Month: May 2015

May 31, 2015

Download an ebook on Warren buffett partnership letters

Jim Rohn famously said,

You are the average of the five people you spend the most time with

As a young investor starting out it would serve you well if you can spent time with Warren Buffet (vicariously) by reading his fantastic letters

At Tankrich – We have taken an initiative to share his learnings through our video channel

This week having finished the partnership letters I thought it would be good if I could document those learnings in a single place

After few weeks of editing here is the final copy for you on Learnings from Warren buffett partnership letters

Below is Table of content of this ebook

Download a copy by sharing any of the above social links (I do this so that this reaches maximum people through your social networks)

If you are reading this in your inbox go to this link to download a copy

Building blocks

What should be focus of long term investor
Surest means of profit is value investing
Think long term to evaluate performance
Beating index is very tough
True conservatism
Magic of Compounding
Price is everything aka Margin of Safety
Cigar butt as a group works out to be a good

… Read the rest

May 23, 2015

Invest your house EMI in equity markets

Earlier I wrote a post to convince you that you should buy a house against renting, Today let’s build a case of buying house on EMIs vs investing equated monthly investment (EMI ) in capital markets

Base case

Cost of house – INR 60,00,000

Down payment – INR 12,00,000

Term – 15 years

Rate of interest – A quick search would tell you ~10% floating rate is the going rate , See below snapshot from www.bankbazaar.com

Typically as an economy scales up the interest rate goes down, See an example of South Korea , A nation which has moved from being a developing nation to a developed nation

Therefore for our base case example we can say that consumer is likely to pay a lower EMI in future however to be conservative I will assume EMI to be constant

EMI – INR 51,463 /month or INR 6,17,564 / Year

To complete my calculation I need to make few more assumptions , Rent yields let take a look at what are rent yields across the world now

In 15 years India as an economy should be closer to China / Singapore in real terms so I can only make an educated … Read the rest

May 12, 2015

How using earnings power box lets you ask right questions ?

Over my limited experience in equity markets, I have come to conclusion that earnings power box is a powerful tool to analyse authenticity of corporate earnings. While I am not going to repeat much of much I have written earlier, you can go through it here and here

One of first things I do after getting annual reports of the companies I hold is to update their earnings power box (EPB)

Updating it sets me in right frame of mind to query annual reports, let me run through an example to elucidate my point

In 2014 this is how Kitex ‘s EPB looked like

A company in wealth maximizing quadrant 2, the more number of years it continues its advance in this quadrant the more it will continue to create value for owners

2015 EPB will blow your mind away

The company made a significant advance in quadrant 2, no wonder stock market rewarded the stock in the bull market

This is where we start our investigation

First let’s look at raw data for per share earnings

The accrual EPS (one which is reported as diluted EPS in Profit and loss account) had a significant jump from INR 12.08 /Share … Read the rest

May 9, 2015

Will government’s tax rate cut be game changer ?

In last budget government announced a key intention to reduce corporate taxes to make India par with other emerging nations

Note this is only proposal and there is no guarantee that this will fructify in next 4 years. Now imagine in 2019 that this becomes a reality

How will it improve CAGR returns from companies ?

5% is big saving and can fill corporate coffers tremendously with direct impact to FCF available to owners

So I did a thought experiment on how this tax edge could impact investor returns

Read carefully – Few key assumptions that you are making when relying on this analysis

would stick to its promise of reducing corporate taxes by 5% in 4 years – To me this is biggest risk
Predicting profit growth for next few years, in most business this is difficult if not impossible
Assigning an PE exit multiple, this requires years of practice, we would be wise to be conservative on this
Margins would be remain as 2015, for cyclic business this would lead to faulty outputs again if business had an extremely good or poor 2015 then results would be skewed on either side
There would be no equity dilution, which

… Read the rest

May 2, 2015

Create an Investing checklist

Invest in creating an Investing checklist as it can save you from making fatal investment mistakes in life

Charlie munger said,

“You need a different checklist and different mental models for different companies. I can never make
it easy by saying, ‘Here are three things.’ You have to derive it yourself to ingrain it in your head for the rest of your life

Checklists in aviation and medicine aim to eliminate errors completely. They are critical since they deal with life and death situations—a minor mistake in a flight may lead to a fatal crash, In investing checklist slows down investing process thus taking impulse out of decision making. See how Harvard have developed this checklist for CEOs for big corporate decisions

Daniel Kaheman wrote

Form a checklist of criteria to consider before making a strategic decision. This can help to protect against overconfidence. For example, you might want to know the quality of the information given, whether or not there is a strong possibility of “group think” influencing this information, have any influential team members had a chance to persuade other team members, and also whether the chief decision-maker already has a strong stance on this issue. These

… Read the rest