1. HBJ Capital LLPAug`14# 9 1 2 , 1 F M a i n , G i r i n a g a r 2 n d P h a s e , B S K 3 r d S t a g e , B L R - 8 5Page 1HBJ Capital - Asset ManagementDear Partners,Indian Markets continued to inch upwards in the month of August. Itwas exactly a year before this August that India was witnessing a Currencyand Macro Economic crisis. Almost everyone on the street was pessimisticabout markets. Whoa, what a change in sentiment in just a year ! As withMarkets always, they made their bottoms at the height of pessimism. It'sbeen a year of fantastic rally for Market participants.For us it is not surprising at all that Markets have rebounded in such asharp manner. Markets always give the highest returns during turn aroundand that too in a short span of time. It is almost impossible to time that.Investors who really make a killing in such turnarounds are people whohave the guts to consistently BUY through the pessimistic phase.Thankfully, we were among those Investors who continued to believe ininvesting during tough times.

2. HBJ Capital LLPAug`14One of the interesting phenomenon of last Month's market conditionshas been the near synchronous move across Markets. Equities across theworld has rallied - from Developed Markets to Commodity exportingEmerging Markets to Commodity importing Emerging Markets. Even theDollar rally didn't cause any issue to Emerging market equities. While thereare still a lot of skeptics, the broader set of Investors globally are broadlyconvinced on the overall economic revival across geographies.Even though we are extremely Bullish on the long term potential ofIndian equities - considering the strong growth run-way, low allocationlevels of Indian investors and the overall Macro-economic set up - webelieve that Indian markets have become frothy in certain market pockets.Un fortunately, one of the pockets is quality Mid-Caps and Small-Caps withsecular growth opportunities (the area in which we focus). You can neverget market beating returns by investing in Frothy markets, even if you areinvesting in great businesses (except when you have a really longinvestment time frame). The story of Nifty-Fifty investments in US in thelate 1970's is a classic example of how investors generated low relativereturns even though they invested in great businesses but at super highvaluations.We would like Investors to start searching hard for pockets of Value inMarkets. We believe that companies going through a temporarily bad phase(Or) good companies in less attractive Industries are where you can findattractive valuations. You can make above average returns by only goingtowards the less crowded trade. Some of our newer investments (DB Corp,Heritage Foods, M&M Finance, Coromandel etc) are good businessesavailable at relatively attractive valuations. Investors should definitely notchase the highly valued businesses that are darlings of the Market now.While existing Investors like us would continue to enjoy the ride in some ofthese names, we believe Incremental investments should not be done atthese prices.We have been consistently writing that good quality Indian equitieshave shifted massively from weak hands to strong investor hands over thelast 5 years of consolidation. There would be no supply from any of theseInvestors unless there is a huge markup in prices. This thesis is playing outwell in several quality stocks that we own. Investors are not able to cornersizable chunks in good businesses now. That is the key reason as to why youare seeing good stocks flying multiple times over the last few months.# 9 1 2 , 1 F M a i n , G i r i n a g a r 2 n d P h a s e , B S K 3 r d S t a g e , B L R - 8 5Page 2 3. HBJ Capital LLPAug`14The recent subscription of Snowman Logistics tells the story. The IPOdespite being priced un-attractively has been able to get oversubscribed byover 60X. The retail and HNI segment saw the highest oversubscription.This shows the current mood in the Market. All these makes us skeptical oncertain kind of concept stocks in today's Market. We would certainly notventure in any of these crazy stuff.As we have been doing with our Monthly newsletters, I would besharing some Investing wisdom from other great Investors. These readswould definitely help you become a better Investor overtime.--------------------------------------------------------------------------------------------------------------------------- To make money in stocks you must have the vision to see them, the courage to buy them andthe patience to hold them. Patience is the rarest of the three.- The point I am trying to make is not how rich you and I could be if our foresight was as goodas our hindsight. To think that way is an unpleasant as well as unprofitable way to spend time.This is not to say that risk must always be commensurate with the profit. The art of speculationin one sense is the ability to recognize when a seeming risk is not a real risk or when a real risk isnot nearly as great as the stock market anticipates. Even so an investor would have to be starry-eyedindeed to think that he could turn $10000 into a million dollars without taking any chancesof losing his money. It is very hard to cheat an honest man. His point, of course, is that whenone approaches any problem with larceny in his soul he becomes vulnerable to even sharperthieves.- Because every stock buyer wants to make money, it is almost a truism that nothing kills amoney-making opportunity faster than its widespread popularity. This applies just as surely togrowth stocks as it does to Florida real estate. What shall it profit a man to buy a sock whoseearnings quadruple in the next ten years if he has to pay for four times the current earningsnow?.- The hard part is discipline, patience, and judgment. Investors need discipline to avoid the manyunattractive pitches that are thrown, patience to wait for the right pitch, and judgment to knowwhen it is time to swing - Seth Klarman.# 9 1 2 , 1 F M a i n , G i r i n a g a r 2 n d P h a s e , B S K 3 r d S t a g e , B L R - 8 5Page 3Reasonable & Consistent Returns > Spectacular & VolatileReturns- An investor who earns 16 percent annual returns over a decade, forexample, will, perhaps surprisingly, end up with more money than aninvestor who earns 20 percent a year for nine years and then loses 15percent the tenth year. 4. HBJ Capital LLPAug`14For a value investor a pitch must not only be in the strike zone, it must be inhis "sweet spot." Results will be best when the investor is not pressured toinvest prematurely. There may be times when the investor does not lift thebat from his shoulder; the cheapest security in an overvalued market maystill be overvalued. You wouldn't want to settle for an investment offering asafe 10 percent return if you thought it very likely that another offering anequally safe 15 percent return would soon materialize.Most investors strive fruitlessly for certainty and precision, avoidingsituations in which information is difficult to obtain. Yet high uncertainty isfrequently accompanied by low prices. By the time the uncertainty isresolved, prices are likely to have risen.Variant Perception of Michael Steinhart :My particular style is a bit different from that of most people. Conceptnumber one is variant perception. I try to develop perceptions that I believeare at variance with the general market view. I will play those variantperceptions until I feel they are no longer so.Right. Of course, if it is triple horrible, I might trade around the position totake the pressure down a little bit. I would say, OK, this looks awful; I seenothing but buyers. Why dont I join the buyers and see if I can make somemoney. In a matter of speaking, I dichotomize myself. I have afundamental view, which I believe in my heart, but I try to separate thatfrom the short-term fervor and intensity I may see in the market. So eventhough I am short in that type of situation, I might periodically be a buyer.If you have made a mistake, deal with the mistake; dont compound it. Ithink there is a message in the fact that there is no real pattern: Anyonewho thinks he can formulate success in this racket is deluding himself,because it changes too quickly. As soon as a formulas is right for any lengthof time, its own success carries the weight of its inevitable failure.There is a very good investor I speak to frequently who said, All I bring tothe party is twenty-eight years of mistakes. I really believe he is right.When you make a mistake, there is some subconscious phenomenon thatmakes it less likely for you to make that same mistake again. One of the# 9 1 2 , 1 F M a i n , G i r i n a g a r 2 n d P h a s e , B S K 3 r d S t a g e , B L R - 8 5Page 4 5. HBJ Capital LLPAug`14advantages of trading the way I do being a long-term investor, short-termtrader, individual stock selector, market timer, sector analyst is that Ihave made so many decisions and mistakes that it has made my wisebeyond my years as an investor.# 9 1 2 , 1 F M a i n , G i r i n a g a r 2 n d P h a s e , B S K 3 r d S t a g e , B L R - 8 5Page 5Good Write-Up from Micro Cap club :Dont bother finding the next multi-bagger if you arent going to developthe conviction to hold it. Over the last decade, Ive been lucky enough to beinvested in a few stocks that have gone up 5-10-20-30x over a multi-yeartime horizon. From my experience, the only way to hold onto a big positionafter it makes a big move is to know the underlying company better thananyone else. Greed and fear will test your resolve, so you need to learn tokeep these emotions in check. You need to believe in your due diligence andform an unwavering conviction.So how do you develop the conviction to hold?A lot of due diligence is on the front-end of a buying decision, but itcertainly doesnt stop there. The maintenance due diligence following thebuy decision is even more important. For me, I talk to managementregularly and keep close watch of all the ancillary forces and trends that aredriving the companys business. My edge is knowing my positions betterthan anyone else. This doesnt mean Im going to be right, but the more Iknow the better.I think many misperceive high conviction for close-mindedness, ignorance,and arrogance. The conviction Im talking about is quite the opposite. Youneed to constantly assess your positions and openly listen to counterarguments. Only then will you have the conviction to hold multi-baggersbecause you will understand all sides to the story. You also need to develop 6. HBJ Capital LLPAug`14a thick skin. If you are not ready to be criticized for your convictions thanyou arent ready to make real money.I believe most investors focus too much on selling strategies and notenough time on knowing what they own. Selling strategies such as, Sellhalf after a stock doubles or When a position reaches 10% of the portfolio,sell it down to 8% are meant for lazy investors. These selling metrics-formulas-strategies sound great in academia or when selling an investmentstrategy to a bunch of lemmings who cant think for themselves. The truthis if you know what you own at all times, youll know when to sell.In many cases the stocks Ive owned were better buys after they doubledthen when I initially bought them. In many cases when a position became30% of my portfolio there was a reason for it. The underlying business wasdoing really well, or institutions were just starting to nibble on shares, sowhy would I sell it. Just because a stock doubles, triples, etc, doesnt meanit should be sold. Stocks should be sold when your maintenance duediligence shows something has changed. If you know the story better thananyone, youll likely get clues well before the rest of the market. When acompany performs, and the story hasnt changed, stop trying to change it.Enjoy the ride.When a stock goes on a multi-year run there will be long periods of timewhen nothing happens. These are consolidation periods when oldshareholders are selling and new investors are buying in. You will notice a12-month period of time in this three-year chart where the stock doesnothing. This is very normal.A big part of successful investing is becoming content doing nothing. If youare in great companies, a lot of times your biggest risk is boredom. WarrenBuffetts famous quote, Our favorite holding period is forever. If he likeswhere the business is headed, hell continue to hold it and probably buymore. Dont be active for activity sake. Remember, there are no day traderson the Forbes 400 list. Investor need to learn to be content holding anddoing nothing.----------------------------------------------------------------------------------------------------------# 9 1 2 , 1 F M a i n , G i r i n a g a r 2 n d P h a s e , B S K 3 r d S t a g e , B L R - 8 5Page 6 7. HBJ Capital LLPAug`14We hope that we have the patience to HOLD on to some of our BIGwinners and exit them only in case of crazy valuations or in case we are ableto spot better opportunities elsewhere. Currently, we are not making anysignificant changes to our Portfolio. We have neither added or soldanything in our Portfolio over the last month. Our Equity exposurecontinues to be at the higher end and we would continue to do so for somemore time.# 9 1 2 , 1 F M a i n , G i r i n a g a r 2 n d P h a s e , B S K 3 r d S t a g e , B L R - 8 5Page 7Regards,Gokul Raj. P,[Principal Fund Manager, HBJ Capital Venture LLP]Date: August 31st 2014, Place: Bangalore, India.