Relying on Expert opinions

In general on this blog, I have not been very kind to stock market experts ( pundits,opinion baazs), you can read through some of my previous outbursts here

In late 1980s, psychologist Philip Tetlock began an important research projects of the past three decades, studying how experts make predictions, who gets things right, and who gets things wrong. His inspiration came from watching experts predict the future of the Soviet Union — an event that very, very few got right. Notably, most of those who misjudged the event wouldn’t even admit that they got it wrong. The book draws one big conclusion: Most expert predictions are the equivalent of random guesses.

The stock market is a perfect to see this unfolding every day, In this post I am showing you just one example but the place is full of such pundits

Last year around April 2016, India’s first e-commerce company was planning to list on Indian bourses (previously makemytrip and others have also listed but overseas) , The overwhelming opinion  from expert reviewers of IPO was that issue from Infibeam was untouchable

Let’s look at some of them

Some claimed, Infibeam is unsuitable for retail investors

infibeam -1

more

infibeam - 2

While few pointed … Read the rest

Actions speak louder than words !

In a recent interview with Guru Focus ,value investor Rohit Chauhan pointed out very important points regarding approaching equity investing. One of the points which stood out for me was below [emphasis mine]

12. Before making an investment, what kind of research do you do and where do you go for the information? Do you talk to management?

I follow the usual process of reading up on the last 10 years of financial statements and annual reports. In addition to that, I also try to understand the economics of the industry and competitive landscape. Finally I try to work through my checklist to analyze the idea from as many view points as possible.

I do not depend on talking directly with the management as much and base my decision more on what the management has shared in the conference calls and how they executed the plans.

As investors we are susceptible to falling for compelling stories created by management & media therefore often are unable to do an unbiased assessment of a an investment situation. This can lead to less than optimum investing outcomes. It pays to watch what management is doing than what they are talking.

As social

… Read the rest

Book review: How to Fail at Almost Everything and Still Win Big

Over last fortnight I happened to read a fantastic book by Scott Adams – How to Fail at Almost Everything and Still Win Big: Kind of the Story of My Life

This book has so much wisdom that I would recommend you to read at least once every year or two, moreover Scott has kept narrative so simple and contextual that you don’t lose interest . The book covers a variety of topics – Success factors , Ability to learn from failures , Grit , Affirmations, Right diet, Career Advice , Skills to acquire and so on and so forth. I will try to elucidate on themes that nudged me in my first read.

Become system oriented rather than goal oriented –  The idea that one should have a system instead of a goals.  How these two are different for example

System: Remaining healthy by doing daily exercise is a system

Goal : Planning to lose 20 pounds in next 6 months is goal

Why one is better than other

Goal-oriented people exist in a state of continuous presuccess failure at best, and permanent failure at worst if things never work out. Systems people succeed every time they apply their

… Read the rest

Max India Demerger saga finishes

Last week the final (3rd) company from Max India demerger exercise got listed on bourses, we started tracking this story in Jan 2016. A lot has happened over last six months and it’s time to take stock and understand how this spin off / demeger has played out.

In Jan’ 2016 we conservatively estimated that then market cap was a 5% premium to our calculated value of 3 sub-divisions. Let me do a memory jog for you

Max India - 7

On date of spin off the insurance business was valued at about ~INR 10,500 crores even lower than our conservatively calculated value.

Was this expected ?

This is what Joel Greenblatt has to say on Spin offs in his book “You can be a stock market Genius”

spinoff-8

Investors who didn’t want Life insurance simply dumped the stock. However our conclusion in Jan 2016 was a bit different

life insurance business is not directly listed in India so may see some traction with investors.

And hey ! what happened in June 2016

max india part 2 -1
It is my hope that this book will promote self-awareness, forgiveness, reconciliation and assertiveness for women to peacefully live generic cialis 40mg the life God planned for them long before they were … Read the rest

How to spot bargains – Graham Style

Ready to spot a bargain ?

To do that you have to play a game with me.

Imagine you have a choice to invest in one of the four companies below, What price you would be willing to pay for below companies ?

MRF-1

May be profit and sales data can’t be solely used to decide, to help you  let me throw some more numbers at you

MRF-2

All four companies operate on decent margins also they are not commodity business as their margins are improving, While Company B is asset light but overall proxy pre-tax ROIC for all four companies is above ‘AAA’ bond yield. (In India pre-tax yield of an ‘AAA’  bond is about 9%). Also all four companies have negligible debt on their books. This is reflected  in their ROE as their long term ROE is similar to last year proxy ROIC we calculated above.

MRF-3

As a rational investor who is not biased you would pay relatively more for A,B & C which have better ROIC/ROE compared to D.

Right ?

What if I told you that Company B is selling 8 time of company C  (in relative sense)  you would say I must be kidding 🙂

Now let … Read the rest

Kitex Garments – Earnings Power Updated

Another year gone, Got my hands on Kitex Annual report and updated the Earnings Power Box. Lets look at how the company has fared

Before you proceed, its better you go through this post so that you are familiar with terms used below

kitex-2

The Accrual EPS (or reported EPS) saw an increase of 11% while the Defensive EPS declined by 30% and Enterprising EPS declined by 4%

What led to such a sharp decline in Defensive EPS ?

While the company’s purchase of fixed assets reduced by 80% (INR 7.37 Cr Vs INR 31.7 Cr) the working capital increased by INR 47.7 Cr (Last two years they had reduced their working capex). Most of the additional investment is due to the fact that Accounts receivable has increased by 50% and current liabilities have not kept pace with it. Not sure if  company had a significant change in credit policies.

 

Even with a decline in Defensive EPS, the company continues to be in wealth maximisation quadrant

kitex-3

Some other titbits of from Annual report which I found interesting

  • Last year annual report claimed that there capacity was 5.5 lakhs pieces of infant wear per day, this year it’s called out as
… Read the rest

Why it is difficult being contrarian ?

In December 2014, I wrote a book review of  investment classic from Howard Marks – The most important thing, Here is a reprint of passage from that post

[My re-emphasis in red]

What makes people and markets in general to commit mistakes ?

  • Greed – An extremely power full force that overcomes common sense
  • Fear – Prevents investors from taking constructive action when they should
  • Herd behaviour – Thinking and behaving like crowd
  • Dismissal of historical pattern – reason for so many bubbles and burst

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All of the above come naturally to any investor and this is the reason they are very difficult to let go  only few individuals develop habits to negate above

Now how does one combat above –

… Read the rest

MOIL – Debt Capacity Bargain ?

The rest of post is inspired by and adapted from this wonderful post on debt capacity bargains by Prof Sanjay Bakshi.

MOIL, a Mini Ratna, is India‘s largest  producer of manganese ore accounting for ~50% of the country’s total output. At present, MOIL operates 10 mines, six located in the Nagpur and Bhandara districts of Maharashtra and four in the Balaghat district of Madhya Pradesh. All these mines are about a century old. Except three, rest of the mines are worked through underground method.

MOIL is a debt free company, here is a snap shot from 2014-15 annual report

MOIL-1

How much money would you lend to MOIL against the security of its business ?

 

Other things remaining unchanged, it’s prudent to lend to large companies whose businesses are not cyclical. If a business is cyclical, then a prudent banker would not depend on peak earnings. Rather, he would compute average past earnings and then ask for a higher interest cover on those earnings than would have been the case if those earnings were not cyclical. ~ Sanjay Bakshi

 

Earnings of MOIL are not stable and dependent of future of steel industry and we know that the steel … Read the rest

The Little Book That Builds Wealth

Few weeks back, I got an email from Ankit Kanodia. He had read our research note on Byke and liked the content, Additionally without even asking he shared many of his comprehensive notes on various investing books. I have greatly benefited by reading them and I thought it would be great if our readers can read and learn from the distilled wisdom of these must read books.

On a regular basis, I will try and share this notes,  First up is Learnings from “The Little Book That Builds Wealth”- By Pat Dorsey

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Model Portfolio – Year 2 – Review

This post is a look-back post on model portfolio which I publish to email subscribers So, order your new set of pills today and re-build your viagra without prescription online relationship!! Source: Erectile dysfunction occurs to a person due to several reasons and they are- Stress can be done by some simple measures: Time-off: Take time off from your busy schedules and deadlines, just laze around and let yourself be. You can get these premium quality herbal pills from reputed online stores with the help see my pharmacy store now order generic viagra of credit card. Some other eye problems such as cataracts and glaucoma can also be developed due to high blood pressure, he needs antihypertensive on line viagra medicines first to control blood pressure. I hope those methods can give the prostatitis patients a tadalafil cialis little help. of this blog every month, So in case you are inclined continue to read here… Read the rest