Tag: Value investing

Don’t buy and forget

Warren Buffett is one of most misquoted [in terms of context] investment gurus of our times.

What happens when we are given below advise ?

“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

or

“If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes”

We buy businesses and then hold them, thinking that Warren Buffet has recommended to hold our positions for long term. In fact one of most repeated quote I hear is

“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”

Trust me there are several businesses in India which if invested today and then magically the stocks markets shut down for 5 years, after 5 years you have to search the company and its promoters to get pennies back on the dollar invested.

Another chart that is thrown at me is this

Buffet quote -1

Warren Buffett is holding Coke and American Express for 20+ years.

 

Honestly tell me how many Coke’s like business are their out … Read the rest

Learn to evaluate management

Evaluating management is one of trickiest part while building an investment case. Especially, when it comes to small caps and mid cap companies run by first or second generation promoters, were much information about them in not available publicly.

Also many of retail investors don’t have privilege to meet management, time to attend AGMs and question management over quarterly conference calls (if they do). So how does one evaluate management ?

Well I don’t have a panacea but in this post we will try an establish a process which can give us reasonable ammunition to understand and evaluate management. As an investor you start with a hypothesis that management is honest, able, trustworthy and intelligent and then as you run a series of checks, you may find that one or more components you wished for are missing therefore at the end of checks you can take a call whether you want to partner with such management or not.

While there are numerous parameters which you can use to evaluate management quantitatively we believe below are good for a start

  1. Depth
  2. Integrity
  3. Disclosure Norms
  4. Compensation
  5. Skin in the Game
  6. Regulatory compliance issues
  7. Walking the talk

 

Depth – While evaluating depth … 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

The edges of being a salaried Investor

Bored with your job ? Sick of taking orders all day ? You are not the only one who is thinking of becoming full time investor, but before you take the plunge, I want to persuade you to remain in your job and continue as salaried investor (SI)

A salaried investor has tremendous edge over a full time participant in market, What are those edges ? Let explore them

Your bread is not dependent on returns from markets

This is an obvious edge, bear market or bull market, you take home a salary thereby ensuring basic necessities of you and your family is taken care of, you don’t have to sell your shares in distress to pay bills.

You will be less stuck to the screen

In any competitive job, no company will leave you without extracting 60-80 hours a week, which means you will have limited time outside work. This is great as you will miss the daily swings in markets, as Daniel Kahneman wrote in “Thinking Fast and Slow”

Closely following daily fluctuations is a losing proposition, because the pain of the frequent small losses exceeds the pleasure of the equally frequent small gains. Once a quarter

… Read the rest

Investing in turnaround situations

For many value investors investing in turnaround situations is a simple ‘No’, they go buy what Warren buffet wrote few years ago

 

Both our operating and investment experience cause us to conclude that “turnarounds” seldom turn, and that the same energies and talent are much better employed in a good business purchased at a fair price than in a poor business purchased at a bargain price

We have written in past reports about the disappointments that usually result from purchase and operation of “turnaround” businesses. Literally hundreds of turnaround possibilities in dozens of industries have been described to us over the years and, either as participants or as observers, we have tracked performance against expectations. Our conclusion is that, with few exceptions, when a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact

 From WB Shareholder Letters

Investing in business with poor economics is going to lead to poor investing returns, there is no doubt about that but many a times a business makes few bad decisions (mindless expansion by taking on debt) or due to a key external situation (change in … Read the rest

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Understanding Pricing Power

What is pricing power ?

A simple question from Prof Sanjay Bakshi on Twitter got a gamut of responses from his legion of followers, Don’t miss the entire discussion here

I have tried to penned down my understanding in form of few questions hope they help you next time when you are evaluating a business

When you think of Pricing Power

What’s obvious ?

When a company has following attributes

  1. Easily pass on increases in costs to customers without having volume declines
  2. Strong brands and customer loyalty allowing company to charge premium price over competitors
    1. Pricing power is when you can sell $120 phones(manufacturing cost) to people at $650 just because you are Apple
    2. Making/marketing a product that is so loved by customers that they find ‘value’ even at increased prices
  3. The ability to increase the prices of your product without losing market share to competition
  4. Ability to price ahead of inflation
  5. When elasticity of demand of your product is not price sensitive

What’s not so obvious ?

  1. Pricing power isn’t just about increasing prices of your OUTPUT .It’s also about lowering prices of your INPUTS
  2. Pricing power is not just about RAISING prices. It includes power to CUT prices,

… Read the rest

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Annual Review – GRUH Finance

If you’re not getting better, you’re getting worse

With above motto today we are starting a new category of posts “Annual report Reviews”

An annual review is a perfect exercise as

  1. most companies produce a look back report (called annual report) with details once in a year
  2. it gives enough gap for business to progress on stated objective thus helping investor to observe business’s Moat (whether it is expanding or contracting)
  3. it helps us answer many of our question we get while are reviewing quarterly results – e.g. where is business putting capex, it the product portfolio or customer mix is changing
  4. Finally I bet if your write these reviews for 5 business for 5 continuous years than you will expand your understanding of business and the key metrics that drive the business

And what better company than GRUH finance limited to start this exercise

Some companies produce outstanding annual reports and GRUH is definitely part of that tribe.

To get a good grasp of GRUH’s business read this post and come back

Let’s start

First the core numbers,

Disbursements still remains a small percentage of total number of household in India and average ticket size has gone down

GRUH

… Read the rest

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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

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

… Read the rest

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Why you should not mix emotions and investing

I love the below quote related to emotion and investing

Emotions can be a great asset in life, but when it comes to investing, they may be a liability

Very important line and one needs tremendous patience and practice to avoid mixing emotions with acumen when making an investing decision

Let me tell you story of Anil, a retail investor,and how his emotions cost him dearly

Few years ago his friend told him about an established NBFC Bajaj Finance as a stock tip, he looked at the company’s ticker it was INR 88, he added stock to his watch list and waited for price to drop so that he can buy

Bajaj-1

 

 

 

 

 

 

 

 

A year went by and one day while browsing prices of his watch list he was stuck, Why ?

Bajaj-2

 

 

 

 

 

 

 

 

The stock suggested by his friend has moved almost 50% up, there was huge guilt in him on having missed 50% returns but then he consoles himself by saying ‘We can’t make money on every stock in markets’

He thought this would be end of his story with Bajaj finance, but almost a … Read the rest

Scuttlebutt

Don’t apply scuttlebutt like this

My mistakes have been one of most important sources of my learning, See some stuff  here

Today let me give you another example from my personal experience for you

In year 2010, I learned about this technique and in a minute you will know where it came from

The scuttlebutt technique is inquiring and asking questions to various people with mutual interest or are involved with a certain company or industry. Asking suppliers, vendors, customers, competition, trade association executives, research scientist from universities or in government and previous employees may all be intangible sources of qualitative information.

Phillip Fisher had first coined the “scuttlebutt” technique when he wrote Common Stocks and Uncommon Profits

Now eager to use this technique, I went ahead and started applying this on HDFC bank,

Context

Our family business had recently started dealing with a new branch of the bank and our industry is famous for squeezing the last dime out of bank in terms of service. I thought it was a perfect opportunity for me to find about culture of the bank and how it operates through its employee and fellow customers. What unfolded over next few months really surprised me; I was a … Read the rest