Meet Chandrakant Sampat, often regarded as India’s equivalent to Warren Buffett. In this article, we investigate the life and investment philosophy of this remarkable figure, exploring his strategies, principles, and lasting influence on the world of Indian investing. Mr. Sampat’s journey serves as a tribute to the potency of value investing, unwavering dedication, and ethical principles in wealth creation.
The Context
You’ve probably heard about famous investors like Rakesh Jhunjhunwala, Radhakishan Damani, and Raamdeo Agrawal, but have you ever come across the name Chandrakant Sampat?
If you have, you’re quite knowledgeable in this field, but if you haven’t, don’t worry. We’re here to introduce you to another remarkable figure in the world of Indian investments. Chandrakant Sampat, often hailed as the Warren Buffett of India, was a veteran stock market investor.
He strongly believed in two key principles for building wealth: value investing and long-term investing. His story is a tale of ethics, passion, a vision for the future, and a focus on strong fundamentals. It has the potential to inspire many investors seeking practical strategies that genuinely work in the world of value investing.
So, get ready, because today’s special episode will change the way you view investing, and we’re going to take our time to explore it thoroughly.
Understanding the Intellect of Mr. Chandrakant Sampat
Shri Chandrakant Sampat was born into a Gujarati family in 1929. At the age of 26, he ventured into the Indian stock market, leaving behind his family business in the late 1960s. He was a first-generation investor and started making significant gains in his portfolio during the mid-70s when multinational companies operating in India were required to list on the stock exchanges.
Chandrakant Sampat’s investment strategy focused on acquiring shares of renowned companies like Nestle, Hindustan Unilever, Procter & Gamble, Colgate-Palmolive, and Gillette India Ltd. as soon as they went public. If you’re curious about the names on this list, it’s because the companies that produce things people use every day (consumer goods) formed the core of his investment portfolio.
One remarkable aspect of his investing journey is that he held onto his favorite companies, such as Hindustan Unilever and Gillette India Ltd., for so long that, after accounting for dividends and bonus shares, his average acquisition cost became incredibly low in many cases.
Chandrakant Sampat drew inspiration from the management theorist Peter F. Drucker, who believed that profit achieved at the expense of neglecting innovation and downgrading was not true profit but rather the destruction of capital. Drucker’s philosophy resonated strongly with Sampat, emphasizing that continual improvement in productivity and innovation was the path to sustainable profitability.
He was critical of professionals, including mutual fund managers, who often prioritized short-term performance over long-term value. Sampat stressed the importance of a history of reliable dividends over rapid share price increases in recent months. Besides, he expressed concerns about the rapid pace of technological innovation, which he believed shortened business cycles and the lifespan of companies. He argued that to thrive in this evolving landscape, companies needed cash flows to adapt to new developments. Sampat feared that excessive focus on technology could potentially harm capital markets in the future.
On a side note, his concerns from that era align with the current trend of Generative AI, which seems to be causing disruptions in global markets, akin to a sectoral bubble. Sampat also criticized the modern educational system, emphasizing that true knowledge should liberate rather than captivate. This philosophy was rooted in a translation of a shloka from the Bhagwad Geeta, a revered Indian epic, which he often quoted verbatim.
Chapter 5, Verse 29 of the Bhagavad Gita
क्रियामाणानि कर्माणि यस्य सर्वे समागमाः। प्रकृतिं यान्ति भूतानि निग्रहः किं करिष्यति।।5.29।।
Kriyāmāṇāni karmāṇi yasya sarve samāgamāḥ Prakṛtiṁ yānti bhūtāni nigrahaḥ kiṁ kariṣyati
Meaning—A person who is free from all material desires, who is not driven to act by any sense of proprietorship, and who is free from a false ego, can acquire knowledge of the soul and the Supreme. Such a person can attain the pure, transcendental knowledge that liberates the soul from bondage.
This verse highlights the importance of acquiring knowledge that leads to liberation and freedom from material bondage. It suggests that true knowledge helps one transcend the material world rather than further entangling them in it.
Solving Mr. Sampat’s Puzzle
Chandrakant Sampat had three simple criteria when he wanted to invest in a company. He looked for companies with low capital spending, a minimum 25% return on capital employed (RoCE), and a history of giving out good dividends. His strategy was to buy well-managed companies when their stock prices hit a low point, typically after eight or ten years, or when they were 40% cheaper than their highest price in the past year.
In simpler terms, his checklist for value investing can be summarized as follows:
1) Invest in businesses you understand.
2) Choose companies with little to no debt.
3) Aim for a RoCE of 25 to 30%.
4) Buy stocks with a P/E ratio of around 14 or less.
5) Look for companies with a dividend yield of approximately 4%.
Chandrakant Sampat strongly believed in how a company allocates its capital. He thought that a company’s value comes from how it uses its capital and innovates, not just from market trends. He preferred businesses that required minimal capital investment and could grow with limited cash. Any extra cash should be given back to shareholders.
He believed in focusing on a small number of companies in his investment portfolio, usually no more than ten. He thought that spreading investments too thin would lead to many failures and only a few successes. So, having a concentrated portfolio was his approach to building wealth.
Let’s Talk Stocks: The Fab Five
1. Hindustan Unilever (HINDUNILVR)
A leading consumer goods company known for its diverse range of household and personal care products.
2. Procter & Gamble (PGHH)
A global consumer goods giant with a strong presence in India, offering a wide array of products for daily use.
3. Gillette (GILLETTE)
A well-known brand under Procter & Gamble, specializing in shaving and personal grooming products.
4. Colgate (COLPAL)
A trusted name in oral care, manufacturing dental hygiene products such as toothpaste and toothbrushes.
5. Nestle (NESTLEIND)
A multinational food and beverage company renowned for its quality food products, including instant coffee, chocolates, and dairy items.
Pearls of Mr. Sampat’s Wisdom
Here are some key principles from Chandrakant Sampat’s investing career that illuminate the heart of his investment philosophy.
💬 “To be a good investor all one has to do is dream.”
💬 “All you need is a checkbook and a pen.”
💬 “Knowledge is that which liberates and not captivates.”
💬 “Markets and mistakes are the best education. The conventional education just closes the mind.”
💬 “If we achieve profit at the cost of downgrading or not innovating, they are not profit.”
Chandrakant Sampat’s Influence Continues
After serving as an inspiration to numerous accomplished investors and enjoying a remarkable investment journey, Chandrakant Sampat passed away in 2015 at the age of 86. Mr. Sampat’s influence went far beyond just his own investments. He played a mentorship role for accomplished investors like Rakesh Jhunjhunwala, Ramesh Damani, Radhakrishna Damani, Parag Parikh, and Porinju Veliyath.
He was not only an investor but also a health-conscious individual who maintained a simple diet consisting of salads, bananas, and sprouts. In addition to his financial wisdom, Chandrakant Sampat led a life marked by simplicity and discipline. He was passionate about fitness and incorporated daily yoga and jogging into his routine. Despite owning a car, he often chose to use public buses, showcasing his down-to-earth lifestyle.
Towards the later stages of his life, he distanced himself from the stock market due to his reservations about the policies of global central banks, which had driven up asset prices, and the declining corporate governance standards in Indian companies. In 2013, Sampat officially retired from investing, citing his disappointment with the financial markets. He voiced concerns about markets driven by excessive spending and unstable fiat currencies, a testament to his unwavering commitment to prudent investment principles.
In summary, Chandrakant Sampat’s investment philosophy, characterized by selecting undervalued stocks with strong financials and a long-term perspective, continues to inspire investors today. His steadfast belief in the magic of compounding and his ability to spot undervalued stocks ahead of the crowd distinguishes him as a true legend in the world of investing.
We hope you found this story just as inspiring as the others in this series. Stay tuned for our upcoming episode.
