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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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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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Circle of Competence


What is common among Sachin, Pele, Schumacher, Tiger Woods, Mike Tyson, Navrathilova?
Sachin only into cricket, Pele only into soccer, Schumacher only into F1 racing, Tiger Woods only into Golf, Mike Tyson only into Boxing, Navrathilova only into Tennis

What is common among Maruti, Hero Motocorp, Pidilite, Asian Paints, TCS, Page, Castrol?
Maruti makes only Four wheeler passenger vehicles, Hero Motocorp makes only two wheelers, Pidilite is only into adhesives and specialty chemicals, Asian Paints only into paints and varnishes, TCS only into software, Page only into inner, sports and leisure wear, Castrol only into automotive lubricants

The keyword above is ‘only‘ and that’s what made all of them exceptional, and that means they have all stuck to what they know and what they are good at – core competence – with a lot of passion

And we all know very well how much shareholder returns these companies have created.

That’s what Warren Buffett and Charlie Munger called sticking to your circle of competence.

“Know your circle of competence, and stick within it. The size of that circle is not very important; knowing its boundaries, however, is vital.” – Warren Buffett

“We have to deal in things that we are capable of understanding.” – Charlie Munger

Staying within one’s circle of competence is very important in investing and that is the first level of Margin of Safety

Thanks,

 

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Overvaluation?


One of the simple back of the envelope calculations to check if some stock is overvalued or not is to check its market capitalisation to its entire sector market capitalisation and revenues.

So, just thought of analysing the sector leaders of this bull run (HDFC Bank, TCS, HUL, Bajaj Finance).

HDFC BANK

1

(Here the point to note is, the overall PSU Bank’s Market cap is quite less than sector’s revenues… Undervalued????)

TATA CONSULTANCY SERVICES

2

HINDUSTAN UNILEVER

3

BAJAJ FINANCE

4

Data from moneycontrol.com
Data numbers in crores

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All time highs and lows


Recently came across news where a stock price was referred to have hit an all time high.

So just thought of going through a list of stocks from recent bull run sectors (Finance and Consumer), and come up with their all time low and high and present price/market cap.

Some of the stocks have hit an all time low of less than a rupee and moved to as much as 4 digits – that is more than 1000 times and today they are very strong brands and still going great.

As you can see almost all of these are products and services we use on a daily/frequent basis in our day to day life.

That is as per Peter Lynch – Buy what you see !!!

Company Name All time low All time high Latest Price Latest Mkt Cap
Bajaj Auto 147.32 3,472.60 2,689.20 77,816.58
Hero Motocorp 18.00 4,200.00 3,238.00 64,666.57
Maruti Suzuki 156.10 10,000.00 9,364.00 282,867.77
HDFC Bank 6.45 2,219.05 2,078.45 564,286.40
Kotak Mahindra 0.64 1,424.00 1,287.55 245,481.78
ICICI Bank 3.82 365.65 340.65 219,182.55
Axis Bank 2.46 655.35 656.55 168,620.02
Kajaria Ceramic 1.41 787.55 491.15 7,806.84
Cera Sanitary 3.25 4,300.00 2,735.00 3,557.11
ITC 0.69 353.20 312.70 382,474.07
VST 49.70 3,774.00 3,161.00 4,881.19
Whirlpool 10.63 1,805.00 1,795.25 22,776.67
Symphony 0.13 2,212.75 1,118.85 7,827.14
TTK Prestige 5.75 8,911.20 6,914.75 7,987.34
Bajaj Electric 1.65 706.35 544.25 5,559.06
Hawkins Cooker 15.00 4,650.00 3,350.05 1,771.44
Havells India 0.16 723.00 714.60 44,696.29
V-Guard Ind 2.61 254.90 221.95 9,451.02
HDFC 6.80 2,051.00 1,950.15 329,806.26
Indiabulls Hsg 166.00 1,439.40 1,278.10 54,535.97
LIC Housing Fin 4.60 794.10 520.50 26,267.71
GRUH Finance 0.16 381.95 341.00 24,969.09
Dewan Housing 1.58 685.00 664.85 20,853.61
Repco Home 158.05 923.00 552.10 3,454.01
Bajaj Finserv 87.06 7,200.00 6,974.00 110,980.82
Bajaj Finance 1.95 2,959.70 2,984.05 172,468.66
Nestle 59.33 11,590.00 11,325.00 109,190.80
Britannia 14.00 6,944.10 6,737.00 80,951.22
GlaxoSmith Con 93.75 7,695.00 7,429.75 31,246.21
Bata India 11.86 1,087.60 1,095.95 14,085.98
Relaxo Footwear 1.14 874.00 849.75 10,227.05
Titan Company 1.17 1,006.00 882.05 78,307.18
Jubilant Food 80.80 1,555.00 1,550.60 20,463.12
Asian Paints 2.73 1,488.60 1,392.00 133,520.33
Berger Paints 0.41 341.45 342.75 33,282.23
HUL 9.33 1,807.75 1,769.00 382,709.18
Godrej Consumer 4.94 1,450.75 1,435.65 98,121.00
Dabur India 3.00 490.70 479.50 84,392.00
Marico 2.10 388.00 375.15 47,665.00
Colgate 39.06 1,285.00 1,152.30 31,284.00
P and G 151.11 11,000.00 9,744.30 31,119.00
Emami 2.34 714.00 565.55 25,464.00
Gillette India 40.00 7,196.90 6,491.05 21,057.00
Page Industries 241.25 36,335.95 35,430.65 40,033.00

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Market Cap – How big can it get?


Look at the data given below for these companies, when they were listed, their listing market cap and today’s market cap and calculate for yourself how many times multibagger these are.

Company Name Listing Listing Day Mkt Cap approx (in Cr) Current Mkt Cap (in Cr)
Reliance 1977 10.00 818,507.00
TCS 2004 47,000.00 785,202.00
HDFC Bank 1995 200.00 564,829.00

There are close to 30 companies in NSE whose market cap is more than one lakh crore (https://bit.ly/2Nl8z5W) and of course they are multi-multi baggers for investors over past few decades.

But, the question is, how big can they get from here?

Can we expect the top 3 companies to become atleast a 10 bagger in next couple of decades? – that would be anywhere from half trillion to more than one trillion dollar market cap.

No one can answer with certainty. It may not happen, or may happen in a much longer time – not just in a couple of decades.

We may also see a spin off of the lines of businesses to happen to unlock value and list them separately, which is happening with some of the BFSI behemoths like HDFC and ICICI listing their AMC and Insurance businesses.

Hence, top market cap stocks can remain in an investor’s portfolio as pillars of foundation / all weather stocks and for consistent dividends, and any investor looking for 25x or 50x gains over next decade and beyond should look elsewhere.

Please share your thoughts in the comments section below.

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