https://typefully.com/Finalysis20 Individual Investor| Tweets /threads on books, ideas, learnings on personal finance & investing Open to collaborate for content creation in this domain Sun, 17 Dec 2023 01:30:11 GMT Sun, 17 Dec 2023 01:30:11 GMT Typefully https://screenshots.typefully.com/screenshot?size=1200x640&url=https://typefully.com/Finalysis20/card https://typefully.com/Finalysis20/interesting-facts-about-nbfcs-key-SKvXbWP While writing an article on NBFCs, I came across some interesting facts. I would like to share a few of them in this thread. Dive in... Some key differences in NBFCs & banks: NBFC: ~ Cannot accept demand deposits i.e. cash in savings/current a/c ~ Are not part of the payment & settlement system… https://typefully.com/Finalysis20/interesting-facts-about-nbfcs-key-SKvXbWP Sun, 17 Dec 2023 01:30:11 GMT
I would like to share a few of them in this thread.

Dive in...

Some key differences in NBFCs & banks:

NBFC:

~ Cannot accept demand deposits i.e. cash in savings/current a/c
~ Are not part of the payment & settlement system
~ Cannot issue any cheques
~ Are not covered under deposit insurance facility

Image source: enterslice.com/learning/different-types-of-nbfc/



Funding of NBFCs vs Banks:

Banks access low cost deposits through saving accounts.

NBFCs rely on borrowing from banks or issuing bonds to raise funds.

Some types of NBFCs:

Asset Finance Company - Financing of assets that support productivity e.g. tractors, generators, vehicles
Investment Company - Buying securities for selling & profit
Loan Company - Provide loans
Infrastructure Finance Company - Loans for infra projects

Type of NBFCs:

Infrastructure debt fund - Facilitates short & long term debt for infra projects
Micro finance institution - Provide credit to disadvantaged groups, cottage industries, MSMEs etc.
NBFC Peer to Peer Lending Platform - Online platform for lenders & borrowers

Types of NBFCs:

Housing finance companies (HFCs): Provide home loans for the people buying house.

Image source: www.legalraasta.com/blog/non-banking-financial-company/



Why People prefer NBFCs over banks?

Loan processing is easier & quicker than banks.

The compliance requirements are flexible and can be customized for the specific needs of client. Banks have a rigid framework of compliance for lending irrespective of the borrower's profile.

Some popular NBFCs:

~ Power Finance Corporation
~ Bajaj Finance Limited
~ Indian Railway Finance Corporation Limited
~ Muthoot Finance Ltd
~ Manappuram Finance Ltd.
~ SREI Infrastructure Finance Ltd.

Image source: nbfcadvisory.com



You can read the unrolled version of this thread here: https://typefully.com/Finalysis20/SKvXbWP]]> SKvXbWP thread false null https://typefully.com/Finalysis20/tea-and-coffee-market-insights-in-india-HaT9otF Tea / Coffee lovers.. Here are some metrics about market size & market share in Indian market, for these two popular drinks. Data source: Citi Research's @CitiResearch report on Tata Consumer products Strictly No Recommendation. 1/4 Market size Tea vs Coffee Tea: Rs. 344 billion Branded tea… https://typefully.com/Finalysis20/tea-and-coffee-market-insights-in-india-HaT9otF Wed, 28 Jun 2023 01:21:44 GMT

Here are some metrics about market size & market share in Indian market, for these two popular drinks.

Data source: Citi Research's @CitiResearch report on Tata Consumer products

Strictly No Recommendation.

1/4

Market size Tea vs Coffee



Tea: Rs. 344 billion
Branded tea constitutes 74% of market share



Coffee: Rs. 32 billion
Branded coffee constitutes 80-85% market share

2/4

Key players in branded tea market



Hindustan Unilever: 74% of branded market share
Tata Consumer Products: 21% share
Gujarat Tea Processors & Packers(Wagh Bakri Brand): 5%

3/4

Key players in branded coffee market

Hindustan Unilever :32% of branded market share
Nestle India: 24% share
Narasu's Coffee: 7%
Tata Consumer Products: 2%

4/4

You can read the unrolled version of this thread here: https://typefully.com/Finalysis20/HaT9otF]]> HaT9otF thread false null https://typefully.com/Finalysis20/key-data-points-for-indian-chemical-sector-from-NmTUg48 Some key data points for Indian chemical sector from a report by @Trendlyne A short thread 🧵 Contribution to economy: Indian Chemical industry contributes 7% of country's GDP. Market size is $240 Billion Import & Export Chemical industry traditionally has been a net importer. Imports have ris… https://typefully.com/Finalysis20/key-data-points-for-indian-chemical-sector-from-NmTUg48 Tue, 13 Jun 2023 02:06:44 GMT @Trendlyne

A short thread 🧵

Contribution to economy:

Indian Chemical industry contributes 7% of country's GDP.

Market size is $240 Billion

Import & Export

Chemical industry traditionally has been a net importer.

Imports have risen due to: Higher domestic demand & increased production of downstream products.

But, Specialty chemical segment is net exporter.


Key sub-segments that contribute 80% of exports under speciality chemical segment.

~ Agro chemicals
~ Dyes & Pigments
~ Cosmetics & Personal care
~ Food Ingredient Chemicals

Growth & margins

Chemical industry growth in last 2 years = 17.8%

But they are due to:
~ Low base effect of COVID lockdowns
~ Pent-up demnd post Covid

Expected growth rate in coming year : around 12%.

However the profit margins have reduced.

Margin Decline:

Peak margin of 22% in Q3FY22 has declined to 18% by Q4FY23

Key reasons:
~ Increased input costs of high raw material prices
~ Lack of pricing power]]> NmTUg48 thread false null https://typefully.com/Finalysis20/sources-of-a-competitive-edge-in-business-nJ54Qle Competitive edge or Moat has always been talked about by Warren Buffett. "Capitalism is all about somebody coming and trying to take your castle. Now what you need is. You need a castle that has some durable competitive advantage - some castle that has a moat around it." 1/7 So what are the sour… https://typefully.com/Finalysis20/sources-of-a-competitive-edge-in-business-nJ54Qle Mon, 12 Jun 2023 01:30:06 GMT
"Capitalism is all about somebody coming and trying to take your castle. Now what you need is. You need a castle that has some durable competitive advantage - some castle that has a moat around it."
1/7




So what are the sources of this competitive edge?

A recent Banyan Tree Advisors newsletter talks about it.

Do look for the following sources when you study any business

2/7

1. Economies of Scale:

A big market share.

This allows company to push it's products/services to a huge number of consumers.

Less competition means company has advantage of pricing power, thereby giving the ability to maintain it's profit margins.

3/7

2. Intangibles

Non-physical assets that keep competition at bay.

Some of the key intangibles are.

Brands: A powerful brand has recollect value & people associate the product with the brand. e.g. Kodak for analog camera, Xerox for photocopying machines

4/7


Patents: Gives technological edge to the company.

However innovation, research & development by peers can take away the edge.
e.g. Drug patents in pharma

Licenses: These can reduce players in the market and can create a monopoly or duopoly.
e.g. Spectrum licenses for 5G

5/7

3. Switching costs.

Cost for consumer to choose a competitor.

E.g. High costs of changing dish TV provider. Involves cost of dish, setup box, remote & installation.

OTT platforms have low switching costs. One month you recharge Netflix, the next Amazon Prime then hotstar.

6/7

4. Network effects.

Value of product grows with increasing number of users.

e.g. Sites like youtube became as more & more content was being uploaded. More content bought more viewers & increasing youtube's popularity.

7/7


You can read the unrolled version of this thread here: https://typefully.com/Finalysis20/nJ54Qle]]> nJ54Qle thread false null https://typefully.com/Finalysis20/the-significance-of-revenue-breakup-in-J61mzLx A key metric while studying business is it's revenue breakup. Often companies disclose revenue breakup by segments or as per geography. Furthermore, a study of revenue breakup amongst peers can help to do a comparative analysis of peers. 1/4 Importance of geography wise revenue breakup ~ If reve… https://typefully.com/Finalysis20/the-significance-of-revenue-breakup-in-J61mzLx Wed, 07 Jun 2023 05:54:51 GMT
Often companies disclose revenue breakup by segments or as per geography.

Furthermore, a study of revenue breakup amongst peers can help to do a comparative analysis of peers.
1/4

Importance of geography wise revenue breakup

~ If revenues are more dependent on a particular region, business can impact the business if that region becomes unstable
~ Higher revenues from a region could mean need of localization of resources, opening of local offices etc.
2/4

Importance of segment wise revenue breakup

~ A downturn in a segment contributing more will impact business
~ For diversification strategy could focus more on the segment contributing less
~ High margin earning segments, but with less revenue will get more focus from mgmt.
3/4

Here's a table of comparative analysis of IT Sector companies and their revenue breakup amongst segments.

Highlights the fact that Banking & Finance sector are major contributors of revenue of top IT companies.
Img src: HDFC Securities IT sector thematic report
@hdfcsec
4/4

]]> J61mzLx thread false null https://typefully.com/Finalysis20/weekend-learning-a-beginners-guide-to-naIGQa8 Time for some Weekend Learning! There is a lot of news going around India's Semi-conductor ambitions. See image below. So I decided to learn about nodes & the different size of chips & their applications. Let us learn this.. A thread 🧵 #semiconductors Some basics. What are semiconductors? They … https://typefully.com/Finalysis20/weekend-learning-a-beginners-guide-to-naIGQa8 Sun, 04 Jun 2023 02:01:53 GMT
There is a lot of news going around India's Semi-conductor ambitions.
See image below.

So I decided to learn about nodes & the different size of chips & their applications.

Let us learn this..
A thread 🧵
#semiconductors



Some basics.
What are semiconductors?

They are a vital component of all electronic devices that basically function to control the flow of current.

Think about chips & ICs in your laptop, mobile & TVs.




What is node?

Node is a terminology used to describe the size of the semiconductor. It is measured in nanometres (nm).

Mature nodes are those with size > 40nm.

These require older manufacturing processes & are less technology intensive compared to the smaller ones.


How small is a nanometre?

Well too small to see by our eyes.

Human eye can see a tiny hair which has size of 40-50 microns.

A nanometre is 1000 times smaller than this hair.

1nm = 0.000000001 m.

What does smaller & smaller chips mean?

~ Faster computing speed
~ Lesser power consumption
~ Lesser space

At the same it also means:

~ Critical manufacturing process
~ Require high end machines & fab technologies
~ Technology known by a select few.

The smallest & largest nodes

Smallest: 3nm
2 nm is also said to be under development

Largest: Around 3 micron.

All high tech computing, faster mobiles, laptops, 5G & future 6G connectivity require smaller nodes.

Pic source: https://www.tsmc.com/



Applications of the newer smaller nodes of size 3nm to 10 nm.

~ High end mobiles processors such as iPhone 12 & 13
~ 5G & future 6G connectivity
~ Smart TVs
~ Mobile displays
~ Autonomous & Advanced Driver Assistance Systems (ADAS) in Autonomous cars


Current leading chip manufacturers:

~ TSMC (Taiwan Semiconductor Manufacturing Company Ltd.)
~ Intel
~ Samsung
~ NXP

All major OEMs such as Apple, Xiaomi, AMD, Huawei, NVIDIA are dependent on such semiconductor manufacturers


Why India is stressing on semiconductors?

There is a global chip war especially between US, China & Russia.

Key defense & strategy applications, space exploration, cutting edge research, newer technology all require semiconductor chips.

Self reliance is hence very important.

India's plan:

~ Attract global semiconductor manufacturers to setup fab plants.

~ Be self sufficient in domestic chip demands e.g for smartphones & TV display.

~ Become the semiconductor supplier for the world]]> naIGQa8 thread false null https://typefully.com/Finalysis20/investing-truths-with-howard-marks-HBPZPzb Time for Weekend learning! Wish to know some truths of Investing? Listened to a talk by Howard Marks @HowardMarksBook CEO of Oaktree Capital Management on CFA Society India's Youtube Channel. @CFASocietyIndia A thread 🧵 on some of the investing truths: #weekendlearning In investing and in life… https://typefully.com/Finalysis20/investing-truths-with-howard-marks-HBPZPzb Sun, 28 May 2023 01:40:11 GMT
Wish to know some truths of Investing?

Listened to a talk by Howard Marks @HowardMarksBook CEO of Oaktree Capital Management on CFA Society India's Youtube Channel.

@CFASocietyIndia

A thread 🧵 on some of the investing truths:

#weekendlearning

In investing and in life:

Sucess is not good for most people. Success makes you overestimate your abilities.

You learn nothing from success, you learn from failure.
Hence, Howard Marks says:

"Experience is what you got when you didn't get what you wanted."

Don't buy just good things, buy them well!

Buying at a cheap price, with a bigger margin of safety is important.

Buy assets which are out of favor, as they give better bargains.

Do not predict but prepare!

It is impossible to predict:

~ Interest rates
~ The next big trend
~ Macros
~ Stock market

But, investors act as if they can see future, which is impossible!

Focus on things within your control which are:
~ Your emotions
~ Strategy
~ Behavior

Have a good sense of where you are.

Understand the current market conditions.

It's possible to enhance investing decisions based on what market is doing now.

Decide to be aggressive or defensive based on observations of current market conditions.


Most dependable way for investing success is:

"Buy assets at a low purchase price i.e. at discount"

Because it:
~ Reduces downside risk
~ Enhances return

The stock price is due to consensus of all market participants.

Hence:

~ Be contrarian
~ Think different but better!



Avoid being distracted by the short term.

Quarterly or daily returns don't matter.

Focus on things that matter in the long term.

Be right in the long term and you can be wrong in the short term.



3 stages of bull market

No optimism:
Few intelligent ones believe that things can get better

Good optimism:
Most investors know that things are actually getting better

Extreme optimism:
Everyone thinks that things can only get better forever



Market is not 100% efficient but,

In this age, everyone knows & can access the information that is provided by the market regulator.

If you think you know something more, ask yourself,

"Why do I know this than others. Does it mean I am wrong?"


Behavior of participants alters the landscape.

If there is a bargain, then people buy it to make it not a bargain.

So, a market that gave bargains in the past doesn't mean it would do in future.

Have courage & conviction to stick to your approach.

But, no approach will give returns in all conditions.

So,
~ Participate only when opportunities fit your approach.
~ Don't invest in everything, every trend.
~ Stick to what you know.


To succeed you have to survive.

Ensure you survive the worst days.

Worst thing is selling at the bottom.

Perseverance in difficult times require:

~ Consistent adherence to approach
~ Control over emotions &
~ Portfolio build to withstand declines.


Risk is inescapable part of investing.

You can't have returns with absolutely no risk.

But,
that doesn't mean higher risk equates to higher returns.

Controlling risk is as important as finding profitable opportunities. A balance between these two is important.

There are no rules in investing.

It all comes down to judgement.

There are many things that cannot be quantified.
But people think that they need more data, even if majority data is unimportant.

Look for long term performance when choosing a fund or money manager.

Randomness in short term can make bad manager look good & vice versa.

Note:
Good manager brings more money to manage but too much money beyond a point, makes it difficult to manage.

Have reasonable expectations.

Don't aim too high.

Just because you wish high returns doesn't guarantee it. There should be right environment, right approach of investor to get it.

You can read the unrolled version of this thread here: https://typefully.com/Finalysis20/HBPZPzb]]> HBPZPzb thread false null https://typefully.com/Finalysis20/mutual-fund-industry-data-points-xvKlm2K Some interesting data points on the Mutual Fund (MF) Industry: A thread 🧵 Increase of AUM (Assets under Management) for the overall MF Industry: Between March 2012 to March 2023 = 6x Growth of Nifty between same period = 3x Current AUM = Rs. 39 Lakh Crores Increase in number of unique invest… https://typefully.com/Finalysis20/mutual-fund-industry-data-points-xvKlm2K Mon, 22 May 2023 01:30:07 GMT

A thread 🧵

Increase of AUM (Assets under Management) for the overall MF Industry:



Between March 2012 to March 2023 = 6x
Growth of Nifty between same period = 3x


Current AUM = Rs. 39 Lakh Crores

Increase in number of unique investors:



Between March 2017 to March 2023 = 2.94 x

Increase in number of unique folios in the same period = 2.63 times.


Thus, Market rise & new investors both have led the increase in the AUM.

Contribution to MF industry AUM by different investor sets:


Individual investors have led to a dramatic rise in AUM followed by Corporate!





Individual Investors prefer Equity!


Individual investors have allocated around 57% to equity followed by approx. 18% to Hybrid Schemes.


while

Corporates have allocated around 52% to debt followed by approx. 29% to ETFs





Above data is taken from:

Sebi India's consultation paper for reviewing the Total Expense Ratio of AMCs (Asset Mgmt. Companies).


This paper:
~ Highlights current TER structure
~ Proposes changes to
~ Bring more transparency & accountability for retail investors w.r.t TER.




Point to note:


SEBI through this paper, has invited views & opinions from retail investors regarding the proposals in this paper.


As said by @1PageFinance in the below tweet, AMCs & distributors would not want the retail investor to read this paper
👇

https://twitter.com/1PageFinance/status/1660179111493652480?s=20]]> xvKlm2K thread false null https://typefully.com/Finalysis20/gwBkair Richard Feynman said: “Imagine how much harder physics would be if electrons had feelings.” Rules of physics are reliable precisely because electrons never: ~ Rebel ~ Innovate ~ Go on strike ~ Forget to perform ~ Behave in a contrary manner 1/2 But this is not true for the market participants,… https://typefully.com/Finalysis20/gwBkair Thu, 19 Jan 2023 01:30:07 GMT “Imagine how much harder physics would be if electrons had feelings.”



Rules of physics are reliable precisely because electrons never:
~ Rebel
~ Innovate
~ Go on strike
~ Forget to perform
~ Behave in a contrary manner


1/2

But this is not true for the market participants, who are prone to emotions & biases.

Every macro news, economic indicator, business happening etc. affect investors.



Hence the market fluctuates!



Adapted from Howard Marks memo:
"The Illusion of Knowledge"
2/2
#investing




You can read the unrolled version of this thread here: https://typefully.com/Finalysis20/gwBkair]]> gwBkair thread false null https://typefully.com/Finalysis20/top-10-emerging-tec-vZmEGrF Top 10 emerging technologies in the chemical industry. A thread 🧵 Source: Motilal Oswal @MotilalOswalLtd report on Specialty Chemicals sector. #sectoral_view 1. Sodium Ion Batteries: ~ More sustainable ~ Environment friendly ~ Cheaper than Li-Ion batteries. No constraints of raw material … https://typefully.com/Finalysis20/top-10-emerging-tec-vZmEGrF Thu, 12 Jan 2023 01:30:11 GMT

A thread 🧵



Source: Motilal Oswal @MotilalOswalLtd report on Specialty Chemicals sector.

#sectoral_view

1. Sodium Ion Batteries:


~ More sustainable
~ Environment friendly
~ Cheaper
than Li-Ion batteries.


No constraints of raw material availability.



2. Nanozymes:


Man-made nanomaterials that provide the properties of natural enzymes.

Enzymes: extracted from living cells of plants, animals & micro-organisms, help in digestion, fermentation etc.


Nanoenzymes applications:
~ Water treatment
~ Pollution removal




3. Aerogels:

Lightest (low density) solid material ever known.

Provide outstanding thermal insulation compared to conventional insulator materials.


Usage:
~ Catalysts
~ Space technology
~ Drug delivery systems
~ Energy generation, storage & harvesting


4. Film based fluorescent sensors:


Exhibit high sensitivity & selectivity.


Usage:
~ 2D/3D films that react to external stimuli
~ Detection of explosives, illicit drugs


5. Nanoparticle mega libraries:


Can be used to generate 65000+ new & complex nanomaterials.



Nanomaterials are used in semiconductors, electrical magnetic & optical applications.


6. Fibre Batteries:


Batteries that can be woven into clothes.



A potential game-changer in wearable electronics.



Can lead to the dawn of a new era of Smart Textiles.


7. Liquid solar fuel cells

Uses artificial photosynthesis (a process plants use to make their food using sunlight) to produce solar fuel cells

Application:
~ As a renewable fuel
~ Photocatalysis - Using light to speed up a chemical reaction



8. Textile displays

Fibres that are capable of emitting light.

Another game changer in smart textiles & wearables.



9. Rational Vaccines with SNA

3D nanostructures for better cell penetration.

Applications:
~ Cancer therapy
~ Deliver chemicals to activate immunity against tumours



10. VR enabled interactive modelling

VR - Virtual Reality

Application in healthcare domain wherein the healthcare modelling can be quickly done.

Healthcare modelling is form of uses data analysis to predict patient health issues & suggest preventive treatments.

You can read the unrolled version of this thread here: https://typefully.com/Finalysis20/vZmEGrF]]> vZmEGrF thread false null https://typefully.com/Finalysis20/a-chat-with-mohnish-pabrai-hosted-by-sandeep-BuPhBzn A chat with Mohnish Pabrai @MohnishPabrai legendary investor & founder of Dakshana hosted by @SandeepParekh on Investment and regs. This is Mr. Pabrai's first twitter space & Mr. Parekh asks him questions, that Mr. Pabrai has never answered before. A thread on key takeaways: The magic of Compoun… https://typefully.com/Finalysis20/a-chat-with-mohnish-pabrai-hosted-by-sandeep-BuPhBzn Sun, 19 Jun 2022 09:38:39 GMT @MohnishPabrai legendary investor & founder of Dakshana hosted by @SandeepParekh on Investment and regs.

This is Mr. Pabrai's first twitter space & Mr. Parekh asks him questions, that Mr. Pabrai has never answered before.


A thread on key takeaways:

The magic of Compounding

If:
~ You're slightly above average investor
~ Spend less than you earn.

Nature of compounding for a long time will ensure you've more assets than you can consume.

So, only two choices remain:

~ Either give to your gene pool

~ Give back to society

Large inheritance make more harm than good

If you bestow large amounts on your children then you are putting them in a welfare state. It sub-optimises their potential.

Starting from zero is a great process which the next generation should experience.

Investing Vs Philanthrophy

Investing:
We choose wh company to invest & let 99% of market which isn't worth to invest, go by

Philanthropy:
Forces you to see tough side of world. U need to be willing to fail

Low risk High Return = Investing
High risk High Return = Philanthrophy

Challenges in Philanthropy:

~ Poverty

~ Lack of Education

~ Inadequate but expensive Healthcare

~ Deteriorating Environment

Each of the above issues are a tough nut to crack!

Investement philosophy:

~ Understand the business

~ Try to understand it's trajectory

~ Predict likely future trajectory to a high probability

~ Look for unexplored opportunities where multibagger returns could be realised over a long time frame.

Don't worry much about Macro:

Many of the listed business have done well inspite of interest rate govt policies, regulations etc.

This has been possible only because of the model they have.

Figure out & focus on the 2-3 main factors that drive the outcome of business.

Dotcom Bubble

1999 was a period of extreme euphoria & it was obvious that we are in a bubble.
Microsoft's earning was 70-80x times earnings. It wasn’t growing that much but business was doing well.

At the same time there were pockets that were undervalued & unexplored!

Should you worry about bubble?

Investors shouldn't focus on the bubbles.

Just focus on something that you understand very well. If you understand it well & pricing is low to not justify the valuation, then it is opportunity to buy.

Funeral homes

Lucrative business, good economics & lowest rate of failure.

We can’t tell who will die in a city but we can estimate the number of people that will die, fairly accurately.

Whenever a loved one dies, we don’t care about the cost. We want the best funeral service.

Being Unoriginal

Cloning is not bad!

“In Investing, No one is smart enough to figure it all out themselves.”
--
Charlie Munger

Study businesses that have been invested by good investors! Since you can't study all listed businesses avail this shortcut.

Being Small brained

Investing is not a game of high IQ, but of temperament & patience.
Some simple rules:

~ Avoid leverage

~ Ensure you survive market swings

~ Don’t short.
Upside: 2x; Downside: You can become bankrupt

~ Buy when others are not & hold for longer periods

On market Swings:

Any listed company on NSE/BSE varies by 100- 400 Rs within it’s 52 wk high & low range.

Whereas price of real estate doesn’t vary more than 10% in a year. Swings are thus inherent to the nature of markets.

We can’t tell to what extremes the market will swing.

Laziness is necessary!

Study by Fidelity Mutual Fund:
"Accounts with no activity generated the best returns.
&
Accounts that did exceedingly best were the ones whose owners were already dead."

Investing is about:

~ Reading
~ Thinking
~ Being Curious &
~ Acting less

Being boring:

Have interests outside your profession.
Especially in investing, if your energy is un-utilised you would end up taking unnecessary actions and erratic investing decisions.

It does more harm than good.

3 variables that control the wealth.

~ Length of runway

~ Rate of return

~ Amount of capital you start with

The more the time period of investing, the more your wealth grows! So, even a 6-7% interest rate return for a long period consistently would create wealth!

Views on India:

Has lot of promise & long growth runway. The entrepreneur sprit is there but is curtailed to some extent.

India needs freedom from govt intervention & bureuacracy.

It's obvious that, IT & data sector will do well.
But making money in them won't be easy.

You can read the unrolled version of this thread here: https://typefully.com/Finalysis20/BuPhBzn]]> BuPhBzn thread false null https://typefully.com/Finalysis20/the-loolapalooza-effect-in-supermarkets-cpY2tRD This weekend I had been to DMart. Inspite of having a list, I ended up spending more than I wanted too. Do you know why this happens? Charlie Munger will tell you it's because of Loolapalooza effect! Read along to know more in this thread ⬇️ Loolapalooza effect Coined by Charlie Munger in his 1… https://typefully.com/Finalysis20/the-loolapalooza-effect-in-supermarkets-cpY2tRD Sun, 12 Jun 2022 11:18:03 GMT
Do you know why this happens?

Charlie Munger will tell you it's because of Loolapalooza effect!

Read along to know more in this thread ⬇️




Loolapalooza effect

Coined by Charlie Munger in his 1995 Harvard Speech

When multiple psychological tendencies & biases combine to drive us to a particular action, we have this effect.

Fairly rational individuals, make irrational errors when they succuumb to thid effect!!

Let’s see how this effect fooled me in my DMart trip.

In the next series of tweets we will see the different psychological tendencies at play in a supermarket.

1. Display & accessibility

A typical supermarket has shelves displaying items. Note, inspite of the rush, rarely you'll find any shelf empty.

The items displayed in various shapes, vibrant colors are a mental simulation for food. All these nudge you the buy the cookie pack.

2. Larger sizes

Rarely you'll find a 10Rs Parle-G. It's always family packs.

Shampoo is never a sache but a 500ml bottle.

In my recent purchase I had to buy a 1.5 litre pack of detergent liquid because that was smallest available.

Larger sizes make us buy more than required!



3. Larger bag sizes

You can buy items like grains, pulses & flour loose. The packing bags are of size 1, 2 & 5kg each.

3kg rice in a 5kg bag or 0.5kg of beans in 1 kg bag feel less. Hence, you add more as per the bag size.

Here is the Delboeuf Effect of portion sizes at play!





4. Cart Sizes

The moment you enter you are greeted with empty carts. Shopping Carts on wheels are convenient. Kids & adults alike, love driving them.

The bigger & deeper cartsinfluence your buying decision!

Interested?
Read more here:
https://bit.ly/3aQSPYV

5. Steep discounts & lucrative offers

Buying in large quantities from producers, allows supermarkets to get discounts from suppliers. You thus see 20-30% discount on MRP.

Even more tempting are the limited period buy 1 get 1 free offers.
Notice the effect of Scarcity Bias!





5. Peer pressure

You see people around:
~ lingering at shelves
~ Choosing between brands
~ Filling up their cart.

Conformity bias makes you mimic the behaviour. You check-up shelves of items you don't need, & end up buying at least some from those.



7. Anchoring Bias


30-40% discount on certain products say biscuits & ready snacks makes you believe that everything for sale is cheap!

The discounted products are low margin & are the bait that hook you up to buy the high margin (costlier) products e.g. clothes & cometics.

8. DIfferent entry & exit

The checking counters are mostly at the end. The idea is to make you see maximum number of shelves. The more time you spend, the more itmes you see, the more you buy.

Finally, the Loolapalooza effect:

All the above psychological tendencies are nudges towards a single favourable outcome for the supermarket:
To make you buy more!!

You thus end up spending more than you wanted to.

You can read the unrolled version of this thread here: https://typefully.com/Finalysis20/cpY2tRD]]> cpY2tRD thread false null https://typefully.com/Finalysis20/principles-of-fundamental-analysis-7qTALkG Fundamental analysis is incomplete if you don't know it's principles. Here are 10 basic principles of fundamental analysis. These principles are lucidly detailed in the book: "Accounting for Value by Stephen Penman" A 🧵 @InvestBooks 1. One doesn't buy a stock, one buys a business Stocks are n… https://typefully.com/Finalysis20/principles-of-fundamental-analysis-7qTALkG Tue, 24 May 2022 01:30:10 GMT
Here are 10 basic principles of fundamental analysis.

These principles are lucidly detailed in the book:
"Accounting for Value by Stephen Penman"

A 🧵
@InvestBooks



1. One doesn't buy a stock, one buys a business

Stocks are not paper scrips or ticker symbols. They are the parts of a business.

If you buy a stock means you are opting to own a business.

If you own a business, do you think you will sell it off at the first sign of adversity?

2. When buying a business, know the business

Know the business before owning it.

Understand the business's:

~ Product
~ Market
~ Revenues
~ Growth Strategy
~ Financial strength
~ Profit margins
~ Cashflows

Don't put your money as in a Casino!!

3. Price is what you pay, value is what you get.

Price is a result of perceptions of millions of investors. However the value of the business lies in it's financial strength, current cashflows & future runaway of growth.

Price can deviate from the fundamentals!!

4. Part of the risk in investing is the risk of paying too much.

Margin of safety is vital in buying a business. If you overpay, you straightaway reduce the returns that you get.

If the price you pay is more than the value, there is risk of generating less returns.

5. Ignore information at your own peril.

Investing involves assumptions & approximations about future that get confirmed with new information.

An investor who ignores new info, fails to calibrate his return expectations accordingly.

Blind belief on past is dangerous!

6. Understand what you know and don't mix what you know with speculation

Information is replete with facts, opinions & predictions.

~ Facts: use to update what you know
~ Opinions: Avoid since they cloud judgements
~ Predictions: Cause they are mere speculations.

7. Anchor valuation on what you know rather than on speculation.

Future involves speculation. However, base the valuation on current facts & figures.

Value = Anchoring accounting value + Speculative value.

Identify current value & then consider extra valuation for speculation

8. Beware of paying too much for growth

Investors are emotionally moved by growth. But growth at the expense of weakening balance sheet or non-existent cashflows is a source of future trouble.

Growth in a competitive environment can be taken away by peers.

9. When calculating value to challenge price beware of using price in the calculation.

Valuation is ultimately used to find the price range to buy & sell. Hence, current price cannot be the basis for deciding buy & sell price ranges.

It has to be based on the business value.

10. Prices gravitate towards fundamentals

Markets routinely misprice assets. But, price will ultimately follow fundamentals.

An overvalued stock will correct if fundamentals don't justify high valuation.

Vice versa, depresse price will catch up with superior fundamentals.

You can read the unrolled version of this thread here: https://typefully.com/Finalysis20/7qTALkG]]> 7qTALkG thread false null https://typefully.com/Finalysis20/12-equations-of-life-by-kuntal-shah-XLZCYIi 12 equations of life by Kuntal Shah @Kuntalhshah CEO of Oaklane Capital Management @oaklanecapital He shared these powerful equations in Vishal Khandelwal's @safalniveshak One Percent Show. These equations are true for life & are also true for investing. A 🧵 1. Anything multiplied by zero is… https://typefully.com/Finalysis20/12-equations-of-life-by-kuntal-shah-XLZCYIi Fri, 20 May 2022 14:02:36 GMT @Kuntalhshah CEO of Oaklane Capital Management @oaklanecapital

He shared these powerful equations in Vishal Khandelwal's @safalniveshak One Percent Show.

These equations are true for life & are also true for investing.

A 🧵


1. Anything multiplied by zero is zero

Many activities in life multiply over a period of time.
However if the outcome leads to zero then all the past doesn't matter.

In markets, making huge money doesn't matter if you lose it all in the end.

2. Happiness = (Aspirations + Achievement)/ Regrets

Easiest way to increase happiness is:

~ To lead of life of low regret

~ Aspire to have decent amount of Achievement

3. Disappointment = Expectation/Reality

If expectations grow & realities fail to catch up then we become victim of our image.

Keep expectations meaningful & be in sync with reality to keep disappointments low.

4. Kinetic energy = ½ m(v^2)

Mass & velocity both can be increased to gain competitive advantage.

But, velocity is exponential.
Speed with direction is velocity. So make your efforts at good speed but in the right direction to succeed in life.

5.Opportunity cost >>>>>> than sunk cost

Many decisions in life & investing are sunk cost fallacies. Think about the opportunity cost lost while pursuing the sunk cost.

Remember:
The line between perservaance and stupidity is very fine.

6. Destruction is far swifter than construction

Rome was not built in a day but Hirshomia & Nagasaki were bombed out flat in a day.

Similarly in investing it takes multiple years to earn sizeable capital, but one bad decision to lose it all.

7. EBITDA is not equal to cashflows

EBITDA and price multiple alone give a narrow view about a business.

Read cash flow statement, which actually is the lifeline of a business.

8. Role of luck is supreme in life.
Luck = (Joy^2)/Efforts

If joys are good be mindful of efforts responsible to get that.

If joys are a result of inheritance & lottery then be mindful that it has come easily & won't come so easily in future.

9. Despair = Suffering - Equanimity

Suffering of doubt, self pity & loathing can only be handled by being equanimous.

Know that this too shall pass!

10. 4th law of motion

Returns are inversely proportional to motion. Returns decrease as motion increases.

In investing, too many actions increase the probability of mistakes.

A wrong decision can disrupt compounding

11. FV = PV x (1+r)^n
FV = Future value
PV = Present value
r = rate of interest
n = duration

We want:
~ Long duration of growth
~ Accompanied by high return
~ With low risk.
Triangulation of this results into a win-win situation.

12. Gratitude + High attitude = permanently high altitude

Have high thinking & be thankful for the good things.

This makes you eligible for success in life.

You can read the unrolled version of this thread here: https://typefully.com/Finalysis20/XLZCYIi]]> XLZCYIi thread false null https://typefully.com/Finalysis20/the-investors-podcast-with-bryan-lawrence-PWMrvAs Listened to an episode of TIP: The Investor's Podcast with Bryan Lawrence @brl11 founder of Oakliff Capital hosted by Stig Brodersen @stig_broderesen A 🧵 on key takeaways: 5 questions to ask when selecting a business for investing: ♦️ Do we understand the business? ♦️ Is it within our circle of c… https://typefully.com/Finalysis20/the-investors-podcast-with-bryan-lawrence-PWMrvAs Sun, 15 May 2022 04:51:07 GMT
TIP: The Investor's Podcast with Bryan Lawrence @brl11 founder of Oakliff Capital hosted by Stig Brodersen @stig_broderesen

A 🧵 on key takeaways:

5 questions to ask when selecting a business for investing:

♦️ Do we understand the business?

♦️ Is it within our circle of competence?

♦️ Is it a great business?

♦️ Is valuation cheap w.r.t. cashflows?

♦️ Is there a temporary mis conception that's making valuation cheap?

Understanding a business:

~ How does the business make money?
~ Who & how is the management?
~ Does the mgmt make the business understandable

Circle of Competence:

It is a sector & industry which we know well

Choosing a business from our circle of competence provides an inherent advantage to the investor

Signs of great business:

~ Durable cashflows

~ Operating in a favorable business structure

~ History of smart well resourced competitors have tried to enter that business & have failed

Valuation:

The stock price of a business between it's 52 wk high & low, fluctuates by on an avg of 30-40% in a year. But, intrinsic value can never change that much.

Falling stock price means future expectation of return has increased.

Buy only when the valuation is justified!

Temporary mis-conception:

A period when investors fail to guage the real value of the business.

Often happens after a bad quarter or short term headwinds in a sector
This leads to temporary fall in stock price.

Such times are best to buy a business.

How do you develop conviction?

~ Understand the business

~ Understand the pricing metrics

~ Check how the favorable industry structure is helping the business

Dealing with industry disruption:

Check if the industry disruption is potent enought to replace the existing industry leader.

If it's not, then you need to buy more.

New announcements by industry disruptors would just reduce the leader's stock price temporarily.

Tips to generate investment ideas

~ Read a lot

~ Read through business model of 100s of business

~ Discuss with other investors

~ Some ideas come from what people have already worked on.

Look for durable business

~ Durable business have predictable cashflows.

~ The cashflows will not only persist but also will increase.

~ Predictable cashflows makes valuations certain

Steps to research a investment idea.

1. Read:

~ As much possible about the company

~ It's past filings

~ What mgmt said in conference call & interviews

2. Co-relate

What mgmt. said will happen and what did happen.

You want someone who underpromises but overdelivers.

Put yourself in the business promoter's shoes.

3. Question:

Ask questions to mgmt.

If mgmt. doesn't like to talk then it's a bad sign.

However majority management like investors who care & question about their business.

4. Extrapolate

~ If all thesis is still valid then predict what will happen to the business 5-10yrs later.

~ See what cashflow returns you as shareholder will get.

~ See if IRR is 20% or more then you buy it.

5. Track:

~ Keep studying, if the business is getting worse or better.

~ Recalibrate assumptions to see whether IRR is going up or down.

~ If there is a big change in IRR then change position

~ If assumptions are going wrong & mgmt is not taking the right steps then exit.

Know this truth about value investing:

Every concentrated value investor will underperform the market on an annual for 30-40% time.

Berkshire Hathaway has underperformed S&P 18 out of 57 yrs under Warren Buffett

People leave this path due to so much underperformance.

3 sources of edge:

Analytical : Analyse better than other people.

Informational : Have better info than others

Structural : Have Patient capital than other investors. This allows to have long term time horizon.

When an idea has made money then biases act:

~ You fall in love with the idea
~ It's difficult to ignore when it has taken hold of your mind

In such case look for disconfirming evidence & contrarian ideas.

Increase research if you have made money to ensure you stay invested.

The best thing for individual investors is to find a good strategy & make little changes to it.

For most people it is buying index funds. This will give returns at less expense.

Judging a fund manager:

Check his/her long term strategy

Are they really talented or just lucky?

Why is he getting this return?

Have they got skin in the game?

What is strategy to deal with volatility & how will they manage investors during volatility?

Factoring inflation when analysing stocks

Business will do well in inflation only when:

~ It has pricing power
~ Price rise can outrun cost rise
~ Company have a product that is difficult to do away with
~ People are compelled to use inspite of price rise

You can read the unrolled version of this thread here: https://typefully.com/Finalysis20/PWMrvAs]]> PWMrvAs thread false null https://typefully.com/Finalysis20/SYXMPrL Yesterday RBI raised the repo rate by 40 basis point, & the Cash reserve ratio by 50 basis points. The market reacted negatively to this. A 🧵 to understand RBI’s move & why this affects the markets. @Delhi_Investors @dmuthuk @Vivek_Investor @SmartSyncServ #RBI #market Why the different kinds o… https://typefully.com/Finalysis20/SYXMPrL Thu, 05 May 2022 02:00:39 GMT
The market reacted negatively to this.

A 🧵 to understand RBI’s move & why this affects the markets.

@Delhi_Investors @dmuthuk @Vivek_Investor @SmartSyncServ

#RBI
#market

Why the different kinds of rates?

RBI acts as a banker’s bank.

Additionally it has a role of controlling the money supply in the system.

It does so, by using 3 different rates:

~ Repo rate
~ Reverse repo rate
~ Cash reserve ratio (CRR)

Repo rate:

Rate at which RBI lends to commercial banks viz. SBI, ICICI, etc.

This acts as the benchmark rate.

Commercial banks lend loans to corporates, individuals etc. at a rate based on this rate.

High repo rate means the cost of borrowing is high.

Reverse repo rate:

Rate at which RBI borrows from commercial banks.

If reverse repo rate is increased, banks will be incentivised to deposit money with the RBI instead of lending to corporates, individuals etc.

This reduces supply of money i.e. liquidity in the system.

CRR

Commercial banks as a norm have to maintain certain cash with RBI.

The increase in CRR means, more cash must be deposited with RBI, leading to reduction of liquidity from the economy.

Being mandatory, CRR is thus a more strict method to soak excess liquidity.

What is interest rate?

It is the Repo rate or the benchmark interest rate

An increase in this makes borrowing costlier.

Hike in repo rate:
~ Hurts company profiIts
~ Impacts small companies
~ Reduces domestic participation in markets
~ Slows growth
Let's see each one of these

Company profits:

High cost of borrowing means a higher interest outgo from the company P&L.

This directly reduces the company profits.

Reduction in company profits, mean a fall in stock price!!

Impact on small companies

Small companies have riskier credit profile & are charged higher interest rate by banks.

Think of a person with a low credit score, charged higher interest loan.

This deters investors from investing in these companies, often leading to stock selling.

Reduction in retail participation

High interest rates, mean:

~ Higher interest payment on bank deposits

~ Higher yields on bonds (a debt product)

People are incentivised to shift money from equity to the above ones.

Growth slowdown:

High cost of borrowing leads to businesses deferring capex.

They struggle to payback existing loans & take cost cutting measures.

The above result in companies spending less on:

~ Expansion
~ Manpower addition
~ New products
~ Acquisitions

Thus, slow growth!

Impact on the stock market:

If you are with me till here, you would have guessed it.

The stock market falls with an anticipation of:

~ Reduced corporate profits
~ Rising debts on balance sheet
~ Growth slowdown
~ Drying of retail money
~ Small businesses going bankrupt

The obvious question:

If rise in interest rate is so bad overall & also to the markets, why did RBI do it?

To curb rising inflation.

Hike in interest rates is a policy response to inflation.

Inflation & interest rates

Low interest rates, incentivise people to spend
Think of: Cheap car loan!

High interest rates make:
~ Borrowing costly
~ Bank deposit returns lucrative
People are nudged to save than spend

Thus:
Low demand for goods
⬇️⬇️
Reduces prices i.e. Inflation

Why increase CRR?

Increase in CRR reduces liquidity in the system i.e. banks must deposit more money with RBI.

They have less money to lend.

Less lending
⬇️⬇️
Lower spending by corporates/people
⬇️⬇️
Lesser demand for goods/services
⬇️⬇️
Lower prices i.e. less inflation.

Should you worry as an investor?

No!

Remember Peter Lynch:

"Nobody can predict interest rates, the future direction of the economy or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.”]]> SYXMPrL thread false null https://typefully.com/Finalysis20/a-thread-on-behavioral-biases-from-the-book-the-hzKoxKz Behavioral biases affect every investor's decisions Recently re-visited the excellent book The Joys of Compounding by @gautam__baid A 🧵 on my key takeaways from Charlie Munger's Psychological Checklist of the Standard Causes of Human Misjudgement #CharlieMunger #investing Bias from mere associat… https://typefully.com/Finalysis20/a-thread-on-behavioral-biases-from-the-book-the-hzKoxKz Sun, 01 May 2022 13:44:19 GMT
Recently re-visited the excellent book The Joys of Compounding by @gautam__baid

A 🧵 on my key takeaways from Charlie Munger's Psychological Checklist of the Standard Causes of Human Misjudgement
#CharlieMunger
#investing

Bias from mere association

We humans, connect an incident as a stimulus for pleasure or pain.

Example:
If a FED rate hike resulted in market correction in the past & subsequent portfolo fall, then every FED meeting is a viewed as a painful situation and leads to panic.

Understimating the power of rewards and punishment

People repeat actions that resulted in a reward & avoid those that caused punishment, even if it was a result of pure luck.

Example:
Investors stick to the winning strategy forever, ignoring that the facts have changed.

Underestimating bias from one's own self interest & incentives

We want to see the stock of the business we invested in, to go up.

This makes us buy even when a deterioration in fundamentals corrects stock price.

Self interest makes us believe that the business will do well.

Self-serving bias

An investor credits success in a particular investment is accorded to his stock picking skills.

While failure is accorded to external factors & events. This bias makes an investor turn a blind eye towards his mistakes & knowledge gaps.

Self deception and denial

People distort reality by engaging in wishful thinking & what-if scanarios that aren't a reality.

Example:

Often we extrapolate bull market returns in the future to calculate our networth. This leads to incorrect investing decisions for the future.

Consistency bias & commitment tendency

To maintain continuity & stick to our conviction, we ignore any negative info about the business.

We look for data that supports our hypothesis.

Commitment to past beliefs stems from inability to:
~ Spot errors
~ Course correct


Bias from deprival syndrome.


Humans respond to immediate threats of scarcity.

We await a certain business to come into our buy range.
However, a sudden uptick in price, creates deprival syndrome.

We feel we may never get even the current price & buy at a high price.


Status quo bias & do nothing syndrome

Humans are wired to be lazy.

Too often, we clearly see business fundamentals deteriorating. However, we don't investigate the cause & hope for things to improve.

Laziness to track business progress could lead to losses beyond recovery.

Impatience

We have researched & built conviction in a business & have bought a sufficient position.

But we are impatient to realise profits quickly. Every other stock that is giving good returns adds to our impatience, often resulting in selling at the wrong time.


Bias from envy & jealousy.

This bias is the chief reason why we spend on unnecessary things.

Jealousy towards our better off relatives/neighbour makes us spend unnecessarily/ take debt to:

~ Match their lifestyle

~ Show off our wealth

Distortion by contrast comparison

We overlook gradual quarter-on-quarter progress made by a business but notice the good performance on seeing a comparison with it's rival.

On the flip side, we fail to notice worsening fundamentals and realise only when we see a rival do well.

Bias from anchoring

We hold certain benchmarks in our mind, that influence our investing decisions.

The initial buy price serves as an anchor point, and we fail to increase our position size above the buy price. This bias makes us feel the stock as costly.

Overinfluence from vivid & recent events

Also called recency bias.
Immediate past have a bearing on current decisions.

In bull run, investors forget pain of past corrections & repeat the mistake of buying low quality.

Vividness of rising market influences investor's mind.

Omission & abstract blindness

We hear success stories of people getting rich quick in stock markets. We don't know & neither do we look for the ones who failed & became bankrupt.

This missing information, is why many youngsters still enter the market for the wrong reasons.

Bias from reciprocation tendency

We return the favors that we have received. To help a friend, we share our portfolio stocks as reciprocation.

However, we give little thought to his risk profile & risk taking ability. This can prove disastrous for the friend & the friendship!


Bias from overinfluence by liking tendency

We tend to agree with stock picks & opinions about a business by person who inspires you.
Your close friend or a colleague so much that we value the person more than his argument.

Bias from overinfluence by social proof

Humans tend to imitate others.

The excitement about an IPO, makes us excited too.

This is the major driver of FOMO ( Fear of Missing Out) during a bull market. Since everybody else is making money, we buy anything at any price.

Bias from overinfluence by authority

A veteran investor buying a certain stock or speaking good about it makes us believe the stock is good.

We ignore our own research & blindly put faith on the expert.

Portfolio cloning strategy is highly susceptibel to this bias.

Sense Making

We fit a story around the outcome & think that we could have predicted the outcome beforehand.

Hindsight basis stories always appear obvious.

In a similar situation in the present we can't take same decision since the benefit of hindsight is absent.

Reason respecting

We believe arguments that are supported with a reason.

If we're presented with data, as to why a business is bad we believe it, without self concluding from the data.

We respond to what we feel (in this case, we feel informed) rather than what we understand.

Believing first & doubting later

In a distracted state, when focus & attention is scarce we end up believing things. The reasonsing mind doesn't evaluate the data.

Too often a heavily advertised brand seems moat of a business. Once we actually study it, we start to doubt it.

Memory limitations

Mind remembers only selective information. Often a sequence of events linked more by imagination rather than actual fact.

This bias causes investors to forget salient points about a business & remember the ones that are highlighted by the management & media.

Do-something syndrome

Restlessness leads to this situation which ends up in knee jerk decisions, just to take some action.

Salary in bank account, often gives birth to this syndrome. People are tempted to trade or put money behind stocks whose business have no value.

Mental confusion from say something syndrome

We feel obliged to speak, even when we have no idea what to speak.

Managements in concall are expected to answer every question & sometimes respond vaguely. An investor shud distinguish between genuine answers & vague replies.

Emotional arousal

Intense emotion make us take forced decisions. Deep corrections make people panic & exit quality stocks in hurry.

News about investor's losing crores in market crash fuels this bias. We are emotionally aroused on hearing negative commentary about a business.

You can read the unrolled version of this thread here: https://typefully.com/Finalysis20/hzKoxKz]]> hzKoxKz thread false null https://typefully.com/Finalysis20/face2face-with-aswath-damodaran-hosted-by-xdZ4pJM Aswath Damodaran @AshwathDamodaran, is one of the foremost in the field of corporate valuations. This weekend, heard him decode markets, valuations, inflation, cryptos & much more, in a powerful session of #face2face hosted by Vivek Bajaj @vivbajaj A 🧵 on key learnings: Why newage businesses ar… https://typefully.com/Finalysis20/face2face-with-aswath-damodaran-hosted-by-xdZ4pJM Sun, 24 Apr 2022 11:19:10 GMT @AshwathDamodaran, is one of the foremost in the field of corporate valuations.

This weekend, heard him decode markets, valuations, inflation, cryptos & much more, in a powerful session of #face2face hosted by Vivek Bajaj @vivbajaj


A 🧵 on key learnings:

Why newage businesses are criticised?

~ Majority value investors have been pricing, than valuing companies

~ Pricing based on earnings / sales / book value etc.

These don’t work for newage companies & hence the criticism

Valuation model varies as per the individual businesses

Has the market turned less value driven?

No!

~ Market nowadays, is driven by different metrics than those of 20-30 yrs ago.

~ Markets have always been changing.

Investors and traders don’t change & fail to value a company properly.


The right approach for an investor:

Don’t cringe if others earned more profits in a bull run than you.

Questions yourself:

~ Why you missed the winners?

~ Where I went wrong?

~ What am I doing to get the winners?
~ What metrics or valuing model I need to adopt to find them?

Few wrong notions:

“Venture capitalist use different metrics to value a company”

They use the same metric as other investors e.g. price per user. But, they have the benefit of buying early when there is less competition.

“Private investor push price up & so it crashes post listing.”


This happens only when the market participants become greedy. People who missed to buy a profitable IPO expect to make profit from the next IPO, is pure greed!

Every IPO won’t go public & become sour.

A truth about markets:

“Markets always bring people back to earth.”

It asks investors to stay humble.

Arrogance is the most dangerous quality in the market.

If you think you know more than the market, then you are in for a spectacular fall.

Constraints of a fund manager:

Time: Have to invest within a certain time frame

Duration: Time horizon is equal to the time horizon of the shortest client.

Quantity: Have to invest in 20-30 companies in a year so, have to study 2x-3x the number of investible companies.

Why Institutional investors don't use DCF?

It's time intensive. A fund manager will have to apply it for all investable stocks
By the time it’s finished, valuations will change.

Hence, they use pricing metrics

DCF is for those willing to build portfolio over time & be patient

Examples of pricing metrics used by Fund managers:

~ Company matures & makes money: Price to earnings ratio

~ Growth company that isn’t making money: Price to sales ratio

~ Company having no sales but user base: Price to subscriber ratio e.g. Paytm

Power of an investor

He can:
~ Choose where to invest

~ Invest as per own rules

~ Define benchmarks to analyse performance

~ Stick to these even if company shifts it’s goalposts by:
• Reducing targets
• Changing growth metrics

~ Is never forced to invest or stay invested

Biggest risk for business is in macro events

A good manager / promoter is necessary, but can't controlcindustry wide disruptions.

E.g. Amazon entering the domain of a company.

Mgmt. shud adapt & re-calibrate strategy for such landscape shifts.

Key to be a good investor:

"Don't compare!"

If you invest in top 15-20 companies and made 15% return that’s really great.

In investing, all issues of greed, jealously, anger will trouble you. Seek to be in a surreal place!

Accept the good & the bad things.

What's the most poisonous emotion for an investor?

“Regret”

Repenting:

~ Past investing decisions

~ Missed winners

~ Overlooked opportunities

are an overhang.

They will affect the current & future investing decisions.

Own newage business for the right reasons

Don’t invest because:

~ They are trending
~ They have historically done well
~ People are putting money or have made money in them

Do it if you have, genuine interest in the value of the company
The metric to value should be your own!

Views on China+1:

Businesses are re-evaluating their relationship with China, because of the way the regime treated few businesses.

The govt. values control & changes rules when the control seems challenged.

This is India's opportunity, but it won’t last forever.

Democracy & dictatorship for a business

Dictatorship:
Provides rules for next 20 yrs in a set way

Democracy:
Govt & thereby policies may change every 5 yrs

Dictatorship:
Has less continuous risk, but when authoritarian regime falls, in a day, whole business model is blown up.

Don’t over-glorify entrepreneurship

~ 2 out of every 3 startups fail
~ Success stories prevail bcoz, failure never gets a storyline

In entrepreneurship:

Have to work 16-18 hrs a day at the
expense of self & family

Over-glorifying this is deviating attention from the troubles

On Crypto

~ Not a currency:
Nothing to trust it with

~ Not a safe haven:
It crashed everytime markets crashed

~ Not a collectible:
Doesn’t have any value like a painting

Why do folks buy?
To sell to a person willing to pay more for

The Risk:
This willingness could vanish

Is inflation good or bad?

High but stable inflation is good:

~ Companies can plan investments

~ Fix prices & salaries

~ Forecast & plan expenditures.

However, high inflation is seldom stable.

In volatile inflation:

~ Businesses can’t plan capex as rise in inflation puts it in a debt trap

~ People don’t invest for long term
They roll investments to gain from pperiodic interest rates rise.

~ Leads to hyper inflation where all investment activity ultimately stops!

How to be inflation proof?

Have as much cash as possible in liquid or short term instruments & roll over as rates rise.

Invest in companies having pricing power.

Stronger businesses become more stronger in high inflation as the weaker competition is eliminated.

Examples of business with pricing power

Amazon prime: Renewal based subscription model

Consumers are ready to pay a higher price for renewal

iPhone: Costly; But people’s lives are integrated in the apple ecosystem

They also have:

~ Almost zero debt
~ Huge cash on their books

View on Reliance Industries:

~ It's a conglomerate having a Petrochemical business as a cash cow, that feeds other business

~ Jio a money loser, but has an ecosystem to empower other businesses like retail, media, entertainment etc.

~ Lookout for Pedigree of the owning family

Focus on these when investing in family owned businesses:

~ The promoter & the promoter family group

~ The succession plan

~ The current lifestyle of future successor & his views

Ideally,
Promoter should be dispensable & should let the management take decisions.

Good corporate governance

~ Helps fix issues
~ Improves bad numbers over time

Company with poor corp governance keeps destroying value

Bad company with good CEO will turn average the moment CEO leaves.

CEO should build a business network rather than a personal one.

Qualitative factors in valuation get incorporated in numbers

Don’t get distracted by stories. It must be backed by numbers.

Story: Our employees are loyal
Numbers: Employee attrition must be less

Story: We have competitive advantage
Numbers: Margins must be higher than peers



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