How to invest like a veteran investor 🤫🤫

In today’s newsletter, we delve into SMiLE, an investment model shaped by the extensive experience of veteran investor Vijay Kedia. This model presents a simple yet effective approach to investing. While it is easy to implement, we will also explore the distinct advantage that Mr. Kedia brings in successfully applying these principles. However, it is important to note that this is our interpretation of the model.

First, a Look at Vijay Kedia’s Background

The quote above perfectly sums up Vijay Kedia’s approach to investing. His journey began at the age of 14 when his grandfather, who himself was a stockbroker, introduced him to the stock market. While he could not actively participate at that time, he developed an understanding of how the markets functioned. At 19, he moved to Mumbai to start his investing journey. Though his early years were marked by challenges and setbacks, he was persistent.

Although he started as a trader, he quickly recognized the challenges it presented. In the early 2000s, he shifted his focus to long-term investing, a decision that played a crucial role in his success. Embracing a value investing approach, he discovered his niche in identifying small companies with strong growth potential and promising futures.

The SMiLE model

SMiLE is an abbreviation for the various criteria Mr. Kedia looks for before investing in a company. SMiLE stands for:

Small company
Medium experience
Large aspirations
Extra-large potential

This abbreviation may not look like much but has a sound logic to it. Let us understand each of these criteria.

Small company

Mr. Kedia likes small companies to invest in. The reason for this is two folds:

• Large companies can have operational inefficiencies in decision making and flexibility.

• Large companies usually take a long time to turn out to be multibaggers

Small companies have the potential for rapid price appreciation when they perform well. While they often come with higher risks and lower liquidity, the right selection can significantly enhance a portfolio's returns. Vijay Kedia prefers to invest in mid-cap and small-cap companies, focusing on those with agile decision-making capabilities and the potential for faster growth compared to larger, more established firms.

Medium experience

Ultimately, it is the company’s management that drives the business forward on behalf of its shareholders. The experience and competence of the leadership play a crucial role, especially during periods of industry change. Vijay Kedia prioritizes companies whose management teams have at least 15 to 20 years of experience—enough to have witnessed both economic expansions and downturns. A well-seasoned management team is better equipped to steer the business through challenging times and capitalize on growth opportunities.

Large aspirations

Large companies often focus primarily on sustaining their position in the industry, but their sheer size can become a limitation. This survival-oriented approach can lead to complacency and stagnant growth. Vijay Kedia, however, looks for management teams that possess not just a growth mindset but also an unwavering drive—the "hunger in the belly"—to expand aggressively. He believes that an entrepreneurial spirit within the leadership is essential for a company to unlock its full potential and achieve meaningful long-term growth.

Extra-large potential

Extra-large potential refers to a company's ability to expand its product reach within the industry and capture a larger market share. It also encompasses the overall growth potential of the industry itself in the coming years. A company operating in a rapidly expanding sector with scalable products stands a greater chance of achieving sustained long-term success. This also comes in with an unspoken rule of having a ‘moat’ in the business, i.e, a unique strength that cannot be replicated easily by the competitors.

Vijay Kedia’s edge

The model developed by Vijay Kedia is straightforward and based on widely known principles. While it can be applied by anyone, what truly sets him apart is his temperament and patience—qualities that give him a distinct edge in investing. His ability to remain steadfast through market cycles and stay committed to his strategy is what drives his long-term success.

When Vijay Kedia invests in a company, his intention is to hold it for as long as possible. He chooses companies with a compelling story—one that he strongly believes in. As long as this story remains intact, he stays invested, regardless of short-term market fluctuations. He only reevaluates his position if there is a fundamental shift in the company's management, industry dynamics, or overall business narrative. Instead of being guided by stock price movements, his focus remains on the company's actions and long-term growth potential.

Like any seasoned value investor, Vijay Kedia takes a defensive stance when markets appear overvalued and exhibit signs of exhaustion, while adopting an aggressive approach during market corrections. He firmly believes that long-term wealth is built by identifying and investing in the right stocks during corrective phases. While making money in a bullish market is relatively easy, true wealth is created at market bottoms—when stocks are available at attractive valuations and offer significant long-term potential.

The CERA case study

Around 2004–2005, Vijay Kedia identified Cera Sanitaryware as a promising investment opportunity. The company offered a diverse range of bathroom and kitchen products, including faucets and sanitaryware. At the time, the industry had only three major players—Cera Sanitaryware, E.I.D. Parry, and Hindustan Sanitaryware—alongside several smaller, unorganized competitors. This limited competition made the sector particularly attractive.

To further validate his investment thesis, Kedia spoke with contractors and discovered that Cera was widely preferred for its affordability. The company had established a competitive moat through pricing power, making it a go-to choice in the industry.

Additionally, he recognized India's rising population and increasing per capita income, both of which signaled strong long-term growth potential for the sector. From a valuation standpoint, Cera was trading at a low price-to-earnings (PE) ratio of around 5, making it an appealing investment with significant upside potential.

Your trading edge

Beyond evaluating key metrics, Vijay Kedia has also mastered the art of analyzing financial statements, gaining a deep understanding of the financial health of the companies he invests in. While his primary edge lies in patience and long-term conviction, traders can develop their own edge by strategically participating in these stocks.

Unlike traders, Mr. Kedia does not focus on short-term price movements; he simply invests and remains content even if a stock's price remains stagnant for weeks or years. However, for traders, price action can provide valuable insights when analyzed using charting techniques such as Candlestick, Point and Figure, or Renko charts. These tools can help identify patterns, trends, and optimal entry and exit points. Additionally, financial metrics can be systematically screened to identify promising stocks, allowing traders to blend fundamental and technical analysis for a more refined approach.

If you're looking to gain a competitive edge in the market, TNT One offers the perfect foundation. By mastering technical analysis, you can strategically engage with high-potential companies during their momentum phase, minimizing opportunity costs and improving your trading results. TNT One provides exclusive access to a wealth of resources, including advanced charting techniques, momentum investing strategies, and Relative Strength analysis. Whether you're just starting out or seeking to refine your skills, TNT One offers a comprehensive, all-in-one approach to developing your trading expertise and taking your strategies to the next level.

This newsletter has been written using data available in the public domain, including research articles, podcasts, and interviews of Mr. Vijay Kedia. While we have made every effort to ensure accuracy and minimize errors, we do not claim absolute correctness of the information provided. This newsletter has been published with due diligence to ensure the material is error-free to the best of our ability.