Month: January 2015

How to read annual reports

“When asked how he became so successful in investing, Buffett answered: ‘we read hundreds and hundreds of annual reports every year.”

An annual report in many cases is a voluminous 100+ page boring document and even the best of minds would find concentrating tough. So how to make it an interesting read ? one way to do it would to be read it like a story book and then it would becomes a story of the business. This technique has helped me over years to pore through pages after pages

Let me share an example

First download the annual reports of the company that you want to study from BSE website at least for five years, Now there are many sections in an annual reports and each of them is very important however to understand business and learn from management commentary cut the Management discussion and analysis section and the directors review of operations section

Then paste those sections in a word document in a chronological order, now the fun begins.

Print those sections

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Use brokerage reports to gain insights

It has become fashionable for investors to slay brokerage reports and broking community as whole, while there is no denying fact that sell side analysts often have incentives to churn out report after report to keep the client trading, However we can’t discard the good work done by brokerage community, some of the brokerage houses certainly do a fair leg work and follow-up on their recommendations.

I think we as investors can benefit by using one simple principle – Separate Fact from Fiction

So how do we do it ?

Inquisitiveness will help us, in this post I would run an example using an ICICI Direct and Dolat Capital report on IPCA laboratories to demonstrate how we can leverage on good work done by these brokerage houses. Interestingly one brokerage is recommending sell while other one is recommending buy – Love these situations 🙂

Let’s begin download copies from here & here, and to gain maximum from this post keep those reports and read them in tandem with content below

First up commentary on,

Operating Margin

ICICI

EBITDA margins increased ~314 bps to 24.7% (I-direct estimate: 24.0%) mainly on the back of an improvement in gross profit margins and

… Read the rest

How to avoid weapons of influence in investing ?

Robert B Cialdini’s Influence: The psychology of persuasion is a must read for any budding investor and thinker. In this best seller he describes six weapons of influence that are often used by marketers/smart people / organisation to stir an automatic reaction from subject many a times to the benefit of the user of weapon

What are these weapons and how we should avoid them in investing when they are used against us ?

We avoid them by learning about them, Let’s start

Reciprocation – The rule of reciprocation says we should try to repay, in kind , what another person has provided for us . Seems so obvious if someone invites you for a dinner at home you do so by inviting other person to your home .

In investing how can someone trick you ? I have experienced such situations let me throw an example at you

Complete stranger on Twitter : Hi, How are you ? I have just read “Evaluating Moats through Floats” on Tankrich and have found it really helpful, I have some more question for you ?

Me : Thank you , please let me know what questions you have.

Stranger :

… Read the rest

Don’t be scared of stocks hitting 52 week highs

If you are a value investor and short-term investing is an untouchable concept for you perhaps you will not find much interest in below post

As a traditional investor we don’t know pay attention to stocks hitting 52 weeks highs on a regular basis as they are considered to be hot stocks or tip stocks gamed by speculators. But ignoring such stocks in not a great idea if you are a practical investor

Imagine you were a retail investor and had seen Symphony Ltd mount back to back 52-week highs in Jan’14 . Due to the way we are programmed we would ignore such info and look for other bargains in the market

Have a look what happened in one year

sym-52

In last 365 days the stock has hit a new 52 week highs (the green dots) 67 times. Almost 1.25 times a week

What stops us from buying 52-week high stocks ?

Anchoring bias – The anchoring effect describes how we can be influenced, or “anchored,” on specific information, when stocks are at a 52-week high, this creates a psychological barrier of sorts, beyond which investors think the stock is unlikely to go. Investors discount the possibility that the … Read the rest