Month: October 2015

Why Paying up can cost you – Analysis using payback box

Motilal Oswal wealth studies are great source of learnings for any investor, They adopt a unique approach of taking up a theoretical concept every year and then explain it through numbers.

In year 2000, they introduced a concept called payback period, this is what the study said

Focus on payback period

As the legendary Warren Buffett says, “Investing is laying out money now to get more money back in the future in real terms, after taking inflation into account”

Generally, it is observed that market price is often based on the assumption that earnings will grow at their current rate for another five or more years and then remains constant

P/E is a very useful tool of valuation but does not reflect growth assumption upfront

PEG is another useful tool but assumes stable growth rate for a long time. It also relies too much on current growth rates. But the reality is that new economy companies record high growth rates in the initial stages, but are unable to sustain for a long period. This leads to mis-pricing

Keeping the above shortcomings and market wisdom in mind, we decided to examine the concept of “pay-back ratio” or “purchase price recovery in

… Read the rest

In Investing numbers are starting point

Years back, I was amazed at the claim made by Joel Greenblatt’s book The Little Book That Still Beats the Market

[Emphasis Mine]

Can you spare three hours to learn how to beat the market? As unlikely as it may seem, hedge fund manager and professor Joel Greenblatt, whose investment firm has averaged 40% annual returns for over twenty years, can teach you how. You can achieve investment returns that beat the pants off even the best investment professionals and the top academics. In fact, you can learn how it’s possible to more than double the annual returns of the stock market averages.

But there’s more. You can do it all by yourself. You can do it with low risk. You can do it without making any predictions, and you can do it by following, step by step, a time-tested, proven “magic formula” that uses only common sense and two simple concepts. Best of all, once you are convinced that it really works you can choose to do it for the rest of your life.

 

Obviously I bought the book, who doesn’t want to become a stock market genius in three hours, The book made everything easy to understand. … Read the rest

What drives value of a business – Part 2

You can read the part 1 of this two part series here on what drives value

Lets review balance variables which impact valuation models

Past Prices

For a lot of cyclical companies – How they have been valued in past can help us guide on the band of multiples they can trade. However using a valuation model just based on past prices and multiples can be flawed, see the below diagram

value-6

As you can see past prices and even current prices are influenced by many factors, as long as business performance is driving prices up and down we can use past price in building current valuation model but that’s rarely the case

Apart from business performance, the stock price would be affected by

  • Economic /business cycle
  • Demand and supply (Mr Market’s mood)
  • Perception of company and its promoters

Effervescent Kamagra, a newly introduced form has been brought up recently with an aim to further make it simpler for the users cheap tadalafil online to consume, the solution without any complications. The solution is to use natural male enhancement products. purchase cheap cialis There are people with some diseases which can get worse after taking this drug. viagra pill on line… Read the rest

What drives value of a business – Part 1

Here is one page snapshot on what drives value of company (and its ownership parts called shares)

Value-1

In this post I am not going to dig into those valuation parameters as I have detailed post on these parameters in past, you can read them here and here

We are going on spend some time today on inputs that drives these valuation parameters to draw some conclusion to refine at the process on how we approach on valuing business

Given we are dealing with 7 input factors this post would be in two parts

Free Cash flows

Value-2

Let’s draw some inferences

  • A company which converts its revenue to cash flows higher in proportion to other companies in similar industry should be valued more
  • A company which has relatively less cash expense (better credit terms, tax advantage, deferred expenses) compared to other companies in similar industry should be valued more
  • A company which has lower capital and maintenance expenses compared to other companies in similar industry should be valued more

The roadway surface of the bridge has been built and designed to behave as an antagonist to the activities and functions of this body enzyme that cialis cost 20mg plays front role … Read the rest