What went right with Pranjal Kamra?

The journey of a thousand miles begins with a single step, in earnest. The Pranjal Kamra you see today is nowhere near the end of his journey, but he has taken many of these steps.

Sure, everyone loves a good “success story”, but if pop movies have taught me anything, a good “training montage” is equally as fetching!

“Pranjal Kamra” is a pretty big deal in the finance domain. So much so that the person we will discuss in this article almost seems like a different man. So for the sake of this article, let’s call him PK.

Plus, he is probably hiccuping a storm somewhere, as I name him so often. Gonna cut him a little slack.

The PK you know is the one that the internet wants you to see. The same internet will also tell you the origin story of the man whose company bestows financial “superpowers” to the Indian masses.

But between “newbie investor PK” and “personal finance whiz PK”, there exists a PK that stumbled, fell and had a few big leaps too.

This is PK unplugged: The origin story.

Insider: When did you start investing, and what was the first-year percentage return on your portfolio, if you can recall?

Although it’s been a decade since the beginning, you do not start a story from anywhere else.

PK: I think I started in 2012 or 13. I don't clearly remember. The first year was very good. I came across a ten-bagger. I bought TVS Motors, which went up 9-10 times in ten months.
So the first year was, in fact, very good. And this is often said in sports and various other activities that “the first season is pretty easy”.

You have beginner’s luck on your side, you have no anchoring bias. It's the second year that actually tests you. So yeah, it tested me. 

My second year was pathetic. I wasn’t even buying mediocre stocks, yet, whatever I touched, landed me with the worst companies possible! I think three companies that I bought went bankrupt in the same year. So yeah, the second year was really tough.

Talk about Midas’ touch, gone wrong!

An isolated positive instance can never be called a success. It’s repeatability that makes positive outcomes a success.

Insider: Okay, what is the current percentage return on your portfolio? Considering the market fall and everything? 

PK: I'll have to check this. I never check all of this, but I think a few percentage points more than the index. But there are a couple of reasons why I hardly check this.

Reason one is that I don't sell often. I sell very, very rarely. The CAGR that my P&L shows… it's only notional. Because if today my portfolio is showing, say, a 60% gain and the market falls by 20% in a week, it will show 40%. So what do I register in my mind? It's very dynamic.

Only when you have sold stocks and you have booked that profit can you say that this is my CAGR, but I hardly sell. 

Don’t just book profits when you earn some. Let your capital appreciate.

And another thing is, I started the business (Finology) four years ago.

So before that, although I started investing some nine years ago, for the first five years, I hardly had any capital. My portfolio was, I think, ₹1-1.5 lakhs, something around that.

So most of my money which I was able to invest, was in the last three years or last couple of years, since the Covid-fall, which is why my money has not been in the market for enough time.

And it's very easy to generate, say, you invest ₹2 lakh rupees, you pick a great company, it does well, and you get ₹50,000, and suddenly you realise, “Okay, my ₹2 lakh is ₹2,50,000”, and it looks great CAGR-wise.

But only when you invest a large corpus of money is when your skill is tested that, “Okay now, can I repeat the same?” Because on a portfolio of, say, ₹1 crore or ₹2 crores or even ₹5 crores, is when one good company or one stroke of luck will not give you a good deal. And you need to be really skilful.

The point of investing is letting your money earn for you, not finding an active task that you must engage in along with your daily 9-5. So, you look for stocks that are strong performers, invest in them, AND STAY INVESTED! It’s called passive income for a reason.

Also, about the question, I think the problem is that if we mention CAGR, say 15%, 20%, or 25%, the focus is on the absolute returns that you are making. Whereas in the market, in the long run, the amount of returns that you are making is irrelevant. 

What's important is whether your money was there in the market throughout and whether you are putting incremental cash every month, every year. 

Because someone investing one lakh rupees and getting 50% CAGR is still ₹50,000, whereas someone investing ₹1 crore and just getting 10% CAGR, which anyone would, is still ₹10 lakh. So how much can you save, and can you invest consistently? That's more important. And I think this is where most people fail.

Initial Investment	Returns Percentage	Returns
₹1,00,000	50%	₹50,000
₹1,00,00,000	10%	₹10,00,000

Consistency is the key, but it is easier said than done. Requires some grit. You think you have what it takes? Try investing and not selling your holdings in a year or two. 

A lot of mutual funds have offered 15-20% in the last 30 years. I was checking a few schemes that have been in the market for the last 25-26 years in India, and their CAGR has been close to 18-20%.

So forget stock picking individually, but even if people had consistently invested in those mutual funds and with a 18% CAGR, the money would be doubling every four years. For 30 years, people would have been crorepati simply by investing in those mutual funds. 

I mean, we hardly hear stories about people becoming really rich by investing in mutual funds. We don't hear such stories. We only hear stories about “Theek hai. Isse car le paye” or “We were able to fund the education needs of my child”, but we don't hear stories of people becoming millionaires by investing in mutual funds.

Which they should, because mutual funds are ultimately a collection of companies, so their mean returns will be equal to the mean returns of a few good stocks. So if stocks can make you millionaires, mutual funds should make you millionaires as well. 

Don’t believe cricketers? Believe someone who deals with mutual funds when they say, “Mutual funds sahi hai.”

But the problem with us is that we're too focused on “Ah! Even if I pick the best mutual fund, my returns will be 18-20%. I don't want to choose mutual funds. I want to pick stocks on my own and aim for multi-baggers.” The problem is, if you buy ten companies thinking all of them will be multi-baggers, seven of them will fail, and ultimately your returns will be at max 18-20%. 

So I judge myself on how much more I am able to save and invest rather than what the returns are. Because right now, assuming my portfolio is in red, ASSUMING; it could completely turn around if two of my companies run away.

So, the answer to this question will change every month or maybe every six months. 

Which is why people shouldn't anchor themselves to what I am answering right now. 

The point of investing is to beat the fall in the value of money (inflation) by letting the value of your capital grow. If you just want returns (even though you could have more than just that), banks and traditional saving instruments can get the job done.

But these “returns” you chase after are mere pennies compared to your capital, which at this point, would not be worth too much either. You basically received rent on your money while it might as well have sat in a safe during this time.

Inflation = 1; Your money = 0 (quite literally!)

Insider: Right, okay. So this brings me to my next question. Do you actively invest in mutual funds? 

PK: No, I don't. 

Right… Yeah, that makes sense! (No, it does not, please help!🙄) But could you elaborate?

So I invest in one fund. That's Parag Parekh. Earlier I invested in Parag Parekh Long-term Equity Fund. Now I've shifted to Parag Parekh Tax Saver for one simple reason… If it's an ELSS or a tax-saving fund, you cannot exit it for the next three years.

Mutual fund, not funds. Singular. Man has a way with his words! No wonder the YouTube videos do so well!

Insider: So, could we say that ELSS funds are your favourite?

PK: Ah, so I really like ELSS funds. Because those funds come with discipline built in. If I invest now, I cannot exit for the next three years. That’s good for a lot of people who find it challenging to hold on to investments. The new tax regime doesn't offer tax-saving aspects. And you might have utilised the ₹1.5 lakh bracket in buying insurance, PF and whatnot, but even then, all my mutual fund investments are in Parag Parekh Tax Saver, so I cannot exit for the next three years. 

Another reason I don't invest in mutual funds is the reason I don't invest in stocks much these days. And this might sound a little weird. 

Don’t invest in WHAT, now?

But the reason is I think investment is a game of arbitrage. So when I very actively invested in stocks, the last time I really did actively allot capital in stocks was from March to July 2020. I mostly invested in consumer companies, personal care brands, Fintech companies, depositories, and brokers, because I felt that “I know more about these companies in the average market. Because I work with these companies, I know how good these people are, how professional they are.”

Talking to them, you get a sense of how professional they are. 

So I say, people that invest in stocks, choose the ones which you use as consumers or your family members are employees there and things like that.

But suddenly, I found that if I invest in startups instead of the stock market, I have another kind of arbitrage. 

Who knew you could invest in startups too?🤷‍♀️

So in the stock market, if I am getting, say, Colgate at ₹1500, you'll also get it at ₹1500. Everyone will get it at what the market price is! There's no way I can get Colgate at ₹500 if it's trading at ₹1500. So there, I'm equal to the market.

Whereas in startups– well, I did not know this, but startups taught me that, “You come onboard, you invest in our company, and if you come, we get marketing, so we'll offer you one-fourth the market price.”

So, if the company’s worth were ₹400 crore, you invest at ₹100 crore valuation, so you get four times more shares. Because you are adding value. Because if I like the product, I can market it, so they get marketing reach through me too. 

Shark tank lite, much?

So I have an arbitrage here, then why should I invest in stocks where I'm paying equal to everyone else? I can invest in a place where I can get a 75% discount.

Discount store investing… That is definitely a first!

Just in case you're in the market, maybe look to bag these industries' stocks...

Insider: But it's obviously riskier, right?

PK: Riskier? Oh yes, absolutely. But if you get something at a 75% discount, you reduce the risk by 75%. And the second part, “Risk”, is having to stay for the long run. But if I'm getting something at a 75% discount, I can sell it the next month at a 50% discount, and anyone would be willing to buy it.

So for me, that risk reduces because of the price arbitrage. But whether it's mutual funds, stocks, or startups, the core thing here is playing to your strengths and, you know, mitigating your weakness. 

Why did we never think of what could be on the other side of the hills?

As for mutual funds, I told you I only invest in ELSS, so the urge to sell… Even if it's there, I cannot do anything. So I limited my weakness there.

When I invest in stocks, I stick to fintech and FMCG personal care brands. Again, I'm playing to my strength, my arbitrage. And the same reason is startups. If the startup thing was not available to me today, it's not that by availing this opportunity of investing in startups, my CAGR would increase. It won't. It's just that right now I find this more convenient and a lower-hanging fruit.

So it's not that a person who cannot invest in startups cannot match my return; he or she can. It's just that you have to take a slightly different route which is investing through the stock market, and do a little more research. But, it's just about what suits you at that moment. 

So yeah, I don't invest in stocks much, and I've never told this before. 

Inside information, investors. Thank us later. 

Insider: Okay, so following up on that, you have always said that you don't invest in companies which you don't know inside out. 

PK: Absolutely. 

Let’s get to the good part. 

Insider: Okay, so what is the process of knowing a company inside out, in depth? What is the mental model that you follow right from the beginning to the end.

PK: Oh, tough question, tough question. And this tells me that you have planned a really long interview because these are long answers, tough answers. 

Yeah, it’s about to be a two-parter, this article…

Again, that has evolved to an extent. When you are a student and not actively running a business, you come across limited sets of businesses. As a student, you're not earning, so you are also a very limited consumer.

You cannot consume a lot of things, you cannot travel a lot, and you cannot buy a lot of things, so there are only certain companies that you are exposed to as a consumer when you are a student.

Which is where I felt that I have to more actively seek companies rather than letting companies come to me. 

Mental note one: Actively seek companies. 

I would use a lot of screeners, filtering out companies with zero debt, high promoter holding, high-profit margin, and high return on capital, whose revenue growth is doing decent, and valuation is cheap. So, I was more of an investor who would seek companies by applying filters.

Once those filters were applied, I found, okay, here's the list of 20 companies that have high promoter holding, generate free cash flow, have a high return on capital, good margins, increasing revenue growth, zero debt, a certain 6-7 parameters. 

And on the list of 20 companies is when I would pick the company that I think, “Okay, I know slightly about these two companies, so I should start with these two companies at least. I'm not 100% ignorant of these companies. I know I sort of have an overview of what they do, but let's dive deep.”

Then the second thing was that I read a lot of magazines. So I had a lot of free time back then. As a student, I was hardly interested in studying law, which meant a lot of free time. And I would go to the library and read all the business magazines that were there. Every single business magazine, which meant there were interviews of management, which companies doing what. A lot of articles on marketing, some creative agencies writing articles on how they worked for a particular client, ran a successful campaign and how that marketing campaign was conceived and things like that. 

So then I remember an agency running a very successful campaign for the Godrej Group.

So the Godrej Group, around 2013-14… they revamped the Cinthol brand. The daughters of Adi Godrej took over, and Cinthol was relevant again. So, seven or eight years ago, Cinthol was gone; it was not in our mind space at all! But suddenly, those icy blue ads started appearing, and Cinthol was revived. 

So there was this article on how branding was done for Cinthol and how they revived it. And there was this particular marketing agency that was involved, and the interview was of the owners of that marketing agency. So, then the next thing that I did was figure out who else are they catering to, and who are the other clients of this marketing agency. If they can do this for one company, they can also do it for others. Let's buy the stock of other clients of this company. 

Dudeeeee! That’s some smart sh*t!

If you are constantly thinking that you are an investor; you are visiting a restaurant, you're meeting your friend, you're meeting your relatives, as an investor, then you ask the right kind of questions.

You go to weddings. Somebody is working for an IT company, somebody is working for an engineering company, and then you start asking the right questions. 

You know, a lot of my seniors and a lot of my relatives were working for Infosys, TCS, and my first question invariably to them would be, “Aakhir karti kya hai ye company?” And no matter how much they explained, as a non-IT person, it was difficult to understand. But after five to seven such conversations, you tend to get the hang of it, of what they actually do. 

So it's about constantly being on the hunt in the beginning because your universe is very small, and you want to expand your universe, and you are constantly operating in that investor's mindset.

Now, the process has been inverted because now we work with a lot of vendors, freelancers, employees, and other companies, you meet a lot of people, and therefore the problem is of “Plenty”. 

There are a lot of companies you are in touch with, and if, say, you need a CRM software or an email marketing software, what invariably happens is you talk to one company, and then the marketing person from that company will tell you how their product is better than their competitors.

If he or she wouldn't have mentioned it, I wouldn't have known of the competitors. But marketing people of one company, they make you aware of the industry, and you find, okay, these are the five players. 

Well, at least they're still marketing... Just need to get the organisation correct.

Out of these, two are listed and by the time I have taken demos of, say, three companies and their offerings, I understand the product, and I know the use case. I know I can make a mental count of how many such companies exist that would need a similar solution.

Which one am I choosing? Why am I choosing? Will most people choose the same things like that? So now it's more pull-based awareness. So, when I invest in companies, in my mind, I am becoming the owner of my vendors. That's how I look at it. Because then I'm in a position to forecast their growth better because I'm closely working with them. 

And sometimes, as a customer, you know more than the culture of the company as compared to the owner. A lot of things are painted beautifully before being presented to the owner. But as a customer, I know exactly how good you are and how good your competitors are. Now I invest in companies of whom I am a customer. That gives me good insights. 

So this is the first step in shortlisting the stock, and then there are certain absolute do's and don'ts. 

Boy, this was a long read. Leaving you on a cliffhanger here. Wait for the next part for the do’s and don’ts