of 2020, the stock of Raj Global went on to become my first-ever 20-bagger in India.

[00:36:10] Gautam Baid: It gave more than 2000% returns in just the next two years, between June 2020 and June 2022. I couldn’t exit at the absolute peak, but I still managed to secure a substantial profit on that particular investment. So, that’s one example of how you can apply the learnings from Joel Greenblatt’s book in a real-life practical situation and create wealth.

[00:36:34] Gautam Baid: Now, let’s return to Joel Greenblatt’s book, where I learned about merger arbitrage and spinoffs. I’ll provide an example of a merger arbitrage situation from my India fund. The India fund went live on October 3, 2022, and around December of the previous year, there was a stock called I Equitas Holding in India that was about to undergo a merger with I Equitas Small Finance Bank at a 2.2621 merger ratio. There was an 18% merger arbitrage discount available.

[00:37:06] Gautam Baid: We simply exercised patience and waited for another six months until the merger was completed. Additionally, Equitas Small Finance Bank was trading at a very cheap valuation. So, we had the 18% merger arbitrage discount on the table, combined with attractive valuations and a strong sectoral tailwind in the Indian banking industry. All the elements were in place for substantial gains. I made this the largest position in my fund at that time, with a weight of five and a half percent. Over the next six months, the stock of I Equitas Holding delivered over a hundred percent returns.

[00:37:46] Gautam Baid: So when you have a five and a half percent rate to a single stock in the fund, and that stock doubles, you basically add 5.5 percentage points to your overall funds’ value. This was a case study from merger arbitrage. And finally, now I’ll share a final case study on spinoffs, or in India, we call them DEM mergers.

[00:38:10] Gautam Baid: So the really big money in spinoffs takes place when there is an element of forced selling, and forced selling takes place in two situations. One is what I call a market cap demerger, and the second one is what I call a sectoral demerger. So there was a situation in March 2023 when you had a small-cap pharmaceutical stock spun off from a midcap parent called Artie Industries.

[00:38:38] Gautam Baid: Artie Pharma Labs got spun out of Artie Industries. Artie Industries is a midcap chemicals company, whereas Artie Pharma Labs is a small-cap pharma company. So the moment Artie Pharma Labs got spun out of its parent, all the chemical sector dedicated funds were not allowed to hold onto a pharma stock in their portfolio.

[00:39:00] Gautam Baid: So they engaged in forced selling. At the same time, all the midcap funds, which were not allowed to hold a small-cap stock in their portfolio, also started dumping this stock on the open market after listing. So there was a time when the stock of Artie Pharma Labs fell to a depressed evaluation of less than 12 times earnings.

[00:39:24] Gautam Baid: And this stock has an earnings potential of more than 25% for the next three to five years. So you are getting a large margin of safety because of forced selling from all these institutional players. Therefore, I made this stock the biggest position in my fund in March 2023, and in April, May, and June, the stock has risen by more than 60% in the last three months itself.

[00:39:52] Gautam Baid: So the moment you get a large margin of safety in these special situations, you have to make them count.

[00:40:00] Clay Finck: Related to that merger. Why is it that, do you believe there was such a wide discount, the 18% discount, you know, before the merger occurred? 

[00:40:10] Gautam Baid: Because just like in the US, we have an example, right?

[00:40:14] Gautam Baid: Look at Microsoft and Activision. The deal did not go through; the deal got canceled, right? So there’s always some uncertainty when these kinds of mergers are involved. But no, in India, again, this is where it pays to be a student of financial market history. Basically, if you look at the past and see which mergers have been canceled or called off by the regulators or the government…

[00:40:42] Gautam Baid: It’s in sectors or industries which hold very high strategic national interest. For example, telecom, defense. Those are the industries in which the moment the government gets involved, and if it’s a matter of high national importance, that is where there’s a big risk that the merger may be called off by the regulator.

[00:41:04] Gautam Baid: But in other industries where most mergers have basically gone through without any problem, like in this case, the banking industry, the odds were on my side. And even then, you want to invest big when you get an asymmetric risk-reward ratio, right? So in this case, even if the merger did not go through, even if I did not enjoy that 18% low-risk return, even then, I would have benefited from the cheap valuations and the sectoral tailwinds and the high growth prospects in Eita for the next few years.

[00:41:40] Gautam Baid: So there was basically less, next to no downside, hardly any downside, but a lot of upside, which actually happened. And when these asymmetric beds pay off in a very big way on a big allocation, that is a time when you feel really satisfied and happy as a fund manager. 

[00:41:54] Clay Finck: I think you talked about how, you know, something might be a really good risk-reward opportunity, but there might be a lot of uncertainty related to it.

[00:42:05] Clay Finck: You weren’t a hundred percent certain whether the deal was going to go through or not, but there was maybe a high level of uncertainty. However, there’s a low level of risk, and some people may be confused about the difference between those two.

[00:42:23] Gautam Baid: Correct. So basically, here I would like to share a fundamental truth of investing.

[00:42:28] Gautam Baid: No company or business is a hundred percent great, and no company or business is a hundred percent bad. Never think in terms of black or white in the investing field. Always think in shades of gray. Don’t think deterministically; think probabilistically. That is what all the great investing history has taught us — they always think in terms of probabilities.

[00:42:52] Gautam Baid: And you know, when you are on a racetrack, you’re not trying to bet on the best horse. You are trying to find a mispriced gamble, a mispriced bet. That is what value investing is actually all about. You want to get more value for the price being paid, the lowest amount of risk. And at the end of the day, unknown unknowns keep happening in any industry or business.

[00:43:20] Gautam Baid: So how do you tackle that? You prudently diversify across risk factors and sectors. That is the approach you have to take. If you can just survive in this game for the long term, the force of capitalism is so strong that you can’t help but become rich over time because of the power of compounding.

[00:43:43] Gautam Baid: But the stock market is designed in such a way as to exploit our biggest weaknesses of greed and fear. That’s why most of us cannot sustain in this business for long enough. You have to have a calm and mature temperament and have a sense of equanimity towards market fluctuations. Focus on the business and think like a businessman, not as a stock analyst.

[00:44:10] Clay Finck: You mentioned history, and I wanted to chat about one of my favorite chapters in your book, “Read More History and Fewer Forecasts.” It was really an eye-opener for me because so many people nowadays forecast where the economy’s going to go, what the Fed’s going to do. What really grabbed my attention was your part where you essentially debunk the notion of “don’t fight the Fed,” which is essentially Wall Street’s way of saying the Fed essentially controls and drives where the markets are going to be heading.

[00:44:45] Clay Finck: So, can you explain why forecasting the economy and the stock market is largely a waste of time for investors?

[00:44:53] Gautam Baid: It is because the stock market will always be untreatable because it is a complex adaptive system. It’s trillions of moving parts in it, and the way Buffett and Munger tackle a decision, you know, when they are tackling a challenge or a problem and making a decision, they ask themselves a simple question: Is it knowable? And is it important? So where the stock market is headed, which way the economy headed, what is the trajectory of future interest rates? All of these are important but unknowable. I mean, if the Federal Reserve with its army of economists and analysts could not forecast in 2020-2021 what was about to happen to inflation and interest rates, who are we to make such forecasts on such big, you know, complex macro issues?

[00:45:46] Gautam Baid: I think the best we can do as investors is to focus on individual businesses and their industry developments. That’s the best we can do. Nothing more. So always remain humble. Otherwise, the market will humble you in the future. You have to just, you know, be very, very humble and grounded in this profession, Clay, because the moment you know, success gets to our heads and we start thinking of ourselves as the masters of the universe.

[00:46:17] Gautam Baid: And, you know, the best investors know this ever after a recent big win. That is when basically we let down our guard and we forget the basics of investing, the basic tenets of investing, which Benjamin Graham has taught us in The Intelligent Investor. So those three fundamentals should never be forgotten, and we should always be humble, grounded, and take a long-term approach, not getting emotionally attached to stock price fluctuations.

[00:46:46] Gautam Baid: Once you have all these elements in place, you’re ready to do very well, both as an investor and as a fund manager.

[00:46:55] Clay Finck: Another thing that really sticks out to me from this chapter is understanding the incentive structure of the people, you know, performing market forecasts. Maybe it’s some major media news outlet trying to drive clicks.

[00:47:09] Clay Finck: You mentioned base rates earlier, and base rates are such an important concept. You talk about how, you know, most macro forecasters, the vast majority of them, aren’t able to make decisions that benefit them in terms of investing. And you mentioned humility, having the humility to understand that if you’re going to be a macro forecaster and try to time the market, then your base rates, based on studies and looking at other investors, are really low.

[00:47:41] Gautam Baid: And you mentioned the point about humility. So let me quote Warren Buffett here in his latest annual shareholder letter. Investors of Berkshire Buffett are so humble that even at this age, after achieving such huge success, he says in this latest letter that his fortunes and success are the product of 12 good decisions over his investing lifetime.

[00:48:04] Gautam Baid: And he has made hundreds of investing decisions over the last 60-70 years, right? If Warren Buffett is telling us that just a handful of good decisions drove almost all of his success as an investor and as a businessman, that’s a reminder to me to always stay grounded in this profession, and I think that’s a great attribute to have.

[00:48:29] Gautam Baid: So, Clay, in my book, I’ve read that jobs are compounding. I’ve written that many people achieve success, but to sustain the same and build on it over an entire lifetime requires a sense of gratitude, a constant learning mindset, and a sense of humility. It’s very, very important.

[00:48:49] Clay Finck: I love that you mentioned that Buff has said the majority of his success is driven by just 12 investments, and it reminds me of Monique’s conversation with stag here on our show where, he talks about the vast majority of investing success comes down to just a select handful of decisions, and that’s why I really wanted to ask you about your sell criteria.

[00:49:09] Clay Finck: What causes you to sell an investment? Because when you find a very high quality business, it can be really painful to let go of it. In case you see it continue to compound for many years ahead after you sell it. So I’m really glad you brought that up. 

[00:49:23] Gautam Baid: Sure. So there are three key selling criteria that I follow when I’m investing.

[00:49:29] Gautam Baid: The first one is if the management shows a major lack of integrity. That’s very, very important because, as with any long-term relationship, the moment you lose faith in the integrity of the other person, basically that relationship is doomed, right? The same applies to investing as well. If the management shows serious corporate governance issues or a lack of integrity, you basically sell and move on.

[00:49:56] Gautam Baid: The second one is if the business starts engaging in gross capital misallocation. Here, I would like to emphasize looking at the magnitude of the capital misallocation. For example, in the late 1980s, Coca-Cola opened a film production business, a shrimp business, and entered into various other value-destructive businesses. However, because those business initiatives were so small in the overall context of the high return on capital (ROC) setup business, they didn’t really destroy much shareholder value. But if the size of the capital misallocation is very large compared to the existing scale of operations of the business, then it’s time to take a dispassionate view and sell the stock.

[00:50:40] Gautam Baid: And the third reason for selling a stock is if you find a far superior opportunity. This is important. It’s in quotes, “far superior opportunity,” to invest in. Because when you invest in a stock that has performed very well for you, delivered good returns, and has become expensive, you have developed a certain level of deep understanding and familiarity with that management and business. However, you should let go of such stock only if you find a very superior opportunity. Otherwise, it doesn’t make sense to switch for an equally comparable data opportunity.

[00:51:17] Clay Finck: Let’s talk about India. This is the one I’m really excited about. This is what your fund focuses on, stellar Wealth partners. So I’m curious, I’ll just open it up to you. Why should a US-based investor have one exposure to the Indian market?

[00:51:32] Gautam Baid: Single-word answer, Clay: Diversification. Diversification. Diversification. So from November 2021 to December 2022, the NASDAQ in the US was down more than 30%, but the Indian Index, the Nifty, was up 4%, a 34% outperformance during a period of severe market turbulence in the American stock market. And when I talk to clients before onboarding them into my India fund, I always tell them very frankly, do not expect very high superior returns compared to what you would get when you’re investing in the US stock markets.

[00:52:06] Gautam Baid: But treat this fund more like a diversification tool in your overall asset allocation. So I always tell people to have a balanced allocation between real estate, gold, fixed income, and equities. Within equities, you have domestic equities and international equities. So within the international equities portion, definitely have exposure to India because India is the fastest-growing major economy in the world, offering a plethora of high-growth opportunities, and it’s a very resilient stock market.

[00:52:36] Gautam Baid: So you want to basically invest. In my view, the US and India are the best stock markets in the world to invest in, period. There is no doubt in my mind about that. So you basically get the best of both worlds. You get diversification benefits, resilience during periods of US market turbulence, and you also get healthy returns overnight.

[00:53:01] Clay Finck: Munger has said that the first rule of fishing is to go where the fish are, and you obviously believe there are plenty of fish to be found in India. And I heard you say in a previous interview, I quote, “India’s time has arrived.” So talk to us about what makes India such a great place to go fishing.

[00:53:20] Gautam Baid: So, Clay, no force on earth can stop an idea whose time has come, and India’s time has arrived.

[00:53:28] Gautam Baid: It took India almost 60 years to make its first trillion dollars of GDP (Gross Domestic Product), but it took India only seven years to reach its second trillion dollars of GDP. And the subsequent trillion dollars of GDP are expected to be reached in much faster succession if we simply assume the market cap to GDP ratio to approximate one over time.

[00:53:53] Gautam Baid: Over the next few decades, one can envisage the kind of wealth creation that lies in store for investors in great Indian businesses. We’re talking trillions of dollars of market capitalization here. And which companies will capture the bulk of this upcoming wealth creation boom in the Indian stock market over the next few decades?

[00:54:15] Gautam Baid: The nation’s best-managed businesses with proven ability to scale up their operations and create shareholder value. Those are the kind of businesses you want to back with your personal capital and your clients’ capital. So that’s the fundamental approach that I’ve taken with my India fund as well.

[00:54:34] Gautam Baid: And here, I would also like to add two more very important points, Clay. The first point is from history. So, if you look at the stock markets of the US, Japan, and China, when those economies’ GDP doubled from 3 trillion to 6 trillion, their stock markets did not just double. Their stock markets tripled or even quadrupled.

[00:54:58] Gautam Baid: And why did that happen? It’s because when any nation transitions from a low per capita income country to a middle-income country, the basic spending on items like food does not go up much, but the spending on branded discretionary consumption and financialization of savings, these two categories simply explode.

[00:55:18] Gautam Baid: So, you want to position your portfolio for long-term success by having a high allocation of these two particular themes: branded discretionary consumption and financialization of savings. Finally, you know from history that one of the biggest drivers of GDP growth in any country is the banking system credit.

[00:55:37] Gautam Baid: Credit is the driver for growth in any country, right between 2011 and 2020, the Indian banking system was plagued by a plethora of bad asset quality issues. There were a lot of non-performing assets, and therefore they were very constrained in lending. So, lending slowed down and economic growth slowed down.

[00:55:58] Gautam Baid: But because of a series of banking reforms in India over the last many years, the banking system’s balance sheet has been cleaned up, and now they’re very enthusiastic about lending again. At the same time, corporate India has greatly improved its balance sheet and reduced debt over the last decade, and they’re primed for a fresh round of CapEx.

[00:56:22] Gautam Baid: And again, history teaches us, Clay, that for any sustained long-term bull market, you need a revival of the CapEx cycle. So here you have the twin engines of credit growth firing up the GDP and the CapEx cycle revival firing up the stock market. So, both these factors are aligning in India right now.

[00:56:44] Gautam Baid: That’s why it’s a very exciting time to be an investor in the Indian stock market today.

[00:56:51] Clay Finck: Outside of India’s general growth and GDP and where they’re at in their growth cycle, what sort of long-term structural trends or industries are you seeing that really get you excited? 

[00:57:03] Gautam Baid: So, first, let me elaborate.

[00:57:05] Gautam Baid: What do long-term structural trends actually mean? Because these are one of the two key pillars of our investment philosophy at Stellar Level Partners. Our investment philosophy is made up of two key pillars: perception and long-term structural trends. In situations where you have return on capital employed (ROCE) expansion coupled with earnings growth, you get valuation re-rating, and you end up with multiple multi-baggers. There are various triggers for varying perception, which we follow at Stellar Level Partners.

[00:57:37] Gautam Baid: Now, coming to long-term structural trends, they are found in industries with a very favorable structure. They are organized like a monopoly or a duopoly, or at best, an oligopoly. They are characterized by consistency and predictability of cash flows, and they have long-term growth potential. So, you can forecast cash flow for many years ahead.

[00:57:59] Gautam Baid: They are also characterized by value migration. For the last two decades in India, we have seen value migration from the public sector to the private sector, from unorganized to organized, and from offline to online. There are multiple structural growth plays in the Indian stock market today, namely specialty chemicals with critical applications led by China Plus One. As the world tries to shift away from China and build a reliable second supplier source, India is becoming a very preferred partner for many foreign companies.

[00:58:34] Gautam Baid: Second big theme, which we are very bullish on at Stellar Wealth India Fund, is contract manufacturing because of our low-cost labor advantage. India enjoys a distinct superiority in this particular theme of contract manufacturing. Within contract manufacturing, you have CDMOs (Contract Development and Manufacturing Organizations) that cater to pharmaceutical innovators across the world.

[00:58:55] Gautam Baid: You also have electronics manufacturing services, which is a very high-growth area in the Indian stock market. The electronics manufacturing services industry is forecasted to grow at 30 to 40% over the next five years. So, there are many high-growth opportunities in this sector. Additionally, within contract manufacturing, you also have CRAs (Contract Research and Manufacturing Services) that cater to different industries like agrochemicals.

[00:59:21] Gautam Baid: Apart from these structural growth themes, you also have affordable housing, FinTech, branded discretionary consumption, financialization of savings, and digital transformation. Multiple mega-trends are in place in the Indian market today, Clay.

[00:59:34] Clay Finck: Talking more about your fund, I’m reminded that guy Spear wrote the foreword to your book, and in his book he talks about his mistake of not setting up the partnership fee structure, how he maybe should have originally, and you opted for the Buffett style fee structure where you participate in the upside with your investors and then you don’t get paid if there’s downside.

[00:59:59] Clay Finck: So talk about the fee structure and why you ended up taking this approach. 

[01:00:03] Gautam Baid: So, Clay, in my book, I’ve written a chapter titled “Living Life According to the Insco Kar,” in which I’ve talked about how Warren Buffett, during his Buffett Partnership days, used to follow a highly principled approach for his clients.

[01:00:19] Gautam Baid: And that’s because Buffett had certain attributes in him: sincerity, integrity, authenticity, and honesty. But as an author, it’s not enough for me to just preach these virtues in my book. Trust is earned when actions match words, and I decided to implement those very words into action and replicate the Buffett Partnership fee structure for my India fund.

[01:00:43] Gautam Baid: And you will rarely find such an equitable fee structure in the investment management industry today. Buffett used to charge zero management fees, a 6% cumulative compounding hurdle rate with a high watermark provision. A high watermark is simply the previous all-time closing high on an annual closing basis that the fund NAV has reached.

[01:01:05] Gautam Baid: And finally, he used to charge 25% of incentive performance fee on returns over 6%. AB gone one Step further an improved upon the Buffet partners FP structure by lowering the performance incentive fee from 25% to 20% in order to maximize the net realized returns for my investors. 

[01:01:22] Clay Finck: And I remember again when we connected in Omaha, you had mentioned that the incentive structure in the investment industry is broken and all messed up.

[01:01:31] Clay Finck: I think your words were, and you hear all the time, that investors should avoid most active investment managers. Can you talk about this I of the incentives being fundamentally broken and the things that maybe need to be fixed in the industry. 

[01:01:46] Gautam Baid: Clay, unfortunately, the investment industry has become more of a marketing industry with the sole objective of garnering AUM (assets under management) and earning hefty management fees.

[01:01:57] Gautam Baid: And since there is no skill in the game in most cases by the fund manager, there is zero downside risk. So basically, you’re just getting paid through management fees irrespective of performance. Now, I completely understand that if you’re an emerging young fund manager just starting out and you need some money to take care of your own and your family’s living expenses, you can charge a nominal management fee of up to half a percent of AUM. But you should avoid charging hefty management fees because over time, these fees greatly eat into investors’ returns, resulting in sub-standard results. As a result, only the hedge fund manager becomes rich, but not the clients who are supposed to become rich.

[01:02:45] Gautam Baid: There’s a great book titled “Where Are the Customers’ Yachts?” I highly recommend all our audience to read that book. It speaks about the purpose incentives that are widespread in the investment management industry, and we should all educate ourselves on the best practices to follow and the malpractices to avoid.

[01:03:06] Clay Finck: Since you’ve recently started a fund and you’ve been managing your own personal portfolio, I’m curious, what are some of the big differences in managing a fund versus managing your own personal portfolio? 

[01:03:17] Gautam Baid: There’s a huge difference. Clearly, there’s a world of difference between managing your personal brokerage account and managing public money via a fund.

[01:03:26] Gautam Baid: The investment process that you select when you’re managing a fund needs to be replicable, repeatable, and scalable. Because you want to basically build a scalable investment process, a scalable investment architecture, because that is the way you build a successful investment firm, while taking care of your clients’ interests at the same time.

[01:03:48] Gautam Baid: So, as a fund manager, there are three fundamental differences compared to managing your personal brokerage account. Money. As a fund manager, you put a heavy emphasis on quality. You put a heavy emphasis on prudent diversification, right? And you also make sure that the service providers which you select for your fund are of very high quality because the last thing you want is a disruption in your daily operations.

[01:04:16] Gautam Baid: You don’t want to skimp on paying your service providers well and choosing those with relevant experience, and who are providing you maximum value for money. So, focus on quality, focus on prudent diversification, and also focus on consistent client communications and having a good team of service providers to manage your fund in a very sustained and disruption-free way.

[01:04:40] Clay Finck: I love to talk about lifelong learning. It’s what the focus of the start of your book is all about and just wonderful and sharing these timeless lessons we could use in investing, but also using our daily lives. And one of the key principles you believe in is fully embracing and fully committing to lifelong learning.

[01:05:01] Clay Finck: And you’ve stated previously that in order to outperform the rest, you need to outlearn the rest. So can you talk about why value investing requires a relentless pursuit of knowledge in order to be successful? 

[01:05:14] Gautam Baid: Sure, let me answer this question by examining multiple sectoral bull markets in India over the last 27 years. This answer will demonstrate the imperative and importance of being a voracious reader and lifelong learner in this profession.

[01:05:30] Gautam Baid: Between 1996 and 2000 in India, we experienced a sectoral bull market in technology, media, and telecommunications. As an investor, if you wanted to maximize your gains during that sector’s bull market, you would have had to educate yourself on those industries. From 2003 to 2008, we witnessed a sector bull market in organized retail, real estate, infrastructure, and commodities. Once again, to take advantage of those sector bull markets, you would have needed to educate yourself on those four industries. From 2009 to 2014, there was a sector bull market in pharmaceuticals, information technology services, and branded discretionary consumption.

[01:06:10] Gautam Baid: So again, you would have to reinvent yourself and learn about two out of these three industries. Between 2015 and 2018, there was a sectoral bull market in autos, non-banking financial companies, and macro finance companies. Once again, you would have had to learn afresh about three new industries. Since April 2020, we have witnessed a new sectoral bull market emerging in electric vehicles, digital transformation, and place building materials.

[01:06:37] Gautam Baid: It’s not about blending again; you have to unlearn, relearn, and reinvent yourself. You need to start learning about many new industries in order to outperform the rest. The investment profession is a highly competitive intellectual sport, and you have to be a learning machine all the time. If you embrace the attitude of continuous learning, you can establish a very good long-term track record for yourself and your clients.

[01:07:05] Gautam Baid: To achieve this, you must have a passion for learning. Charlie Munger, very smartly, has reoriented his mind to experience dopamine kicks, pleasure chemicals released in his brain, by learning new things. I believe all of us should embrace that kind of attitude and develop a love for learning and reading.

[01:07:26] Gautam Baid: I was listening to a great podcast yesterday by William Green and Stick, where they were discussing their passion and love for reading books and constant learning. That podcast once again brought to the forefront the fundamental principle of success in this profession: a love for reading, learning, and studying all the time.

[01:07:47] Gautam Baid: I believe that’s where you become wiser and more rational as a person over time. 

[01:07:53] Clay Finck: And you rightly point out in your book that Munger and Buffett have talked about how they wouldn’t be where they are today if they weren’t, you know, voracious learning machines because Berkshire Hathaway had to evolve decade after decade.

[01:08:09] Clay Finck: As they learn new things, different competitive forces come at them. When Buffett first started his partnership, he probably would have been upset if he had bought a company like Apple or Coca-Cola. He had to learn new things along the way and have Munger help him out.

[01:08:28] Clay Finck: I’m curious, you mentioned the love for learning. You mentioned that conversation with William and Stig. What does your learning process look like? Do you have a set time for reading, or do you develop a habit? How do you create an environment where you are continuously learning?

[01:08:47] Gautam Baid: I think the last part of your question is the most important: developing a conducive environment, because you know, first we shape our environment, then our environment shapes us, right? So it’s very important to be away from all the distractions of, you know, the business, television noise, the social media noise, and all the digital media noise.

[01:09:10] Gautam Baid: Just try to avoid all the digital noise as much as possible and embrace what is known as digital minimalism. So basically, you try to develop a long attention span. If you’re constantly trying to get those dopamine rushes by checking your email or checking social media for likes and retweets, or trying to look for social external validation, that is when you basically fall prey to short-term thinking and form fear of missing out.

[01:09:40] Gautam Baid: So avoid those bad habits. Focus on developing a long attention span and focus more on reading books, essays, and long-form articles rather than tweets and, you know, short posts, because you want to develop a deep understanding of any subject by devoting a lot of time to it and focusing on richer sources of content.

[01:10:03] Gautam Baid: So my process is not structured per se, but because of this attitude of just high intellectual curiosity, I’m always in the lookout for learning something new, even if it’s from the same field. Even if I’m reading something on. The fundamental principles of investing, which I already know, it’s not a bad idea to keep reinforcing these fundamental principles in our mind constantly from time to time, because this is what helps us stay the course and stay true to our discipline and remain disciplined during bull market times.

[01:10:27] Gautam Baid: That is when we tend to let our guard down and embrace, just chasing the latest fad or train hot trend in the market. Just avoid doing that. Stay the course with good quality businesses and pay respect to valuations. 

[01:10:38] Clay Finck: Now, I know you’ve read a ton of books. I’m curious if you could only choose three out of your massive, massive library, which three would you choose to maybe recommend to the audience or to others?

[01:10:52] Gautam Baid: So, I’ll share three non-investing books with you. I’ve already shared two of them: “You Can Be a Stock Market Genius” by Joel Greenblatt and “Capital Returns,” edited by By Chancellor. Along with these two books, I would also add “Investing for Growth” by Terry Smith because it taught me how to invest in high-quality businesses for the long term.

[01:11:16] Gautam Baid: As for non-investing books, I would highly recommend “Poor Charlie’s Almanack,” edited by Peter Kaufman, “Seeking Wisdom” by Peter Bevelin, and “More Than You Know” by Michael Mauboussin. These three books are great for developing multidisciplinary thinking. 

[01:11:31] Clay Finck: Awesome. I’ll have to order a couple of those after this call. So, Gautam, this is simply amazing.

[01:11:38] Clay Finck: Thank you so much for coming onto the show. I hope to have you back someday again before we close it out. As always, I want to give you a handoff for people to learn more about you, your funds (Stellar Wealth Partners), and any other resources you’d like to share with the audience today.

[01:12:00] Gautam Baid: Sure, you can connect with me on LinkedIn and Twitter. If you want to learn more about Stellar Wealth Partners India Fund, you can visit stellarwealthindia.com. Additionally, if you want to learn more about Stellar Wealth PMs, which is a portfolio management service available to Indian citizens and NRIs, you can visit completecirclewealth.com.

[01:12:21] Clay Finck: Awesome. Thank you so much, Gautam. 

[01:12:24] Gautam Baid: Thank you, Clay. This was a pleasure. 

[01:12:26] Outro: Thank you for listening to TIP. Make sure to subscribe to Millennial Investing by The Investor’s Podcast Network and learn how to achieve financial independence. To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or re-broadcasting.