Bharat Shah joined ASK Investments in 2002 after his stint at Birla Mutual Fund. Today, Shah along with his team manages close to ₹6,000 crore under five different schemes. His firm has compounded client money at close to 36% for the past three years and at 19.4% over the past five years. In comparison, the BSE-100 has returned 13.3% and 5.8% respectively during the same period. While his investing approach is a blend of value and growth, there is one thing that Bharatbhai swears by and that is reading.
Charlie Munger says his children laugh at him because they think he is a book with a couple of legs sticking out. What is the bare minimum one must read?
The bare minimum one should read is about 24 books in a year. If you do not read that much then you are not reading enough. To my mind, not reading is intellectual death. If you do not read, your mind will decay. The objective of reading could be to acquire knowledge in one area; it could be to develop professional competence in a particular subject, or for sheer pleasure. For me, all of it is important.
How do you allocate so much time to reading?
It’s just like brushing your teeth every day. You do not postpone brushing; otherwise your breath will stink. Equally, reading has to be a part of our daily life. It cannot be procrastinated. I typically spend 8-10 hours of time on work, and another five hours of reading. I have varied interest, so I devote about 2-2.5 hours to that which includes art, music, poetry etc. All of these are my interests and I do not compromise on any of them.
Since you are such an avid reader, tell us more about how to read effectively?
Speed-reading is a technique one needs to learn. Developing abilities and training your mind to speed-read helps a lot as far as my own experience goes. The speed of our eyes is slow compared with our mind, which becomes a hurdle while reading. It’s just like, when you write, you are slow, but you’re thinking much faster. You need to develop the technique and actually train your eyes to speed-read, jumping words and sentences so you can absorb faster. You can’t do that if the subject is technical. But when the matter is not dense, and does not require too much attention, speed-reading is the best way. This is possible because as you read more and more on a subject, your ability to grasp the subject improves and you don’t need to stop too much to grasp. Also, if you read a wide variety of subjects, that will gradually help you grasp faster.
Buffett says, ‘It is not just reading, but how much you reflect on what you are reading is equally important.’ How do you reflect when you speed-read?
For reading to add value, you should surely be able to reflect and relate to situations in the real world. That will only become possible when you actually grasp, literally breathe what you are reading. Speed-reading is to fasten the process. It should not be like you want to complete a certain task, but more like taking quickly what you want out of the book.
We are all quite familiar with the power of compounding in investing. Presumably that applies to reading too?
It is like latticework. It’s like different dissonant pieces of information, knowledge and insights, which are lying around in your mind but with some grand method you connect it all together and it turns into Eureka! suddenly producing a much larger understanding than those individual pieces. If one plus one plus one is not three, it’s certainly hundred and eleven. This grand ability to interlink so many different things is something you develop over a period of time.
Examples do not just provide informative value, but also bring insights so that you are able to draw meaningful conclusions. Otherwise, you are simply storing data. You may not remember data or information bytes, but once you are able to develop a method where disparate data pieces are conjoined through logic such that when you see any incongruous data, your mind will jingle, and say, there is something wrong. For example, once you understand the return on capital employed, you understand what is margin, capital turnover and other related aspects well.
When you say capital turnover, it is not only for fixed assets but also for working capital. All these data are provided in pieces and if you are able connect them; you will be able to draw the right conclusion. For instance, once you understand the numbers, your ability to correlate so many other things will increase, and you will be able to find anomalies. You will be able to get cues from data. When you look at numbers, your mind should be able to envision the overall picture and things starts to settle down. That’s how the power of compounding works when it comes to knowledge.
How do you cut noise out? We are overloaded with information, so how do you figure what not to read?
What not to do in investing is the most important thing. It is a critical block for successful investing. There is so much of garbage being produced on a daily basis that it is easy to get away carried by things that are not important. And in the process, you’ll not be able to devote time for the must-reads.
You have to build your own filters or criteria before you crystalise time for things that are important. That allows you to spend a lot more time on stuff that is worthwhile. Filtering out is both an art and science. Once you have clarity that something does not deserve your time and attention, be ruthless. If the most celebrated TV anchor does not deserve my time, I got to be ruthless. That apart, over a period of time, you develop a certain understanding about authors and their credibility, which helps you a lot. Also, after reading 50 pages of a book, if you find that you have not learnt much, just be ruthless and reject it.