Advice from Chandrakant Sampat

By Ramesh Akkineni
Now, what can an investor do? There are derivatives. There is hype, plenty of it. Warren Buffet rightly says that when the tide is on, nobody knows who is swimming naked.
A few months back, I was looking at a table of 100 Indian companies ranked by return on capital employed (RoCE). At some point, these stocks were quoting at eight-year lows, which is strange. Look at Siemens. It did an eight-year low and now it’s quoting at Rs 5,000. Tata Steel was down at Rs 40-50 and now, after adjusting for bonus, it’s Rs 700-800. Of this set of companies, if investors pick up something quoting at a 10-year low, it appreciates 10 times.
Pick up good companies with good managements when their share prices are at an eight-year or 10-year low. Alternatively, if you still want to do something, buy good companies that are 40 per cent lower than their 52-week high. I will buy only those companies that…
• Are in a business that even fools can understand
• Have very little debt
• Have free cash flows
• Don’t have much capital expenditure, which is nothing but deferred cost
There’s another story that appeared in the book The Future for Investors by Jeremy J. Siegel. Between 1953 and 2000, $1,000 invested in companies that were in what he describes as a capital space, became $5,000. An identical amount invested in the S&P 500 index became $55,000. In companies that had minimal capital expenditure, it appreciated to $600,000. So, the companies you say are growing, are they really growing? The answer is ‘no’. They have to keep all deferred costs aside, they can’t declare hefty dividends, as the future costs. So, that’s another lesson — buy stocks that have minimal capital expenditure.

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