Diversification – Interesting reads and my few cents

Just read two fantastic articles on diversification – companies diversifying into other businesses.

My few cents here…
What makes understanding a conglomerate difficult is that – there are not only multiple businesses – but multiple sectors involved
When multiple sectors get involved, then various moving parts come to play which makes it difficult to get hold on to the biz model
Each sector could be of different types – stable and predictable, cyclical, govt and policies dependent, forex fluctuation or crude dependent etc., etc.,

Then comes the management – each business’ management has to be analysed separately in light of the related sectors.
Then comes the valuation – SOTP valuation – each business has to be valued separately / DCFed, arrive at a number and compare with market cap.

But, I think unrelated diversification is the problem.
For ex, When a pharma company gets into real estate Or, an infrastructure company venturing into specialty chemicals business could possibly seen as a problem.

But, what about related diversification?

I don’t think that would be much of a problem
For ex, a paint company moving to varnishes, adhesives etc., a hospital business getting into medical devices or chain of medical stores business, a hotel business getting into online travel agency etc.,
Such companies can be comparatively easier to analyse and understand and value.

Amazon is one example who was into both unrelated and related business and successful in both
Related – Online selling of books and moved to selling anything online – core ecommerce biz model like, buy – store – sell (or) aggregator
Unrelated – AWS/Cloud, Devops tools, Primevideo, Tablets, Kindle, Alexa, Music etc.,

Even in investing, many great investors have suggested concentrated portfolio & within circle of competence. That is, diversify only within your circle of competence – the easier way to do this is to keep our circle of competence in related sectors and to diversify into those for investing.

Comments are welcome…


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Book Review: Masterclass with Super-Investors

Just finished reading – Masterclass with Super Investors by Vishal Mittal and Saurabh Basrar
A great piece of (hard) work by the authors with these investors, each of whom have a minimum of 25-30 years experience in the markets, so distilled around 300 years of investing experience in this book

First of all, hats off to the authors!

There are only a few books about Indian markets and investors and this one is defenitely a gem.

Very content rich – packed with experiences from India’s great investors – even though we have read and heard from these investors earlier in the media, this book is structured in Q&A style which gave more freedom to the authors to ask pointed and probing questions from retail investors’ perspective, which brings out the unknown information about these investors, in terms of their experience, knowledge and wisdom.

I think the following are the reasons that make this book an excellent work

  1. Even though this book talks about the earlier heard investing rules and dos and don’ts in investing, it gets these in the form of examples and experiences from these investors
  2. This book does not talk much about Financial number crunching and accounting related information – which we can get from everywhere
  3. Each investor explains about their major successes and failures in details with examples and numbers as a story – some of these sections are like as they say riveting read!
  4. They have also shared the knowledge they got from their peer / guru investors

It would be a little bit surprising for most of us to know these:

  • Some of them don’t do scuttlebutt analysis or meet managements at all
  • At times, they had a lot more conviction in the business’ future potential and opportunity than the respective managements
  • Most of these investors are against Leverage / Short selling

These are the few key points that I take away from almost all of these investors:

  • The stock market is about looking ahead and not looking behind
  • Courage to take a plunge without hesitation
  • Sometimes you may be too early to get into the counter – then you need the patience to wait
  • When you have a great idea, you need to back up the truck and buy. It is so difficult to do.
  • Smart investors will average up – as the story plays out and price increases – buy more
  • Ride the entire upward move – sell once the fall starts
  • If you are sure about your analysis and bought the stock – you will not sell even after it becomes 100 bagger
  • Think about what the opportunity was and how much you did?
  • Measure yourself by how much you could have done and how much you did
  • Look for trends and connect them to businesses and stocks
  • See how small an opportunity is now, and how big it can grow
  • You can set in life with 2 hundred baggers. The question is how much money you put in.
  • Read – Read – Read – books / annual reports / business news – if possible debate with like minded people – no other credible source to get knowledge / generate ideas

In my opinion, this book is a must read for anyone interested in investing in the markets – not only Indian markets…

I will definitely read, a couple of more times… after all you can’t remember / capture everything in one read.

One suggestion to the authors – they have only scratched the surface – just 11 investors are profiled in this book
I consider this as Vol 1… expecting couple of more volumes as we still have a lot more of them to be profiled.

Last of all, hats off to the authors!

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My understanding of Investing Framework

The thought for writing this post came from a tweet by @shyamsek this morning followed by my reply.

I wanted to share my thoughts on my Investing Framework – as how I see it and practice it.

In my opinion,
Science part, can be cultivated, learned and developed by anyone who has interest/passion in learning
Art part, difficult to learn as a skill, but over years of continuously reading annual reports, call transcripts, books, from others, can be developed to a reasonable level.
But, there will always be a difference between one who naturally has this and one who learns this.
That difference will make a difference in the investment returns between them.

The art part plays a little more role than the science part because we have seen markets punishing great businesses and rewarding mediocre businesses for an extended period of time.

During this time the art part comes handy to hold on to your conviction and continue to stick on to great businesses and even accumulate them.

As the science part can be developed as a skill, having that as a base, I think following categories of stock market investors emerge:

  1. One who has a perfect balance of both Science+Art are the ones who make out sized returns and become well known names of the investing world.
    Warren Buffett for one. Less than 1% of the investing world are here.
  2. One who knows the science part well and can handle the behavioral part, tend to make great returns over long time.
    They may stick to blue chip category of stocks. They dont sell early, or buy late.
    We know many who have bought Reliance, MRF, Dabur, Wipro etc., decades ago, and have passed on to next generation.
    Numbers / results dictate their decisions and they have patience and conviction to hold during ups and downs.
  3. One who knows the science and business and management aspects very well, but lacks the behavioral part, may churn portfolio frequently.
    They make good returns in the market, but, may miss opportunities to make enormous wealth.
    For ex., they may anchor to a price or valuation ratio and wait… Or, may sell winners and hold on to loosers
  4. One who only knows the science part – they may want to try and test their skills in the market
    May lose some / win some – only based on number crunching and some luck
    Will be better off with a couple of index/diversified mutual funds over long time

Please let me know your comments and feedback.

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How much do you love watching Movies & Documentaries

Hello all,
In continuation to my earlier blog post on books, this post is about Movies and Documentaries.
This list is mainly a collection of Business, Entrepreneurship and Finance related.
Whatever I have said in my post on books, holds good here too.

This is the collection that I have come across by watching, recommendations and references.
Again, I might have missed a lot… Please help by letting me know to add to this list and I intend to publish updates regularly.

Here is the list: https://bit.ly/2EojvMK

Thank you

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How much do you love reading

One of the – rather the only – passionate hobby I have is reading.
I only read non-fiction, as I believe that is what has happened, or happening or expected to happen – without imagination.
I am not against Fiction books – just that my interest is in non-fiction – especially History, War, Economics, Finance, and Investing.
But, I do read other categories to know / have a basic understanding – for ex., Science and Engineering etc.,
Once I started reading heavily, I started collecting the names of the books referenced in the books I read, and recommended by many others.
The list is non-fiction only – of course, there could be a few fiction titles too
That compilation over the years – may be 15 years approx? – is what you see in this attached workbook.

Not all of these books are what I have read – thats impossible in one lifetime.
I cant even claim that I have read the reviews of all these books 🙂
Whenever I come across any book recommended / referred by anyone, anywhere – I update in this xls
I might have read may be 5% of this collection – and if I can complete 25% of this collection (which is continuously being updated) in my lifetime, I would consider that as an achievement

Next step, I am planning to add a column to include the category/genre – for ex., investing, history, war, markets, psychology etc.,
I am sure there are many many more books missing from this list.

So, my request to you all, please let me know the best non-fiction books that I have missed so I can add to this

I will keep this list updated and publish regularly.

Here it is: https://drive.google.com/file/d/1tUjt59FYfpehToBbnM6RCxsz-lJ2SKvk/view?usp=sharing

Thank you all

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10 year challenge…

Happy New Year all…

I recently came across the tweets, memes etc., on 10 year challenge…
Just thought how would it be to see the market cap of companies 10 years back and now
So decided to run some queries to find out companies whose market cap has grown 10 times in 10 years

Market Capitalization >= 10*Market Capitalization 10years back
Result was 551 companies !!!

Then, I tweaked the query to add more performance parameters using the following simple query:

Market Capitalization >= 10*Market Capitalization 10years back AND
Market Capitalization > 500 AND
Sales > 100 AND
Net profit > 0 AND
Free cash flow last year > 0 AND
Debt = 0

Result was 34 companies !!!

Then, got intrigued and wanted to find out if there are companies that made 50, 100, 500 and 1000 times increase in Market cap 10 years.
Yes!!! there are. Try out… its interesting…

Then, why only companies that increased market cap by 10 times…

I am sure there must be companies whose market cap eroded by 10 times in 10 years.
So, tried this…
Market Capitalization 10years back >= 10*Market Capitalization
69 companies made the list !!!

Ok, now you would have got what I would have done next… 🙂

Yes, try changing the above number to 50, 100, etc., to find out companies whose market cap eroded by ‘n’ number of times in 10 years

Thanks to http://www.screener.in which made me write this post in less than 10 mins

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Thoughts on consumption sector…

Just finished reading this fantastic article by Aarti Krishnan from HBL. Thanks.

Some thoughts would like to share…

I think this consumption story is here to stay… for a long long time
We are in a consumption mania – there are products and services to cater to all 5 senses

The regulatory changes may impose a temporary pull down on sector, but, as the sector is fundamentally strong, it will adapt quickly – when you have millions of people ready to spend – incomes levels expect to grow
Moreover, regulatory changes may also drive value migration from unorganized to organized players.

The rise of big retail still have a long way to go – reach of smart phones, mind set to provide bank/card details online, touch and feel before purchase etc.,
Millions of people like me still want to have a touch and feel while purchasing – exceptions may be only books, stationery, toys etc.,
Moreover, we have lots of families who keep an account book at mom-pop store and buy whatever they want through the month and pay when they get the salary – (online retailers listening? :))

Consumption index valuations most of the time were always higher than overall market valuations
Is it because market participants think that whatever the state of the economy is, consumption spending will not stop – discretionary spending may slowdown for a while?
Hardly the valuations of companies like Nestle, HUL, ITC, Glaxo, P&G, Colgate, Britannia, Page, crash – they come down during an overall market meltdown – like 2008 times – or some black swan events – like noodles controversy, but they bounce back quickly
I think the consumption sector came back in focus around couple of years back, and started as a PE expansion – for price to catch up with earnings and taken off as a sectoral bull run – also driven by NBFCs credit for consumption

I think there are too many fishes in the consumption pool, and growing bigger, but the size of the pool is very very large
The only challenge will be to find out which ones will grow to become a whale and getting on to them during volatile times and riding with them for a long long time.

Comments, feedback are welcome

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