Wednesday, May 06, 2015

Parag Parikh: Pole star of Value Investing (1954-2015)


IIFL | Mumbai | May 06, 2015 10:29 IST
In Indian mythology, Dhruvapada or the Pole Star position is the ultimate seat of tranquility which guides the universe in celestial navigation as also in determining latitude. Parikh is undoubtedly the pole star of value investing who will continue to help us establish our investing co-ordinates provided we care to grow in the guiding light of his example.



It was on a sweltering afternoon, sometime in the late nineties, that I had the pleasure and privilege to meet Parag Parikh for a one-to-one media interview. In my ridiculous capacity as a faltering newbie correspondent of a leading business magazine, I could hardly muster the courage to verbalize my hopeless string of over-rehearsed questions but his child-like smile – pleasant, not patronizing - quickly faded my embarrassment into oblivion. Patiently coping with the nuisance value of my over-enthusiastic lensman who seemed hell-bent on showing off his camera skills (actually the lack of it), Parikh spoke his mind on a host of issues including the struggle of his formative years, his unflinching faith in research, the illuminating experience of the "Owner President Management Program" at the Harvard Business School, his take on the evolving paradigms of investing and the heart-felt lament on the changing landscape of Mumbai. In the hour-long tete-a-tete, Parikh ensured that I had a wholesome piece to impress my editor swirling his big chair back at my office, anxiously waiting for my return. If every achiever across spheres matches Parikh’s attitude in full measure, if not his altitude, the world would be such a better place for all constituents – big or small.

But a cruel turn of fate - his death in a fatal car accident - has done just the opposite. It has made the world even poorer from the tragedy that happened in the hometown of his idol Warren Buffet and barely three months from the passing away of his mentor Chandrakant Sampat. Hard as we might try, we would never be able to fathom the elusive play of destiny in that irony. Worse, we are left with no option but to pay an obituary tribute to a maverick that was so full of life, in the pink of health and most importantly ripe with achievements even in his sixties. His final tweet post the Berkshire Hathway investor conference Omaha quoting Simon Sinek was reflective of his plans for the future “So much of starting a business or affecting change is the confidence and courage to simply try”

Before we discuss Parikh’s sterling achievements as an innovative stock market investor, we must profusely thank the professor who instantaneously dismissed Parikh’s student project propagating the commercial use of laminated plastic collapsible tubes for storing thick liquids like toothpaste. For it was this very formative disappointment that paved the way for an invaluable counsel by his mentor Sampat: rather than be bogged down by the constraints of a particular sector, why not reap the rewards of several businesses across verticals completely free of the manufacturing headaches?

Thus began Parikh’s historic tryst with the bourses in the year 1978, initially as a sub broker swearing by hard core research and making the most of his chartered accountancy degree. Five years later, he acquired the coveted BSE broking card for which his mother and wife readily parted with the family jewelry.

His introspective abilities and the post 1991 liberalization opportunities helped his broking and wealth management forays scale new heights. And it was the same distinctive non-conformism that gave him the strength to abort an ongoing success story to venture into the uncharted territory of value -based asset management.

The consistency, conscience and clarity of Parikh’s unadulterated conviction were clearly beyond the comprehension of his adversaries who found solace in conveniently labeling him as a raucous contrarian. No wonder, most members of the coveted Dalal Street camp found in him a stranger without ‘roots’, a heretic of sorts suited for spiritual discourses, not stock markets. And even among his likeminded peers and admirers, very few gauged the worth of his unflinching faith in long term value investments in fundamentally strong, customer-centric companies. And only a handful of them openly acknowledged his selfless crusade when he disowned the lucrative Jardine Fleming association to protest the latter’s depleting faith in Indian market mediators. Rain or sunshine, he never lost his moorings.

His investing trump card was his ability and agility in spotting fundamentally sound winners engaged in the business that he understood well. His roving eye looked for enduing value propositions, trustworthy managements and credible business models. Speculation had no place in his scheme of things and he was ready to live with the consequences of his non-conformist thinking which necessarily translated into a limited client base. But his trust in research never weakened based on which he evaluated businesses while most of the other brokers analyzed stocks largely based on extra-sensory perception (read inside information)

After the initial success, his business took a beating when cut-throat competition caused the market to make ‘short term’ its resounding mantra. Rather than join the herd, Parikh kicked off a Portfolio Management Scheme (PMS) in line with his long term investing philosophy. All went well till year 2000 when the markets were consumed by the IT stock mania. His PMS was adversely affected since it had none of the zooming tech winners, only slow and steady retail stocks. The moment of truth and the ensuing depression led him to deep introspection and a detached probe into what he believed was true and false in life. And he was introduced to the fascinating world of behavioural finance which gave him an altogether fresh perspective into the minds and machinations that drive the stock markets. He shut down institutional broking in 2007 and six years later, wound up his PMS as well to start a mutual fund which not surprisingly banked on value investments through a solitary, gimmickry-free Parag Parikh Long Term Value Fund with its unique switch mechanism to counter market fluctuations including its significant exposure to overseas stocks. Redefining the oft-chewed word ‘commitment’ for the mutual fund industry, he and with his team invested their own money in their fund…a largely game-changing gesture that prompted SEBI to make one percent AMC investments mandatory in their own schemes.

More than FIIs, Indian FIs, Mutual Funds and big Corporates, retail investors in India owe the most to Parag Parikh for his thankless effort to educate them on the intricacies of value investing. He proactively cautioned them against the perils of the IPO hype, painstakingly elucidated the crucial difference between 'value in use' and 'value in exchange' in layman terms and volubly exposed the flawed notion of a stock’s risk linked solely to its market momentum. As a humble student of behavioral finance, he readily shared his acquired learning but never packaged the insights as intellectual property. And yet, he was not half as popular as some of his flashy peers. What could be more ironic than the fact that fan clubs spring up from nowhere and in no time when dubious brokers hit the headlines and nauseatingly flamboyant dealers known for their Page 3 exploits, film productions and self-indulgent lifestyles become instant role models for even the most insignificant of investors? Not that Parikh’s method was infallible in every respect but what separated him from the crowd was his unconditional willingness to share the pangs of self doubt whenever he felt them as also the incredible urge to dive deep into the root cause before aspiring to soar high.

In Indian mythology, Dhruvapada or the Pole Star position is the ultimate seat of tranquility which guides the universe in celestial navigation as also in determining latitude. Parikh is undoubtedly the pole star of value investing who will continue to help us establish our investing co-ordinates provided we care to grow in the guiding light of his example. We don’t have even an ounce of doubt about the commitment of his family and partners in taking his vision forward, exactly as he envisaged. A certain celestial money manager will ensure the needful from the heaves above. After all, a car collision on an unfortunate intersection could only claim his life, not the Midas touch of his life work.
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