Saif Ullah Khan: The Robert Bruce of Dalal Street

Remember the tale of Robert Bruce, the legendary king of Scotland in the 14th century? Dejected and defeated, he was lying in a cave when he saw a spider trying to spin a web on the wall. Every time it fell, it rose again to try. The king took heart and kept on until he vanquished his opponents.

Gurugram-based Saif Ullah Khan, 50, can be described as the Robert Bruce of Dalal Street. Every time he faltered, he gathered strength to try again, till he reached his goal.

Akin to a movie script

Cut to modern times. Khan’s life is perfect fodder for a riveting film script. He made his debut in the markets chasing what is considered a strict ‘No No’. He realised his mistake, made amends, and money but returned to his old mistake again only to lose money.

Tumbling from mistake to mistake he went back to school to gather knowledge. He ventured into investing in commodity, again to lose money. Khan also sold his house since he could deploy the money in the markets. After going around the world of mistakes, riding a false ego, Khan has retreated into long-term investing, something experts advise everyone to begin with and stay put for long term gains.

Certainly risky and perhaps reckless, Khan is an embodiment of what suspense thrillers are made of pitting the audience in a guessing game about his next move.

Not risk-averse

Khan could perhaps live without oxygen, but not without risk. It is to whet this indomitable appetite that he started margin trading in stock futures of high beta stocks – Suzlon, Unitech, IFCI, Reliance Energy, JP Associates and others. That was in 2003.

His lessons have enriched the man. “The value of stocks is compounded annually (CAGR) but learnings compound daily (CDGR),” he says with a tinge of stoicism.

Early mistakes

Fascinated by the bull run of 2003, Khan decided to try his luck in the markets. He took a shortcut by skipping fundamental analysis and learnt technical analysis as well as Futures & Options (F&O) analysis through books and charts.

But the adrenaline rush and excitement produced nothing but losses for him. To offset losses in futures trading, he was forced to sell many profitable stocks.

Instead of quitting he began nursing a wounded ego and started ‘revenge trading’ to recover his losses. It ended in his first lesson — revenge trading results in losses.

Commodities

On the advice of his broker, Khan entered the commodities market and traded in gold, crude oil and natural gas. He was innocent of the supply and demand economics of commodities and was blindly following his broker.

One wrong large trade in natural gas futures brought him back to square one. The bloody nose he was left with imparted a second lesson — not to trade in an asset class just because they are in vogue and irrespective of whether you gain or lose, your broker always gains.

Back to school

After repeatedly faltering for four years, Khan decided to learn economics, finance and accounting and enrolled in MBA at IIM Lucknow where he learnt the art of analysing annual reports.

During the course, he was tasked to analyse Coromandel International and Balkrishna Industries. Their fundamental and business analysis amazed him, and he bought both and sold them by booking 70-80% profits. Had he not been in hurry to book profits both would have turned out multi-baggers for him.

After IIM, he took up more courses in finance and economics. Since 2011, he has been reading five business newspapers to keep himself updated.

The academic world taught him another lesson – not to indulge in margin funded futures trading and learn something new every day about stocks, markets and trading approaches.

Second stint

Equipped with fundamental and business analysis and learning the ‘don’ts’ by heart, Khan re-entered the market by investing in Franklin Small-cap Fund because it was a 5-Star equity mutual fund with great 5-year performance. It doubled in three years.

Along with this, he rebuilt his stock portfolio by adding stocks like Sudarshan Chemical at Rs 100 and it became Rs 360 in two years. Today the stock has grown six times.

Debt trap

Repro India doubled in 1.5 years. He entered Lupin at Rs 450 but exited at Rs 1,600 after some deterioration in fundamentals. But in Atul Auto, he lost 80% of his capital as he ignored debt on its books.

Between 2013 to 2017 Saif’s overall portfolio appreciated as he didn’t trade much but built a portfolio. He again picked up lessons – not to sell great stocks, not to pause SIPs in 5 Star mutual funds and to shun stocks with very high debt and poor management.

Price of overconfidence

With profits, self-confidence returned. When macro-economic fundamentals deteriorated in 2018 and the IL&FS crisis added fuel to the fire, Khan sensed an opportunity in selling deep out-of-the-money (OTM) naked index options. For 15 months, from October 2018 till December 2019, he made handsome profits every single month and almost every week, making a 60% annual return on investment during bull and bear moves.

In January 2019, he began to lose small amounts but continued with options trades. Between mid-January to mid-July 2020 after losing a good amount of money in the options market due to the outbreak of Covid, he stopped his adventures in this sector. In the bargain he picked up another lesson – ego erodes capital. One needs to be flexible, humble and change strategies with changing macro context as the return of capital, then return on capital.

Sold house

In 2019 Saif sold his house that he bought 13 years ago. He sold it at a 20% discount to its peak price. The prime reason: it delivered 6% annual returns lower than the opportunity cost of capital, derived from 10-year GOI bond yields at 7% then.

By living in a rented house – where the rental yield outflow is 3% per year — he converted fixed costs into variable costs. He deployed the funds in the market and netted 80% return in the past 2 years, or 34% compounded annual growth rate (CAGR).

His lesson – not to follow the herd, use data to decide, ignore sunk costs; cut losses and exit an investment if it does not beat the risk-free rate.

After extensive tours of the risk zone Khan is now focussed on long-term investing, deploying 95% of his capital in what he believes are fundamentally exceptionally strong companies.

He is still bent on using his 5% capital on mastering the options buying strategy, which he halted in 2010.

Khan’s taste buds for excessive risk are still alive.