Meet the frugal ex UK doctor and value investor firmly on his way to financial independence

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Meet the frugal ex UK doctor and value investor firmly on his way to financial independence


Raman Minhas

A while ago I stumbled onto the very interesting value investing website kaizen investor written by the UK based ex medical doctor Raman Minhas.

Raman is on his way to financial independence through saving and value investing, and writes about it on his website.

Interview you can learn from

He gratefully agreed to the insightful below, from which I am sure you will also learn something new, not just about value investing but also about how you can reach financial independence as soon as possible.

Now on to the interview.

How did you get started in investing?

Raman Minhas: I got interested in investing in my mid-twenties, particularly the idea of compounding over time to build a nest-egg. I tried several things – technicals, investing in Far Eastern funds just before the Asian crisis, dot com mania – all resulting in losses.

A friend suggested I read anything on Warren Buffett so I picked up a copy of “The Warren Buffett Way” by Robert G. Hagstrom. This was like a light-bulb moment and I was hooked. I thought “Wow, people actually do this for a career?”

On your blog you write about why investors should also be good at saving. Why does this matter?

Raman Minhas: Great question. It’s hard to overstate just how important saving is for most investors (ignore this if you’re a hedge fund mogul).

To reach financial independence, the pot size you need should allow a 4% draw-down to cover your annual living expenses. At this draw-down rate, it will also combat inflation to meet your needs over time.

So, if you find a way to save £100 per month on expenses, this translates to £1200 per year. To drawdown £1200 (as 4%) from your pot, you need an additional £30,000, before taxes (more like £37,000 if you assume a 20% capital gains rate).

Lots of small seemingly insignificant savings start to add up. Imagine what happens if you find ways to save over £1000 per month (I got serious about a year ago and have managed to increase savings by over £1500 per month, without affecting lifestyle).

Increasing savings enables three things:

(i) you increase contributions to investments,

(ii) these compound faster due to larger contribution size,

(iii) you need a smaller pot to reach financial independence since your overall needs are reduced.

The end result? You shave years off your financial independence goal.

Can you talk about your investment approach and how it has developed over time?

Raman Minhas: I look for situations where there is a good history of growing revenues and earnings, good return on equity (ROE), low debt, and available at lower than usual valuations. I also look at reversion to the mean (e.g. margins, valuation ratios, ROE).

Recently, I’ve found checklists are a powerful tool to protect you from your own emotions. As described in Atul Gwande’s book “The Checklist Manifesto” checklists “established a higher level of baseline performance”.

As an investor, I find one of the fun things is being a lifelong student.

While your general style may be something you work out fairly early, part of the fascination is in finding your edge and developing an approach that works for you. Much of this comes from reading about investment greats, and trial and error.

How do you typically find ideas and what is your selection process before an idea gets added to your portfolio?

Raman Minhas: I’m happy to get ideas from anywhere. This could be from simple value screens, monitoring guru stock picks, reading, and general awareness.

I also find reading annual reports and financial press is a good way to build a knowledge base and find ideas.

Over time, these activities help to build watch-lists where companies have many of the traits I look for but are not available at good enough prices yet. You get to know the companies you would like to invest in. Once in a while, they present with a good margin of safety, or where some insight hits you, then you jump in.

Describe some of your most notable investment mistakes and what did you learn from them?

Raman Minhas: Amgen – bought in Feb 2011 at $55. Revenues and earnings had been growing nicely over several years yet the stock price hovered around $50-60. After waiting several months, and a short-term dip in price, I sold out at $51. Subsequently, the stock rose to over $120 and now is around $113.

The fundamentals had not changed so I should have held on, rather than selling out on a short-term shake-up and thinking the sentiment may not change soon.

The lesson has been to develop strict selling rules. Examples are: (i) don’t sell a stock on short-term fluctuation if the underlying story is still good, (ii) sell when a stock reaches fair value.

These lessons subsequently applied: bought Microsoft at $28 in March 2013 following a sideways stock price yet improving fundamentals – currently around $40 for a 40% gain; and bought Medtronic at $32 in August 2011 on a short-term shake out, selling at $43 in Nov 2012 when it reached fair value, over 30% gain.

How did you weather 2008 and the first part of 2009?

Raman Minhas: Not great. Some modest losses and I didn’t ride the rebound. But capital was mostly preserved, and it forced me to double down on my learning and emotional control.

Do you follow any key risk-management guidelines in managing your portfolio?

Raman Minhas: When using a value investing approach, by definition, you’re following a risk-management approach. i.e. buy something for 60c or 70c that’s worth $1. Other than that I, run a fairly concentrated portfolio of 8-10 stocks. This is enough to get most of the benefit of diversification, while letting good ideas make a difference to overall returns.

Do you invest anywhere in the world or is there a region you prefer? Why and how did the idea develop?

Raman Minhas: I focus on the US and UK. These are the markets I’m most familiar with.

Outside of that, if I was going to invest internationally, it would probably be through ETFs. (Or maybe follow European recommendations from your newsletter!).

Any internet sources of information you can particularly recommend?

Raman Minhas: Gurufocus, SEC Filings, Yahoo! Finance.

How did you get involved in writing an investment blog?

Raman Minhas: I found writing was a good way to help my thought processes – both in terms of investment style and for specific situations.

A blog is a way to make you accountable.

It also serves as a useful reminder of what I’ve learned over time.

What have been your most read blog posts?

Raman Minhas: Good question – not usually the ones I think will be!

Top two have been:

Using checklists to improve investor returns and

5 Lessons from a hedge fund manager

People seem to like actionable ideas.

What company do you find interesting at the moment and why?

Raman Minhas: BP plc. At time of writing it’s trading around $49; based on reserves estimates, I think fair value is closer to $70.

It’s cheaper than most other oil & gas majors on a reserves basis. I recognise there are undefined remaining liabilities after Deepwater Horizon, but even after the recent stock price recovery, I still think there’s value.

What’s your key lesson for anyone interested in being an investor?

Raman Minhas: Don’t underestimate the amount of work it takes – both researching ideas and working on your investor psychology and decision making.

If it’s not your thing, no problem, you can still invest in an index fund, or find a solid investment service that does the heavy lifting for you.

If you are drawn to it, become a student.

Raman, thanks for your time and insights

Raman Minhas: Thanks for your interest and questions. And good luck with your ongoing work at Quant Value.

By |May 13th, 2014|