From markets to Mahendra Singh Dhoni, former #MorganStanley MD Vinod Sethi delves into all that and more in conversation with Ramesh Damani on our special show ‘Icons With Ramesh Damani’.
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00:00Well, it's my great pleasure to have in studio today a man even old timers call an
00:07investor's investor.
00:08Hello everyone and welcome to a new episode of Icons.
00:12I'm your host Ramesh Tamani.
00:15He is an IIT trained chemical engineer who found he enjoyed common stocks more than a
00:21chain reaction.
00:23He is a Stern School New York MBA who decided that his Karmabhoomi was not Wall Street but
00:30Dalal Street.
00:31He was a passionate India bull way before the term became popular.
00:36Intellectual, intuitive, imaginative and of course iconic are some of the adjectives used
00:43to describe him.
00:48The ability to see pattern important through this whole sort of mosaic of scattered data
00:52points.
00:55I was watching Dhoni and I'm conversing with him.
00:59The ball, there's a television there, the camera, someone's bowling.
01:04He would see the ball and he'd say, it's going to be a four, six, out, out, out.
01:10I visited the bathroom of every company I visited.
01:12You famously mentioned that, yes.
01:14Kung Fu.
01:15Peace.
01:16Evolution.
01:17Enlightenment.
01:18Bridge Moon.
01:19Lal Munjal.
01:20Legend.
01:21Madhav Dhar.
01:22Visionary.
01:23High energy.
01:24Great leader of people.
01:25Your favorite city in the whole world?
01:26Mumbai.
01:27Really?
01:28Your ultimate comfort food?
01:29I'd say a dosa.
01:30Please help me welcome from city capital, Vinod Sethi.
01:32Vinod, thank you so much for joining us.
01:34Thank you, Ramesh.
01:35Very kind of you to use those poetic words.
01:38I've always admired you, Vinod.
01:41That's nice.
01:42Let's go back to your start.
01:43When life starts, it doesn't come with a manual, but it comes with a mom.
01:48How important was mom in your life and what did she teach you?
01:51Mom was very important.
01:52I'd say my only hero is my mother.
01:58Really?
01:59Yeah.
02:00So, and more so because…
02:02You were a single, she was a single mom.
02:04Yeah.
02:05So, I lost my father very early.
02:06So, my mother really brought me up.
02:08But more than that, I think I learned, I mean, the core anchors, if you will, were all my
02:18mothers.
02:19Can you give me some example of some lessons she taught you when you were young that still
02:23resonated with you or still does resonate with you?
02:27Well, one was always be honest, always be in the usual stuff.
02:33She lived it.
02:35But I think more than that, I learned courage from her.
02:40Because she lost her husband very early.
02:43She must have been 28 or 29 and, you know, the tough times.
02:48But she faced it and I was a witness to that every day.
02:52So, to me, courage is not something you read about or watch in a film.
02:58It's something I was living every day.
03:02And so, even if I have a tough day, I just have to think of my mother and that's…
03:08So, she was in a way Durga in that sense.
03:11Right.
03:12But courage is always listening to your inner voice.
03:14Yes.
03:15And having, knowing that the universe, your trust in the universe takes care of courage,
03:23takes care of stress, takes care of many things.
03:25So, you either believe that the universe is against you and unless you fight your way
03:31through, nothing is going to happen in your life or if you feel that the universe is a
03:39force that is alive and kicking and very much acting in your interest, if you wish it to.
03:52Once you have that, then it's okay.
03:55Then courage comes naturally.
03:57Then, you know, stress disappears because stress fundamentally starts with the distrust
04:05of the universe.
04:06So, you believe in the universe.
04:09You know, Mark Twain, the American humorist, once said that never let schooling interfere
04:15with the education.
04:17Formal education is not something, it didn't teach you everything.
04:21What did, what did it not teach you that you find important in your career?
04:25I think the origins of education go back to the capitalist system.
04:29Let's go to the roots.
04:31So much of what we do today is a function of what capitalism wanted out of you.
04:38So education was to make you a linear progression that you just, you know, walk the path and
04:46to sort of also, you know, instill, take away a little wild side, if you will.
04:51And you know, you just go through a system, I'm not saying it's good or bad, but it has
04:56its limitations.
04:57It's not enough.
04:58It's not enough.
04:59Okay.
05:00It's a necessary but not a sufficient condition.
05:02Because it doesn't teach you risk taking, it doesn't teach you leadership, it doesn't
05:07teach you how to manage stress, how do you, it doesn't teach you the benefits of yoga,
05:14many other things.
05:15Listening.
05:16Listening.
05:17Very important.
05:18And so life is really your teacher.
05:22School is a facilitator in terms of getting you up to, you know, some concepts and all
05:27of that.
05:29But to believe that school will make you is, is a tall ask.
05:35You famously said that instead of working at Morgan Stanley, you were educating yourself
05:40at Morgan Stanley.
05:41Yes.
05:42Is that the way you saw it?
05:43Yes.
05:44I never thought of it as a university.
05:46It really was.
05:48And the fact that I was getting paid and getting paid reasonably well was an added bonus which
05:53I never really, so I never, never negotiated salaries or anything at Morgan Stanley.
05:59So to me it was really education.
06:02You keep saying risk and patience, these are the two qualities that you admire from your
06:06mentors.
06:07You know, I haven't told you about the story that I read about Kirk O'Corry, did you ever
06:09meet him?
06:10I never met him.
06:11Yeah, yeah.
06:12He's a famous one.
06:14Yeah, yeah.
06:15Whatever.
06:16And he wanted to buy Chrysler when it was in bankruptcy.
06:18And his brokers kept saying that he's an idiot, why does he want to buy Chrysler and didn't
06:21do his trade.
06:22Then finally on the third try, the broker's boss told him, you don't teach Babe Ruth how
06:27to bet, which is in fact you don't teach Sachin Tendulkar how to bet.
06:30If he wants to buy it, you buy it and of course the stock went up 10x after that.
06:34So those were some of the, you know, more important influences that you had.
06:40Yeah, I think also the influences was generally hanging out with and meeting, I mean, meeting
06:49everyone, meeting even George Soros left an impression on me for a very, even today.
06:56His office was 500 square feet or less.
07:01So there were piles of paper everywhere.
07:03Really?
07:04Oh yeah.
07:05And there were chairs on the table and there was just paper and there were just two chairs
07:10and a desk smaller than this, you know.
07:15And you had to go and pitch stocks to him?
07:17No, yeah.
07:18I mean, he wanted to chat on India and so, you know, we had a long discussion and…
07:26Was it like they took your exam at that time?
07:28Was it hard for you or do you have to come prepared?
07:31I had the luxury of being young and brash.
07:35So I was just me and I had nothing to lose.
07:39No fear?
07:40No fear.
07:41Because your mom taught you courage?
07:42Yeah.
07:43So I had no fear.
07:44I think that's probably what worked for me, that I was just me.
07:48Natural.
07:49Natural.
07:50And I actually, so it wasn't a job for me.
07:54It was…
07:55Education.
07:56It was education and it was a mission for me.
07:58I mean, to do…
07:59So I actually believed in this whole India thing.
08:01It wasn't a job option that, you know, I'm supposed to sell soap, so I was selling soap.
08:07I went to Morgan to do India.
08:09So to me, it was…
08:12It was a disconnect to me that when I went to the US and when I was at Morgan Stanley,
08:18India's per capita income was somewhere like $300 or something like that.
08:21Wall Street in New York was, you know, $30,000, $40,000 and so on and so forth.
08:26So there was a disconnect that I couldn't figure out.
08:31I mean, I could clearly see, they could also clearly see that I'm, you know, fairly smart.
08:36And there was nothing in us that was in any way less than them.
08:42So this disconnect of $300 and $40,000.
08:46That's what struck them.
08:47That, yeah.
08:48That struck me also as to like, this is just, you know, this can't be.
08:54This is bound to go.
08:56And then Mexico had raised $30-odd billion dollars every year since NAFTA was signed.
09:03NAFTA was signed somewhere late 80s, I forget.
09:06Is now in bad repute, but that's another story.
09:08You know, but that started and, and so…
09:10And made Carlos Slim a billionaire.
09:12Yeah.
09:13So my question was, why can't $35 billion flow to India?
09:16It can flow on a good day today.
09:19So that's how it…
09:20Good month at least.
09:21Yeah.
09:22So that's how it began.
09:23Yeah.
09:25So there's another saying which says youth is too important to be wasted on the youth.
09:30George Bernard Shaw.
09:32To come back to your brashness, you were a 28-year-old hobnobbing with the Wall Street's best,
09:39managing director at Dean Witter at Morgan Stanley.
09:43How was it?
09:44Were you always a man in a hurry?
09:46Obviously you didn't waste your youth.
09:48I never wasted my youth, but I was never in a hurry.
09:52I was…
09:53You were the managing director at 28 and you were not in a hurry?
09:57I never asked for it.
09:59I never…
10:02I think what Lenin said is right.
10:06There are decades when nothing happens and there are days when decades happen.
10:10Right.
10:11And that's the point you caught in India.
10:13Yeah.
10:14So I think time is non-linear.
10:15So impatience takes you back in my view.
10:19So I think I spent 80…
10:22I went to NYU 87, 88 and I think I just…
10:27I was in a bit of a trance.
10:30I mean obviously my destiny was taking me there.
10:33Because I was working 18 hours a day.
10:36I was reading up everything.
10:38I was doing all sorts of stuff.
10:40And I never attended a placement office.
10:43I never went for…
10:46I never even visited the placement office.
10:48Really?
10:49So I would say all classic signs of what you would say are
10:54either irrational behavior or uncommon behavior.
10:57But something told me…
10:59But you threw it to the destiny, threw it to the world.
11:01Yeah.
11:02I just played dice with…
11:04And so…
11:06But somewhere I have…
11:08I think I have an intuition about what will happen.
11:13And so I have a fair sense of what happens 10 years from now.
11:16I mean, you know.
11:17I am going to pick your brain on that.
11:18Yeah, sure.
11:19But before I do that, Vinod, you are in India.
11:23You are 20 something.
11:24You have capital.
11:25Yeah.
11:26And you are meeting a bunch of promoters in India.
11:28And I know you met and picked some of the greatest stocks in India.
11:31Iconic stocks that became household names 20 years later.
11:35Let's just talk about one of them.
11:37I think the one that I admired the most was your pick of HDFC.
11:40Yeah.
11:41Tell me how did that happen?
11:42Well, HDFC started with a DSP analyst, head of research, Praveen Shah,
11:50had come to my office.
11:52So all the brokers were pitching one or two ideas to me at all times.
11:55Right.
11:56So, you know, I was forcing them to do that.
11:57So Praveen just mentioned HDFC in passing.
12:01So I had a…
12:02And so I sort of understood what they are doing.
12:06And then he said, you know, it's trading at one time only or two times only.
12:10Yeah, it was two times only.
12:11It was just one of the things he happened to mention.
12:14But I didn't show my interest, but it registered.
12:18Julian Robertson's trading.
12:19Yeah.
12:20So it registered.
12:22So I went, I said I would like to meet them.
12:25So then I met two Deepaks.
12:29Deepak Parekh, Deepak Satyalekar were there.
12:32Icons in their own name.
12:34Yeah, yeah, of course.
12:35Really, really.
12:36They have built…
12:37No question about that.
12:39They were also ahead of their time.
12:41And what I found was just like decent guys, you know, doing a decent job, running a good business.
12:47The country is homeless.
12:48In a country where 90% of the people don't have mortgages.
12:51That's right.
12:52So, and your entry…
12:55That's what I'm going to put it.
12:57And you're basically getting it at one time's earnings.
13:02So then I…
13:04So it was a bit of a disconnect for me.
13:07So then I studied Fannie Mae, Freddie Mac.
13:09You know, I looked at…
13:10That must have helped, your US education.
13:12No, absolutely.
13:13Absolutely.
13:14Because, you know, the…
13:15Once you study that, it's an obvious play.
13:16Yeah.
13:17I think a path, the path has already been well displayed, you know, if you wish to look.
13:23So I did all that.
13:24And then I kept asking a lot of smart investors here also as to…
13:29Why not buy it?
13:30What's the catch?
13:31Yes.
13:32So no one had an answer.
13:33It was considered a quasi-government PSU.
13:36Government PSU and no assets nahi hai.
13:38Correct.
13:39Rented office hai Raymond House mein.
13:41All employees hi hai.
13:43Wo nikal gaya.
13:44Finance business.
13:45There's no residual value.
13:47So, see, when something is supremely cheap, there are hundred reasons to justify it.
13:52Either way.
13:53And there are hundred reasons to justify when it's very expensive.
13:55So my job is to figure out what is, you know, what is a justification and what is a real analysis.
14:02You know, there's a saying that says that, you know, that the golden rule is that person who has the gold makes the rule.
14:08Indians always had a love affair with hard assets, right?
14:11Yeah.
14:12And you found that chink in the armor and that's…
14:14Basically, that was a chink in the armor.
14:16And you've used that to build a position in so many IT companies.
14:20That's right.
14:21HDFC, all the intellectual properties.
14:23Because they were just disregarded.
14:25They weren't understood.
14:26So they were priced very cheaply.
14:27And that process is still continuing.
14:29You see domestic investments coming into the equity market now.
14:32For instance, in America, financial equity is about 42% of the financial assets of the average American family.
14:41And India is what?
14:4210%?
14:43Much lesser, possibly.
14:44So, that process is, so that love affair of hard assets, gold, real estate has, is still not, the cycle is still a long way to go.
14:55I think half of Indian wealth is still in property.
14:57Half is equity, maybe 5-7%.
14:59And that's after a great improvement over the last four years.
15:02And that's a tragedy.
15:03I think, I think investors missed a large rally in markets.
15:07The index was 700.
15:09Now it's, you know, 70,000.
15:1180,000.
15:1280,000, yes.
15:13But they are participating.
15:14This time at least…
15:15This time we are participating.
15:16So, I think that cycle is beginning.
15:17And it's, and if we go the American way in terms of equity exposure to Indian families,
15:25I think this has got a long way to go.
15:27You know, you present yourself as a bourgeois, but Steve Jobs said his mantra in life was focus and simplicity.
15:33Yeah.
15:34You also believe in focus, don't you?
15:35Totally.
15:36And you had a very interesting story about how Dhoni taught you focus.
15:40Tell me about that story.
15:41Ah, oh yes.
15:42The, so once I was at the, he was, he was obviously with the Chennai Super Kings.
15:48And so, I am a member of the Madras club in, in Chennai.
15:52And I was happy, I happened to be in a bar, which I actually don't drink.
15:56But I was, happened to be in the bar because they had a big screen there and so on and so forth.
16:00So, I was all alone sitting there, like in the studio.
16:02And Dhoni…
16:03And walks in Dhoni with Krishnamachari Srikant.
16:06But so, there was no one.
16:07So, I asked him to sit on my table.
16:09So, I figured that I will say hello and I will be gone in 15 minutes.
16:14But there was a match beginning at that time and they wanted to see the match.
16:18I thought I will get over in half an hour, maybe one hour.
16:21But then something happened, which is, I was watching Dhoni and I am conversing with him.
16:29The ball, there is a, there is a television there, the camera, someone is bowling.
16:35He would see the ball and he would say, yeh four hone wala hai, six, out, LBW, offside.
16:43Constantly, every ball.
16:44Every ball he had a forecast.
16:46Focus, focus.
16:47And he was forecasting every, he was learning with, he learns with every ball.
16:52And I was amazed that on the television, I can't see anything about a ball.
16:56But he could see so much.
16:59So, then I said, I am not leaving.
17:02I am watching this guy.
17:04Spellbound.
17:05Yeah.
17:06So, I was watching this guy and I would say he was right 70 to 75% of the time.
17:13Really?
17:14Yeah. So, that, I don't think even he was aware he was doing it because you know,
17:18It's natural.
17:19I let him be. But I realized why he is captain material.
17:25I realized, I know why.
17:27Always on the ball.
17:28Because he is a true student of the game.
17:29Another student of the game who was a common friend who unfortunately passed away, Rakesh Jhunjhunwala.
17:34He has often been said that even if he had visited his office, he would be looking at the screen and talking.
17:40Because he is always focused on the markets, always focused on the markets.
17:43But your idea of focus on the market is to read as much as possible, read a balance sheet a day still.
17:48My focus in the market is always to, is to go deep into what could be the,
17:57where can you make 100 times your money?
18:00Really? You are not looking at 10%, 12% returns?
18:02No, no, no.
18:03You are looking for 100X?
18:04Yeah. I mean over a period of time.
18:06Of course, of course.
18:07I mean, you know.
18:08I will get 100X over 25 years.
18:09Yeah, yeah. So, I have never really focused on, so I therefore treat this as noise.
18:14So, you know, you can do one of the two. You can master noise or you can try to
18:20just find a few things which will work well for you.
18:27So, that requires a different type of focus where you, you know, declutter your mind.
18:33You cut the noise out. And if reading got you there, everyone would have got it.
18:38Librarians would be billionaires as Buffett famously said.
18:41It's a good one. I will remember that one. So, I have seen that there are limitations to reading.
18:46You have to read your own intuition. Listen to your sort of inner voice.
18:51And treat the data, the world as a giant puzzle, you see.
18:59So, just like you solve a Rubik's cube and the data points that you have all around you,
19:06your job is to figure out the pattern in the puzzle and to crack the puzzle.
19:12So, that won't come only by reading. It won't only come by… So, it's a bit of lateral thinking.
19:20It's a bit of looking at lots of data over various, you know, times, horizons and seeing patterns.
19:28So, for that you need to be watching, you have to be walking, you have to be traveling, you have to meet people.
19:34You know, there is a whole lot of… –There is not a single data point.
19:38There is no one book that… –Is the bathroom clean? Are they good to the employees?
19:42Everything is part of that mosaic. –Everything. I have visited the bathroom of every company I have visited.
19:47You famously mentioned that. You know, there is another great author which we talked about previously, Mark Twain,
19:53who said that history does not repeat itself, but it rhymes. And you yourself have said that,
19:58I think 5, 10, 20 years down the road. Tell me what are you looking 5, 10, 20 years down the road?
20:04How did the world shape up? –I think the big change, I think is that India has come on track.
20:13And what do I mean by that? So, if you take a larger expanse of history, India was always 25 to 30% of global GDP.
20:23Right. –That's where the British came in. –Before the East India Company. –Yes.
20:27And the British brought it down to 3 or 4% in a couple of centuries. –Colonial exploitation as they call it.
20:35Absolutely. Absolutely. And you know, people just don't look at facts. We just look at the fact when the British came in,
20:41we were 26% of world GDP and we became 3 or 4%. You don't need to know more. –Yeah.
20:46So, the Indian renaissance is, I think begins 150 to 100 years ago. And… –100 years before independence anyway.
20:54Yes. Very much. And so, I think that process has just come on track. So, I basically think the long picture is that we are going back to 25% of world GDP.
21:05So, just that is one. –You don't drink but the bulls are raising a glass to you if you go back to 25%.
21:14I am naturally high. –You are naturally high. Yeah, go ahead please. Sorry. –So, I think that is one.
21:19And I think, now when you look about, look at it from other aspects too. We think that we took the slow road. Maybe.
21:29Asia took the fast road. So, let's say China, let's say Japan, let's say Korea. –Taiwan. –Taiwan and so on and so forth.
21:37But look what has happened. The fertility rate in Korea now is 0.7%. Lowest in the world. –Demographic disasters.
21:46So, in a generation, Korea basically extinguishes itself. –And so does Tokyo, Japan. –Japan, China. China.
21:54So, for one generation to have cars and refrigerators, you sort of torpedoed a civilization. Okay?
22:03So, India in a sense is possibly the only one through all the chaos. You know, we had population control, we had Sanjay Gandhi, we had Indira Gandhi, we had all sorts of stuff.
22:14There was all sorts of noise. Okay? But at the end of the day, we are close to 2%. So, I think we are going back and the signs are everywhere.
22:23So, do you think there will be a tripod India, China and America or China would be out of the picture? –I think China will be out of the picture.
22:30So, it will be just America and India perhaps in the new world order. –Possibly. Possibly. –That's a great insight. I mean, it's just absolutely fabulous insight.
22:39One more insight St. Francis of Assisi had. He said that it is in giving that we receive. I know you have a lot of interest in philanthropy.
22:46You have a lot of talks about Indian wealth. You had this very interesting analogy between Lakshmi and wealth in India.
22:53Could you share that with us? –Sure. I mean, Lakshmi is a living entity. –Which we all worship. –We all worship.
23:01Especially in Mumbai. I mean, we believe that Lakshmi is the reason why we have all done well.
23:07And so, Lakshmi is also displayed as sitting on lotus because it can bob and disappear. –Volatile. –Yeah.
23:16So, you need to… –And you treat money like that. –Yes. So, money has to be treated with respect. But that has always been the Indian tradition.
23:25So, I think it was Hoonsang, one of the historians had written about India when he visited. I think 7th, 8th century or whatever.
23:34So, it's worth reading what he wrote. He said that he didn't find any place where food was being sold. –Really? –Yeah.
23:45He saw no place where meat was being sold. Which to a foreigner sounded, you know… He also said that in every town,
23:53the wealthy ran the equivalent of community centers or ashrams or whatever you may want to call it.
23:59And the competition among the elite was who ran a better community center. –Really? –Yeah. –That was in India…
24:06So, if you had a health problem, you had a wealth problem, you had a family problem, you could go to one of these community centers and you'd be taken care of.
24:14This is a long tradition of ours. –Philanthropy, giving back and worshipping Lakshmi but not for the sake of material goods. –Yeah.
24:22Giving, the process begins with giving actually. You know, I think, I'd say one of the reasons for the Tata's are still around and are still doing very well
24:34is basically because there is a complete circle there. –There is. –So, there is as much interest in giving as in taking.
24:43So, you know, both are done with fullest zeal. –You know, before I let you go, I am going to ask you to give me a few more nuggets of wisdom.
24:52I love doing a rapid fire round. –Sure. –I am going to do a rapid fire with you. –Okay. –Let's see what you come up with. –Okay.
24:57Kung Fu. –Peace, evolution, enlightenment. –Brij Mohan Lal Munjal. –Legend. –Why?
25:05Started the company at 69, Hero Honda. At 69. And totally focused. He sat in the same office, same chair, same secretary,
25:17same television set where his market cap was 10 crores, 20 crores, 200 crores, 2000 crores, 20,000 crores, 2 lakh crores.
25:25One of the great promoters of India for Hero Honda at that time. Madhav Dhar.
25:31I would say visionary, high energy, great leader of people. –And you know, his dad was actually one of Indira Gandhi's socialists.
25:43Yes. –And he was the ultimate capitalist there. Your favorite city in the whole world? –Mumbai. –Really? Your ultimate comfort food?
25:54Ah! Good one. I would say a dosa. –Okay. You can invite any three companions for dinner. They just have to be alive.
26:02Who would you choose? Who were the three people you would ask? –I would choose Osho. I would choose Raman Maharishi.
26:08I would choose Max Planck. –The one who won the Nobel Prize in… –Yeah, for quantum mechanics. –For quantum mechanics out there. Great.
26:16He is the person who was the editor who selected Einstein's paper and thought it noteworthy. –We know there is a Rumi blessing which says,
26:23What hurts you, blesses you. The darkness is your candle. I can only thank you for illuminating the path for a generation of investors in India.
26:33Thank you for being a part of our show. Thank you so much for watching and we will see you soon on another episode of Icons.
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