perfect research

Ranking of Business Model Framework

2020-07-29T17:29:00.000+05:30

Over a period of time, we worked on developing a framework looking at major wealth creators historically in the Indian market.

We have sought to distil common characteristics of such businesses and make a framework to identify future wealth creators.

We call this proprietary framework the ‘Ranking of Business Models’ framework.

This framework helps us first select a good business model and then allocate higher to great businesses.

The framework was presented at various forums like CFA Society India - Mumbai, Calcutta, Hyderabad, Chennai, and Indore Chapter, Delhi Investors Association, and also at B-schools like IIM Calcutta, IIM Indore, IIM-K Delhi Alumni Chapter, ISB Mohali.

The video and the slides of the CFA Mumbai event are attached below.

Ranking of Business Models framework Ashish Kila of Perfect Research at CFA Mumbai - October 2019 from Perfect Research

To download the presentation - Click Here

We look forward to your comments and suggestions on how we can further improve this process.

Response from the audience after the presentation

For more images click the below-given link

https://drive.google.com/drive/folders/1BuVBzqkErWJ1KoQV-JIGv3ax0zx_grhL?usp=sharing

Acknowledgement

The author, Mr Ashish Kila would like to thank his entire family & team at Perfect Research for their extensive help in the preparation of the above presentation, especially our Chairman and his father Mr R.A. Kila for all the guidance and support.

Disclaimer

We are not SEBI Registered Investment Advisors
Nothing in this article is, or should be construed as investment advice. The stocks mentioned in the post are for educational purpose only and are not recommendations; the purpose of this post is to highlight a framework which an investor can apply to any company.
This is not an offer (or solicitation of an offer) to buy/sell the securities/instruments mentioned.
All the posts on this blog, including this one, are for educational and discussion purposes only.
Please do not take buy/sell or any investment decision based on articles you read on the blog. These are only meant to provide information and initiate discussion. The final decision is and always should be of the reader only.
There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth.
Perfect Group’s officers, directors, employees, principals, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated in this letter.

A framework to understand the Banking Sector.

2019-06-06T19:49:00.000+05:30

The Banking & Financials sector constituted the major chunk of Warren Buffett's portfolio as on June 2018, also, this sector has emerged as India’s biggest Wealth Creating sector over 2013-18 dethroning Consumer/Retail and was also an outperformer over 2012-2017, according to the 23^rd Annual Wealth Creation Study by Motilal Oswal.

Quoting Warren Buffett:-

“If you are going to function in society, as an individual, a mom-and-pop business, or a billion-dollar corporation, you need one or more of the following: a bank account, a business loan, a car loan, or a mortgage and with every bank account, business loan, car loan or mortgage, comes fees charged by the bank for the myriad services it provides.”

We analyzed the Banking Sector and used one company to illustrate our framework; which was presented at Best Ideas 2019 hosted by MOI Global and IIC 2018, also, the video of Best Ideas 2019 is attached here.

Investors may use the aforesaid framework in evaluating the Banking Sector and may apply the thought process to look at other Banks also.

Understanding the Banking Sector by Ashish Kila (CIO, Perfect Research) at Best Ideas 2019 (MOI Global)

To download the Presentation- Please visit this link

We look forward to your comments and suggestions on how we can further improve this process.

Acknowledgment
The author, Mr. Ashish Kila would like to thank his entire team at Perfect Research for their extensive help in the preparation of the above presentation, especially our Chairman and his father Mr. R.A. Kila for all the guidance and support.

Mr. Abhinav Mansinghka for bringing the idea to our notice and being our sounding board for this idea

Disclaimer:

We are not SEBI registered Investment Advisors
Nothing in this article is, or should be construed as investment advice. The stocks mentioned in the post are for educational purpose only and are not recommendations; the purpose of this post is to highlight a framework which an investor can apply to any company.
This is not an offer (or solicitation of an offer) to buy/sell the securities/instruments mentioned.
All the posts on this blog, including this one, are for educational and discussion purposes only.
Please do not take buy/sell or any investment decision based on articles you read on the blog. These are only meant to provide information and initiate discussion. The final decision is and always should be of the reader only.
There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth.
Perfect Group’s officers, directors, employees, principals and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated in this letter.

Capacity to Suffer Framework

2018-02-15T19:54:00.002+05:30

Hi

Every year we strive to share our thought process on the challenges being faced by us in our journey of value investing.

This time we build upon the capacity to suffer framework discussed in the post published before
http://perfectresearch.blogspot.in/2016/01/identifying-businesses-exhibiting.html

Just to refresh....

Capacity to suffer is the management's ability to endure through early burdens on reported profits in short run in order to advance their long term competitive advantage.“Capacity to Suffer” is a key ingredient for long term wealth creation and one must not make the mistake of punishing companies in the short run for choosing pain to develop long term competitive advantage.

The ppt was presented at various forums like IIF and TIA Chennai's 20-20 Ideas Meet.

A condensed version of this presentation was also presented at October Quest forum by me jointly with my dear investor friend Abhinav Mansinghka

We would again like to draw the reader to have a look at disclaimer attached at the end with respect to the stocks being discussed. The stocks (businesses) being discussed are clearly to be seen in the light of understanding the concept and at no point to be construed as an investment recommendation. We are not SEBI registered Analysts.

Here is a link of the video of the presentation made at TIA Chennai 20-20 Ideas Meet

We look forward to your comments and suggestions on how we can further improve this process...
PFA the PPT below

TIA Chennai 20-20 Ideas meet presentation - Capacity to Suffer Framework from perfectresearch

To download the Presentation- Please visit this link

Acknowledgement

The author (Mr. Ashish Kila) would like to thank his entire team at Perfect Research & his investor friend Abhinav Mansinghka for their extensive help in preparation of the above note.

Disclaimer

We are not SEBI registered Investment Advisors
Nothing in this article is, or should be construed as, investment advice. The stocks mentioned in the post are for educational purpose only and are not recommendations, the purpose of this post is to highlight a framework which an investor can apply to any company.
This is not an offer (or solicitation of an offer) to buy/sell the securities/instruments mentioned.
All the posts on this blog, including this one, are for educational and discussion purposes only.
Please do not take buy/sell or any investment decision based on articles you read on the blog. These are only meant to provide information and initiate discussion. Final decision is and always should be, yours and only yours.
We may or may not have a position in the stocks discussed on this blog

Why standard valuation matrix is not the best way to value great businesses

2016-08-24T14:34:00.000+05:30

Hi

Every year we strive to share our thought process on the challenges being faced by us in value investing. We started our moat investing journey with the ppt "Role of Management in Long term investing" to highlight that when Buffett says that business quality is more important than management he is referring to the competence of the management, however we wanted to highlight that in India a lot of managements are unethical and an investor needs to be discerning enough to differentiate the good from the bad. Else money will be made only by the management and not the minority

Then we discussed on our 4C's of Investing Process (Cloning, Checklist, Capital Allocation & Checkout) on how we shortlist ideas, bet money and exit them.

Now we discuss that since stocks are no longer trading at attractive multiples, the standard valuation matrix of PE multiples would not help us hold on or buy great businesses. So the post attempts to discuss a framework to value great businesses.

The topic of the ppt is "why standard valuation matrix is not the best way to value great businesses", the ppt was presented at various forums like IIF and FLAME Investment Lab - Alumni Meet in Pune recently. Foundation for Liberal And Management Education (FLAME)

We also won the best speaker prize at FLAME 2015 alumni meet for the above presentation and we were gifted a great book - "Anatomy of the Bear: Lessons from Wall Street's Four Great Bottoms". One can read about Flame Investment Lab here.

We look forward to your comments and suggestions on how we can further improve this process...

why standard valuation matrix is not the best way to value great businesses from perfectresearch

To download the Presentation- Please visit this link

Acknowledgement

The author (Mr. Ashish Kila) would like to thank his entire team, for their extensive help in preparation of the above note.

Disclaimer

We are not SEBI registered Investment Advisor
Nothing in this article is, or should be construed as, investment advice. The stocks mentioned in the post are for educational purpose only and are not recommendations, the purpose of this post is to highlight a framework which an investor can apply to any company.
This is not an offer (or solicitation of an offer) to buy/sell the securities/instruments mentioned.
All the posts on this blog, including this one, are for educational and discussion purposes only.
Please do not take buy/sell or any investment decision based on articles you read on the blog. These are only meant to provide information and initiate discussion. Final decision is and always should be, yours and only yours.
We may or may not have a position in the stocks discussed on this blog

"Identifying Businesses exhibiting the Capacity to Suffer"

2016-01-10T22:29:00.003+05:30

Our Second Article on CNBC TV18 Website Moneycontrol.com - "Identifying Businesses exhibiting the Capacity to Suffer" - https://t.co/TSICh8FXp7

Over the last few years we have realised that investors fail to appreciate great businesses and managements which display the capacity to suffer.

Capacity to suffer is the management's ability to endure through early burdens on reported profits in short run in order to advance their long term competitive advantage.

“Capacity to Suffer” is a key ingredient for long term wealth creation and one must not make the mistake of punishing companies in the short run for choosing pain to develop long term competitive advantage.

We wrote briefly about it earlier on https://twitter.com/ashishkila/status/614794354381565952

The current article is an attempt to briefly summarise a few key points from our presentations on the aforesaid topic this year...(Thanks - Nikhil /moneycontrol.com /(‪#‎PerfectResearch‬ )

Disclaimer:

Acknowledgement

The author (Mr. Ashish Kila) would like to thank his entire team, for their extensive help in preparation of the above note.

Disclaimer

Nothing in this article is, or should be construed as, investment advice. The stocks mentioned in the post are for educational purpose only and are not recommendations, the purpose of this post is to show capacity to suffer as a framework which an investor can apply to any company.
This is not an offer (or solicitation of an offer) to buy/sell the securities/instruments mentioned.
All the posts on this blog, including this one, are for educational and discussion purposes only.
Please do not take buy/sell or any investment decision based on articles you read on the blog. These are only meant to provide information and initiate discussion. Final decision is and always should be, yours and only yours.
We may or may not have a position in the stocks discussed on this blog

Video of our presentation on 4C's of Investing Process (Cloning, Checklist, Capital Allocation & Checkout)

2014-11-16T23:07:00.001+05:30

Hi

Please find below video of our presentation of 4C's of Investing Process (Cloning, Checklist, Capital Allocation & Checkout) made at FLAME Investment Lab - Alumni Meet in Pune recently. Foundation for Liberal And Management Education (FLAME)

We had the opportunity to present the ppt at IIF & OctoberQuest Forums as well. Will share updated presentation as well after incorporating the feedback received from the various forums in the coming future.

Look forward to your suggestions on how to improve the investing process...

Link for the video: https://www.youtube.com/watch?v=itUvYTZhH5k

Facebook Links: -
https://www.facebook.com/ashishkila/posts/10154825973115007
https://www.facebook.com/ashishkila/posts/10154391861055007

Blog Link for PPT:-
http://perfectresearch.blogspot.in/2014/07/4cs-of-investment-process-cloning.html

Acknowledgement

The author (Mr. Ashish Kila) would like to thank his entire team, for their extensive help in preparation of the above note and video.

Disclaimer

Nothing in this article is, or should be construed as, investment advice.
This is not an offer (or solicitation of an offer) to buy/sell the securities/instruments mentioned.
All the posts on this blog, including this one, are for educational and discussion purposes only.
Please do not take buy/sell or any investment decision based on articles you read on the blog. These are only meant to provide information and initiate discussion. Final decision is and always should be, yours and only yours.
We may or may not have a position in the stocks discussed on this blog

4C's of Investment Process - Cloning, Checklist, Capital Allocation & Checkout (When to sell)

2014-07-22T08:50:00.000+05:30

Hi

Over the last year we have been mulling over these topics especially Capital Allocation and When to Sell. The presentation is an attempt by us to collate the thoughts from the Gurus, Mentors and Friends we follow and then discuss our inference of the same.

The presentation was made at FLAME Investment Lab - Alumni Meet in Pune recently.
One can read about Flame Investment Lab here.

We look forward to your comments and suggestions on how we can further improve this process...

4 C's of Investment Process - Cloning, Checklist, Capital Allocation, Checkout from perfectresearch

To download the Presentation- Please visit this link

Acknowledgement

The author (Mr. Ashish Kila) would like to thank his entire team, for their extensive help in preparation of the above note.

Disclaimer

Nothing in this article is, or should be construed as, investment advice.
This is not an offer (or solicitation of an offer) to buy/sell the securities/instruments mentioned.
All the posts on this blog, including this one, are for educational and discussion purposes only.
Please do not take buy/sell or any investment decision based on articles you read on the blog. These are only meant to provide information and initiate discussion. Final decision is and always should be, yours and only yours.
We may or may not have a position in the stocks discussed on this blog.

Open Offers

2013-10-14T23:14:00.000+05:30

Hi,

As discussed last year in the ppt on delisting, given the dwindling opportunities in Delisting space and the worsening risk-reward ratio we have been in search of other special situation opportunities.

The ppt below is an attempt to discuss another special situation opportunity "Open Offers" in detail.

We would like to emphasise that certain portfolio allocation to such special situations gives you absolute returns in a bear market as well. Also one can also shift such positions at minimal loss into long term opportunities if meanwhile market corrections present a more lucrative long term bet.

The following ppt on open offer was made this year at the ISG forum meet in Delhi, CFA Delhi Chapter meet in Delhi and then the IIF forum meet in Mumbai. We have tried to further revise the ppt as per the feedback received.

Look forward to your valuable comments and suggestions :)

Open Offers from perfectresearch

Acknowledgement

The author (Mr. Ashish Kila) would like to thank his entire team, for their extensive help in preparation of the above note.

Disclaimer

Nothing in this article is, or should be construed as, investment advice.
This is not an offer (or solicitation of an offer) to buy/sell the securities/instruments mentioned.
All the posts on this blog, including this one, are for educational and discussion purposes only.
Please do not take buy/sell or any investment decision based on articles you read on the blog. These are only meant to provide information and initiate discussion. Final decision is and always should be, yours and only yours.
We may or may not have a position in the stocks discussed on this blog.

Role of Management in Long Term Investing

2013-03-24T16:08:00.000+05:30

In our investing experience so far,

in certain cases we have lost money because we didn't pay too much attention to the role which management plays in creating or destroying value.

We used to focus more on inherent cheapness and business quality. Also, since we used to end up looking more at midcaps and small caps in our pursuit for multibaggers, the issues of corporate governance used to surface more.

So in this presentation which was made at an investor forum recently, we decided to focus on the aforesaid topic and stress upon the fact that even though the business may continue to make tons of money, it is the management which will determine whether it will flow to you as a shareholder or not.

One thing which we would like to mention is that in the pursuit of high corporate governance standards, we found a lot of the small and midcap managements wanting and having some skeletons in the closet and it has been difficult to classify them as black or white as they are more like shades of grey with different degrees of darkness.

In this regard, the words of fund manager Chuck Ackre (covered in the ppt) offer some light

Ascertaining management integrity is “the tough question and the answer which often takes us years to discover.” One short cut Akre uses is to favor “owner operators,” which refers to managements that own a lot of company stock. The thinking is that if management’s financial interests are aligned with shareholders, they will do right by shareholders regardless of integrity.

With this we would like to end our soliloquy and present you our presentation below.

We look forward to your comments and suggestions ...

Role of management in long term investments from perfectresearch

Acknowledgement

The author (Mr. Ashish Kila) would like to thank his entire team, for their extensive help in preparation of the above note.

Disclaimer

Nothing in this article is, or should be construed as, investment advice.
This is not an offer (or solicitation of an offer) to buy/sell the securities/instruments mentioned.
All the posts on this blog, including this one, are for educational and discussion purposes only.
Please do not take buy/sell or any investment decision based on articles you read on the blog. These are only meant to provide information and initiate discussion. Final decision is and always should be, yours and only yours.
We may or may not have a position in the stocks discussed on this blog.

Delisting - An Unfair binary game !!!

2012-12-10T00:40:00.000+05:30

Hi

It has almost been a year since we last presented on the delisting theme. We have over the period further refined our thought process. Though we have made decent money with the theme, we have realised that risk reward payoffs in delisting are skewed and asymmetrical!!!

Heads you win some, tails you lose a lot !!!

We have humbly tried to share our findings in the following ppt made at an investor forum in 1st week of November 2012, look forward to your comments and suggestions.... plz see ppt at end of post

We would also like to update on certain developments which have materialised post the presentation:

APW - They have still not announced the RBB (Reverse Book Building) process, having invested close to the indicative price level of 195, we have booked our profit and exited from the above considering the above uncertainty
Ricoh - As we feared, the RBB failed because of book not getting complete
Transgene - Shareholders block transgene move to delist ( Link )
IndoTech - Postal Ballot has passed however given the low level of participation and extremely high level of dissenting shareholders coupled with scattered shareholding has increased the deal risk considerably
DISA - Announced Offer for Sale :(
Timken - We have exited from our position recommended last year at a profit, the continued investment/focus in unlisted entity doesn't seem positive.

Presentation

Delisting - An Unfair Binary Game from perfectresearch

Acknowledgement

The author (Mr. Ashish Kila) would like to thank his entire team, for their extensive help in preparation of the above note.

Disclaimer

Nothing in this article is, or should be construed as, investment advice.
This is not an offer (or solicitation of an offer) to buy/sell the securities/instruments mentioned.
All the posts on this blog, including this one, are for educational and discussion purposes only.
Please do not take buy/sell or any investment decision based on articles you read on the blog. These are only meant to provide information and initiate discussion. Final decision is and always should be, yours and only yours.
We may or may not have a position in the stocks discussed on this blog.

Notes from meeting with value investor Mr. Mohnish Pabrai

2012-08-13T09:00:00.000+05:30

From Left to Right: Mr. Sanjay Bakshi, Mr. Mohnish Pabrai and Mr. Ashish Kila

About Mr. Mohnish Pabrai

Mohnish Pabrai is an Indian-American businessman, investor and philanthropist. In his Pabrai Investment Fund, which is a family of hedge funds inspired by Buffett Partnerships, he successfully manages over $500 million of assets and consistently achieves above average rates of return. Pabrai has high regards for Warren Buffett and admits that his investment style is copied from Mr. Warren Buffett and others. He has written a book on his investing style: "The Dhandho Investor: The Low - Risk Value Method to High Returns".

Mr. Pabrai started with studying Mr. Buffett. Then he added Munger, Templeton, Ruane, Whitman, Cates/Hawkins, Berkowitz etc. According to him it is Best to study the philosophy of the various master value investors and their various specific investments. Then apply that approach with your own money and investment ideas and go from there.

Books by the Author

1. Mosiac: perspective on investing

2. The Dhandho investor

Mr. Ashish Kila had an opportunity to interact with Mr. Mohnish Pabrai at MDI (lecture organised by Mr. Sanjay Bakshi & Mr. Amitabh Singhi) where Mr. Pabrai presented his astute insights regarding the course of action investors should adopt in ever uncertain markets. Note: - We have humbly tried to make some additions (highlighted in Italics) to the note below for better understanding of the content.

· How to go about Cash Allocation

o When an investor finds a stock that has a potential to turn into a two bagger, 75% of the total portfolio allocation should be made towards such stocks.

o For the remaining 25% of the portfolio, the investor becomes more conscious and conservative and tries to find an investment that will be either a three bagger or a five bagger.

o The remaining Allocation should be made in the proportion of 10% for a 3 bagger another 10% for a four bagger and remaining 5% for a potential five bagger.

§ Here the seasoned investors raised a question regarding the time frame one should have patience and let the investment attain its true value.

§ Mr. Pabrai showed the real strength of patience by quoting the example of Daily Journal’s investments under the guidance of Charlie Munger

§ Charlie Munger had the company’s money invested in treasuries for almost 10 years till he found a potential multi bagger in Wells Fargo and Bank and within 1 quarter he invested 100% of the treasuries amount in the stock.

§ Investment history behind Wells Fargo & Co.: - Although in the banking sector, Munger picked Wells Fargo, a superbly-managed, high-return banking operation. Munger investment conviction in this case was mostly the reliance on the management.

o The banking business was no favorite of theirs. When assets were twenty times equity - a common ratio in this industry - mistakes that involve only a small portion of assets could destroy a major portion of equity. And mistakes had been the rule rather than the exception at many major banks. Most had resulted from a managerial failing that the Berkshire team described last year when discussing the "institutional imperative:" the tendency of executives to mindlessly imitate the behavior of their peers, no matter how foolish it may be to do so. In their lending, many bankers played follow-the-leader with lemming-like zeal; now they were experiencing a lemming-like fate.

o Because leverage of 20:1 magnifies the effects of managerial strengths and weaknesses, they had no interest in purchasing shares of a poorly-managed bank at a "cheap" price. Instead, their only interest was in buying into well-managed banks at fair prices.

o With Wells Fargo, Munger obtained the best managers in the business, Carl Reichardt and Paul Hazen.

§ The managerial qualities that attracted Mr. Munger: First, the pair was stronger than the sum of its parts because each partner understood and admired the other.

§ Second, the managerial team paid able people well, but abhorred having a bigger head count than is needed.

§ Third, they attacked costs as vigorously when profits are at record levels as when they are under pressure.

§ Finally, both stuck with what they understood and let their abilities, not their egos, determine what they attempt.

§ The purchase of Wells Fargo in 1990 was helped by a chaotic market in bank stocks.

§ The disarray was appropriate: As one huge loss after another was unveiled - often on the heels of managerial assurances that all was well - investors understandably concluded that no bank's numbers were to be trusted.

§ Aided by their flight from bank stocks, Mr. Munger purchased 10% interest in Wells Fargo for $290 million, less than five times after-tax earnings, and less than three times pre-tax earnings.

§ Wells Fargo was big - it had $56 billion in assets - and was earning more than 20% on equity and 1.25% on assets.

§ Their purchase of one-tenth of the bank may be thought of as roughly equivalent to their buying 100% of a $5 billion bank with identical financial characteristics. But if they were to make such a purchase, they would have to pay about twice the $290 million, they paid for Wells Fargo.

§ In recent years, Wells Fargo executives have been more avidly recruited than any others in the banking business; no one, however, has been able to hire the dean.

§ Of course, ownership of a bank - or about any other business - was far from riskless.

o California banks were faced with the specific risk of a major earthquake, which could create enough havoc on borrowers to in turn destroy the banks lending to them.

o A second risk was systemic - the possibilities of a business contraction or financial panic so severe that it would endanger almost every highly-leveraged institution, no matter how intelligently run.

o Finally, the market's major fear of the moment was that West Coast real estate values were to tumble because of overbuilding and deliver huge losses to banks that have financed the expansion. Because it was a leading real estate lender, Wells Fargo was thought to be particularly vulnerable.

§ None of these eventualities could be ruled out. The probability of the first two occurring, however, was low and even a meaningful drop in real estate values was unlikely to cause major problems for well-managed institutions. Consider some mathematics: Wells Fargo earned well over $1 billion pre-tax annually after expensing more than $300 million for loan losses. If 10% of all $48 billion of the bank's loans - not just its real estate loans - were hit by problems in 1991, and these produced losses (including foregone interest) averaging 30% of principal, the company would roughly break even.

§ A year like that - which they considered only a low-level possibility, not likelihood - would not have distressed them. In fact, at Berkshire they would love to acquire businesses or invest in capital projects that produced no return for a year, but that could then be expected to earn 20% on growing equity.

§ Nevertheless, fears of a California real estate disaster similar to that experienced in New England caused the price of Wells Fargo stock to fall almost 50% within a few months during 1990. Even though they had bought some shares at the prices prevailing before the fall, they welcomed the decline because it allowed them to pick up many more shares at the new, panic prices.

· Wife v/s Mistress- Dilemma

o In the time of uncertain markets an investor does feel that the other stocks (those not owned by him) are looking attractive, but its human psychology that a person finds thing which he not owns more attractive and lucrative.

o During the uncertain periods a fall in the fundamentally strong stock (here the wife) from 1 to 0.7 may lure an investors to switch over to other attractive stock which has fallen from 1 to 0.2 and started looking cheap (the mistress), during this time frame. An investor must hold on to the fundamentally strong stock which has a higher upside potential when the Economy is on the upswing.

· Buy for a time frame of at least two year

o The real knowledge comes after two years of owning the stock.

o The investor needs to give the time for his investment thesis to work around and what new aspects arise for the stock.

· Expert’s Helping Hand- The Checklist

o Atul Gawande in his book The Check List Manifesto makes a distinction between errors of ignorance and errors of ineptitude. Failure in the modern world is really about the second of these errors which means mistakes we make because we don’t make proper use of what we know.

o A team is only as strong as its checklist i.e., a way of organizing that empowers people at all levels to put their best knowledge to use, communicate at crucial points, and get things done.

· The Rule of Reciprocity

o Robert B. Cialdini In his book ‘Influence the psychology of persuasion’ mentions that a person tries to repay what another person has provided.

§ Quantum of Favor: To be rid of the uncomfortable feeling of indebtedness, an individual will often agree to a request for a substantially larger favor, than the one he or she first received.

§ Mr. Pabrai demonstrated this with his own example. Whenever an investor shows interest in Mr. Pabrai’s fund he gifts them Cross-pens along with the brochures, humbled by the small gesture by Mr. Pabrai the investors usually ends up pumping a fortune in their funds. J

o This sense of future obligation according to the rule makes possible the development of various kinds of continuing relationships, transactions, and exchanges that are beneficial to society.

o A possible and profitable tactic to gain probable compliance would be to give something to someone before asking for a favor in return.

· The Power of Cloning

o Mr. Pabrai suggests no one in this world is going to copy you, even if you beg and plead others to do so. Humans are not able to take in new ideas. It is essential to know one in crores become Steve Jobs, we should try to become Bill Gates, try cloning (i.e. inversion mental model).

o The Burger King and Sam Walton Examples –Power of cloning can be best judged by studying the cases of burger king and Sam Walton as pointed out by Mr. Mohnish Pabrai.

§ Mc Donald’s with its entire Logistics’ arm works extensively to find new avenues for its outlets while burger king with a few people to track Mc Donald’s new avenues opens an outlet near every Mc Donald’s outlet, results in Cost Savings and Expansion simultaneously.

§ The power of cloning in its true meaning of passionately studying competitors magnified when it came to knowledge that it was actually Sam Walton, the owner of Wal-Mart, who was found lying in a K-Mart store to measure the aisle distance and not a random person suffering a heart attack as reported in the news.

· Re-engineering the time allocation and using it your advantage

o Mr. Pabrai’s way to get started on your own

§ Mr. Pabrai believes that business can be made along with job. After the work hours still a lot of time is available to work on things of your interests.

§ In a week there are 168 hours, take out 56 hours of hours to sleep and 45 hours of work (9 hours a day and 5 days a week ) then also there are 67 hours left to do pursue work of your interest.

· The Comparative Approach of fair value

o Humans don’t know the price of anything, often the fair value of anything is known by comparison.

§ An excellent work on this is found in the book titled “Priceless” by William Poundstone. Poundstone argues that much of what we think of as "fair" pricing is nothing more than a collection of cognitive fallacies and biases.

§ The most important of these fallacies are the contrast effect (pricing taking on significance from neighboring prices) and the anchoring effect (we take reference from the benchmark available to us).

· Management Psychology

o It is better to not meet the management because they are too optimistic regarding their future prospects.

· Graham V/S Munger

o A very significant distinction between investment techniques of Benjamin Graham and Charlie Munger is while Graham focused on buying cheap distressed business, Munger followed a practice to find great assets and be patient for sale. Mr. Mohnish Pabrai demonstrated this with the help of a grocery store example.

§ Suppose Graham and Munger are to visit a grocery store. Here Graham will prefer to buy all the cheap stuff available collectively as a basket (with an aim to have a net benefit) while Mr. Munger would identify the best articles and prefer to purchase them at attractive prices like in case of a sale.

· Learn from mistakes

o A person should learn from yesterday. It is better to make the mistakes public and improve on the aspects.

· The macro stuff

o The macro context of the economy and industrial outlook should be viewed in context of the business i.e., the probable effects of the macro outlook will have on the business of the company.

· Circle of competence

o The circle of competence means which pond (industry) and fish (company) should investors choose. The important thing to note is that the best way to ask a question is to answer it. A way to increase the circle of competence is to read all kind of stuff, this broadens the horizon.

· The art of reverse Engineering

o This can be termed as the essence of investing which in real terms means applying the knowledge and expertise gained by the notable investors (the likes of warren Buffet, Charlie Munger) in our investing methodologies.

o Even if an investor purchases a particular stock (even at the highest price of the month) for which a notable investor has announced a regulatory filing, and simultaneously sells the stock (even at the lowest price of the month) when the notable investor squares off his position, the investor can still beat the market handsomely.

o A best way to practice it is to keep an eye on what the big investors are buying.

o A watch on the successors of the Veteran Investor’s-An interesting aspect

§ It’s very interesting to keep a track of the buying pattern of the successors of the veteran investor’s.

§ It will be interesting to take the example of the next generation leaders of Warren Buffet’s Berkshire Hathaway.

§ Mr. Buffet has appointed two hedge fund managers Mr. Ted Weschler and Mr. Ted Combs, with excellent track record even in the gloomy markets, to replace him as the Next CIO and CEO when he retires.

§ Mr. Combs is assembling a group of stock picks of his own after being hired by Berkshire last year to take smaller stakes than Buffett, and has stakes in Direct TV, CVS Caremark Corp., Intel Corp. (INTC) and Visa Inc. (V).

§ The crux here is that when assigned with the responsibility to build a portfolio under the guidance of the notable Mr. Buffet himself, the acquisition of the stakes in the above mentioned companies indirectly represents the decision framework of Mr. Buffet and the Magic of reverse engineering can be replicated by an investor in the same manner as the stocks picks were done by Mr. Buffet himself.

· The Potential business

o A potential investible company must have simple business, low Capex and a strong ‘moat’. Here it will be very useful to understand the case of Direct TV.

§ As coined by Mr. Pabrai It will be interesting to study the Journey of Mr. Michael White former Vice Chairman of PepsiCo.

§ Mr. White is the Chairman, President and CEO of Direct TV and has served as a Director since November 18, 2009.

§ Mr. White has always lead from the front and has been a key catalyst in success of the organization’s such as Frito-Lay’s, PepsiCo, whirlpool and PepsiCo Foods International.

§ Mr. White has served on the Board of Directors and as Vice Chairman of PepsiCo from March 2006 to Nov 30, 2009 and as Chairman and CEO of PepsiCo International from February 2003 to Nov 30, 2009.

o When Indra Nooyi learned she had been selected as CEO, she flew to Cape Cod to talk to her chief competitor for the job, Mike White, who was PepsiCo's foremost operations person, to persuade him to stay on. "Tell me whatever I need to do to keep you, and I will do it," were the words spoken by Indra Nooyi. She enlisted three former CEOs to help convince him and asked the board to increase his compensation to a level close to hers.

o This kind of efforts to refrain a person from leaving the company requires attention as to how important this person would have been to the PepsiCo.

§ When Mr. White decided to switch over to Direct TV, it should be noted that a person of his caliber must have noticed something great in this business. The low Capex and great potential business might have attracted Mr. White.

§ Low Capex

§ The business requires an expenditure of around $ 30 million dollars to provide satellite television connections in entire Latin America while if same was to done with cable lines it would cost billions of dollars for the same purpose. The company has low capital requirement together with tremendous growth opportunities. These are events that demand the attention of an intelligent investor, who in this case should have immediately studied the case of Direct TV.

Summary of the book “The Dhandho Investor”

We also Read the bible of value investing “The Dhandho Investor” by Mohnish Pabrai. Some useful insights that we found from the book are as follows: -

· The book focuses on taking few ultra low risk bets which have a high pay-off. The key being ultra low risk.

· Heads I win, tails I don’t lose much

· Few bets, big bets, infrequent bets

· Focus on buying existing businesses

· Long operating history

· Simple businesses with ultra slow rate of change

o We look for mundane products that everyone needs (WB)

o Five ascending levels of intellect: Smart, Intelligent, Brilliant, Genius, Simple.(Einstein)

· Buy distresses businesses in distressed industries

o Getting the purchase price right is more important

o Entrance strategy is more important than the exit strategy

o Be fearful when others are greedy, Be greedy when others are fearful (WB)

· Look for moats – sustainable competitive advantage

· Bet heavily when odds are in your favor

· Focus on Arbitrage

· Buy businesses at big discounts to their underlying intrinsic value – Margin of safety

· Look for low risk, high uncertainty business

o Leads to severely depressed prices for buying businesses

· Better to be copycat than an innovator.

We also viewed some of the interviews of Mr. Mohnish Pabrai.

Some useful insights from the interviews according to us are as follows: -

· Short Selling-A perfect recipe for a potential downfall

o Why engage in something where you know that maximum upside is double and downside could probably kill you.

· The checklist magic

o Prepare a checklist before investing. It helps us to cover all the key areas that we desire to look for in an investment, minimizing the error of ineptitude.

o The following key points are useful to add in one’s checklist: -

§ Is the business model a win-win situation for the entire ecosystem?

§ Management integrity

§ Competition

§ Historical Track Record

§ Are we looking at Normalized earnings or Peak Earnings?

Acknowledgement

The author (Mr. Ashish Kila) would especially like to thank his team member Mr. Pratik Arya, for his extensive help in preparation of the above note.

Disclaimer

Nothing in this article is, or should be construed as, investment advice.
This is not an offer (or solicitation of an offer) to buy/sell the securities/instruments mentioned.
All the posts on this blog, including this one, are for educational and discussion purposes only.
Please do not take buy/sell or any investment decision based on articles you read on the blog. These are only meant to provide information and initiate discussion. Final decision is and always should be, yours and only yours.
I may or may not have a position in the stocks discussed on this blog.

Is the Dividend Really Special???

2012-07-08T00:20:00.000+05:30

Hi

Have used the case of Numeric Power Systems as an example to analyse a particular special situation - "Slump Sale Cases with Special Dividend in Sight"

1) Event
The company has sold off its major business to Legrand for a consideration of Rs 837 crs.
The company has announced a board meeting to consider interim dividend on 9th July 2012.

2) Risk Reward Framework Process
Now in such cases, have tried to use a risk reward framework which could be useful in highlighting
a) the odds one has of making some money.
b) whether you want to bet money and
c) how much capital you would like to allocate to such an opportunity ....

2.1) Probability of a Payout could depend upon the following factors :-

1. Governance Standards of Promoter - No discernible acts of misgovernance

2. Past Dividend Payouts - Not very high in this case - 8% payout ratio in last few years

3. Promoters interest to come back to markets - Does the promoter want to raise future capital in the
market and hence keep a good image in markets
- Difficult to judge in this case as Rs 650 cr is a good warchest.

4. What does he plan to do with the money - in this case the promoter wishes to expand in the solar
UPS area - Question is how much money do u think the promoter will invest?

5. How many shares does the promoter group have - Higher the holding, Higher the chances of a
reasonable payout - as the majority of money comes back in the hand of promoters - 65.12% in this
case

6. Cues from corporate action - Promoters buying etc. could be useful cues - Here holding increased
from 63.39 to 65.12% via off market transfer

7. Promoter Communication - In this case promoters had mentioned their intention in the postal ballot
however there was a delay in announcement of the board meeting post completion of deal on 31st
May 2012.
Also, current omission of the word "Special" in the dividend announcement may be a mere clerical
omission or the above activities may be the deliberate attempt of the promoters to moderate dividend
expectations
Regarding Media Interviews - promoters have not been very media friendly from the start
In this video, the body language in the interview again implied a focus on solar as core and
some special dividend to be paid...

2.2) Calculation of discount to be applied for valuation of residual cash
Seeing some past cases of Slump Sales
a) where dividend was paid - JB Chemicals, Smart Link etc. - ~60%
b) where dividend was not paid - Kanoria Chemicals etc. - ~70%

3) Calculations

4) Conclusion
In such cases, with an immediate downside risk, it all boils down to estimation of probabilities and then deciding on the basis of the corresponding expected return.

Though one who doesn't wish to take the event risk, could have also deployed the strategy of buying earlier and selling out on the dividend board meeting announcement rally (would explain it in another detailed post sometime later)...

Disclaimer

Nothing in this article is, or should be construed as, investment advice.
This is not an offer (or solicitation of an offer) to buy/sell the securities/instruments mentioned.
All the posts on this blog, including this one, are for educational and discussion purposes only.
Please do not take buy/sell or any investment decision based on articles you read on the blog. These are only meant to provide information and initiate discussion. Final decision is and always should be, yours and only yours.
I may or may not have a position in the stocks discussed on this blog.

Delisting Ideas - how to evaluate them

2012-04-02T08:08:00.000+05:30

PFA presentation on the topic “Delisting Ideas and How to evaluate them”.

The ppt was made by Mr. Ashish Kila last year at an investor forum and covered in business standard subsequently
http://www.business-standard.com/india/news/checklist-for-evaluatingdelisting-proposal/454475/

Look forward to your comments and suggestions

We will be updating the presentation in near future with the latest cases ...

Delisting Ideas - How to evaluate them

View more presentations from perfectresearch

JB Chemicals - Special Situation - Cash due to slump sale

2011-07-05T23:40:00.000+05:30

JB chemicals

Though little late in the posting of this idea, the stock fell sharply over uncertainity over cash utilisation when the deal got announced to ~115 Rs.
Have made some notes from the conf call transcript given by management ....

Valuation - As per CMP downside appears limited

Particulars

Amt

Cash in books

Rs per share

102.4

40% discount ('coz investing in pharma business)

40%

After cash

Rs per share

61.42854208

Total Business Revenues before deal

Rs crs

800

Remaining business revenues

Rs crs

615

EV (assuming a price/sales multiple of 1)

Rs crs

615

Net Debt

Rs crs

-22

Equity Value

Rs crs

637

No of shares

Crs

8.45

Per share value (assuming a price/sales multiple of 1)

Rs per share

Total Value in case of non payment of dividend

Rs per share

137

CMP on date of analysis

Rs per share

120

Calculation Of net debt

Debt as on Mar 2010

Rs cr

136

3 yr avg operating cash flow for 2010-11

Rs cr

Cash as on mar 2010

Rs cr

Net debt

Rs cr

-22

Remaining Business revenues as per mgt in concall

ROW

Russia Prescription

j&J

Exchange rate

Rs/$

Rs cr

315

Domestic

Rs cr

300

Total

Rs cr

615

Cash in books

Cash recd

Rs cr

1160

Escrow acccount (payable 15 months later)

15%

174

Balance receivable after 1 month

Rs cr

986

Discounting with 12%

977

Discounting of escrow money with 12%

147

Present Value of total money receivable

1124

Tax Rate

23%

Final in Domestic

Rs cr

865

Per share cash

102.4

Some +ve developments

Ashish Dhawan holding ~7% and buying additional 5.6 lakh shares @128 Rs in NSE after deal

Industry

: Pharmaceuticals & Drugs

House

: Private

Trade Price(Rs.)

Value

(Rs.in Lakhs)

Deal Date

Client Name

Tran

Qty (000's)

25-May-11

ASHISH DHAWAN

BUY

565446

128.02

72388397

Sale of Russia business seems like good riddance as it was not returning funds anyways

Mar 2010 consolidated P&L sales roughly ~ Rs740 cr ...almost half of which is stuck as sundry debtors of Rs 340 cr,

out of which almost half is debtors more than 6 months i.e. Rs 172 cr....

Historically good dividend payout ratio

Possible setbacks

Management going back on their words like GeeCee Ventures/ Gwalior Chemicals.

Went back on their word of investing in pharma, went back on giving dividend, announced buyback and

went ahead with NBFC. Probability of the above event appears to be low

The presence of a savvy investor Like Ashish Dhawan need not ensure that minority share holders interest

is taken care of, as was seen in the Indo asian fusegear where Ashish holds 8%

Links:

Conf call transcript

Money control Vidoes

GTL Infra - Mkt Overreaction or Deeper Malaise

2011-06-23T00:20:00.000+05:30

Did some back of the envelope calculations ...

plz share your comments/suggestions ....

No GTL Infra Shares are pledged as per shareholding pattern

Some rough calculations

GTL has 32000 towers (http://www.gtlinfra.com/towerportfolio.asp)

Recent transactions in the space at ~Rs 0.45crs

ESSAR – ATC (http://articles.economictimes.indiatimes.com/2010-02-24/news/28400846_1_etipl-xcel-telecom-atc)

GTL- Aircel (http://www.business-standard.com/india/news/gtl-aircel-tower-deal-confirmed-for-rs-8400-cr/382725/)

Assuming 30000 operational towers and a per tower value of Rs 0.32crs (30% discount), you get 9,500 crs Rs as EV, Debt of ~7000 cr Rs – Equity Value of 2500 crs Rs vs Mkt cap of 1700 cr Rs….(http://economictimes.indiatimes.com/markets/stocks/stocks-in-news/gtl-debt-management-of-arm-remains-crucial/articleshow/8932317.cms)

Clarifications by mgt

Manoj Tirodkar: No, FCCBs are not due till November next year. So the question of default does not arise. It is all nonsense. The fact remains that today as a whole from an investment standpoint, it is completely at a standstill for telecom generally and our FCCBs are not due till November 2012. So the question of default does not arise.http://economictimes.indiatimes.com/markets/stocks/stocks-in-news/shares-in-gtl-gtl-infra-tank-promoters-deny-selling-stocks/articleshow/8922760.cms

FCCB due in nov 2012 is ~Rs 1000 cr
http://economictimes.indiatimes.com/opinion/interviews/gtl-promoters-have-not-sold-any-share-manoj-tirodkar/articleshow/8924960.cms

Some concerns on the mgt front - GTL used to be a part of the ketan parekh stocks (http://www.moneycontrol.com/news/business/gtl-at-63-month-lowfallrisefallthe-co_558689.html )

Timken India As a delisting candidate

2011-06-23T00:12:00.002+05:30

Had started investing in the counter from 180 levels, didnt get an opportunity to post it....

Please share your comments and suggestions regarding Timken India

had a look at the counter as a delisting candidate vis-a-vis phenomenal spurt in the volumes in month

Global experience – Annual report shows List of subsidiaries showing ~69 subsidiaries worldwide out of which only 2 of them incl India are listed
80% sh holding has to be brought down (because of the 25% public float norm)
3 yr window for companies to comply with 25% sh holding norm - No hurry for mgt, however with their expansion plans they might have to shell out more later

· http://www.ias100.in/news_details.php?id=158

· http://www.moneycontrol.com/news/cnbc-tv18-comments/25-min-listing-norm-effective_453110.html

Shifted entire India holding via Mauritius in 2010

A few unanswered questions - Mgt shareholder unfriendly or other plans ???

200cr lying in Balancesheet in Income Funds - why not being distributed as dividend or (is it being kept for delisting??)
Capex happening thru Timken Chennai which is 100% held by Timken... Timken Chennai to do contract manufacturing for TImken India

http://smartinvestor.in/market/Smartmoves-68925-Smartmovesdet-Timken_plans_Rs_200_cr_capex_to_meet_wind_cement_sector_needs.htm
http://www.moneycontrol.com/india/messageboardblog/message_thread/4399321/6199321
Ploy to shift profits to 100% subsidiary or prevent further developments in Timken India till it is delisted

Ward timken (Chairman Timken) talks about delisting or diluting its stake- Apr 11, 2011

http://lite.epaper.timesofindia.com/mobile.aspx?article=yes&pageid=6&edlabel=ETBG&mydateHid=13-04-2011&pubname=&edname=&articleid=Ar00602&format=&publabel=ET
http://www.moneycontrol.com/india/messageboardblog/17/36/message_thread/4501670/6301670
No denial by mgt like last time in June2010 - However why would mgt preempt notice of delisting (if any) - it will only lead to higher payout from their side for delisting??

Valuations - as per relative valuations it is the most expensive among its peers SKF and FAG

Sh Holding Pattern - easily doable

80.02% holding - so out of the balance open offer of 19.98, they will require to get atleast 50% i.e. 9.99%
4.72% with Institutions
1.57% body corporates
0.64% individuals holding >1 lakh Rs
ignoring 0.19 held by NRI's - they can mop up - 6.93% from smart investors
out of the balance 12.86% (held by public <1 lakh) +.19 clearing membes - 13.05% - they require 23% tender to get balance 3.06%
HDFC, DSP Blackrock (acquisition price ~175 in nov-dec 2010) and UTI are invested

If you analyse the share holding distribution given in 31st Dec 2010 report

A reverse cumulative calculation will show that holders between 500-1000 shares will almost complete the required ratio of 90%
Balance <1% can be easily got from retailers holding b/w 1-500 shares

Movement in top 100 shareholder list in last one month

Previously top 100 shrhldrs held 86.4% shares whereas the number has increased to 86.9%. Moreover, if we look at the top 50 shareholders, very few have actually sold out

New names who have bought over last 1 month include Citigroup Mauritius with 2.9 lakh shares, Puneet & Yadu Dalmia of Dalmia Bharat Cement group holding 75k shares…

In a nutshell,

Unlike Binani - no significant group of shareholder alone can lead to delisting - without a good price on offer - delisting unlikely to happen
however Share price might continue to languish incase delisting gets delayed for the period of 3 years (more of time risk than event risk).

Maharaja Shree Umaid Milla- get the business free with surplus cash of 109 Rs

2011-04-17T00:10:00.002+05:30

7th april 2011

PLz share ur comments n suggestions

Maharaja Shree Umaid Mills (MSUM), a LN Bangur group enterprise, was incorporated on August 12, 1939.
It is a spinning-cum-composite textile company with over sixty five years standing in the chosen business of yarns and fabrics

MKt cap	Rs cr	359
CMP	Rs	416.6

Deal with IP Paper
No of shares in AP Paper	cr	0.86
Price per share	Rs	674.94
Total Realisation/ Cash which will come	Rs cr	581.07

Total Cash in company	Rs cr	581.1
Debt	Rs cr	128.0
Total Cash Net of Debt		453.1
Total no of shares of the company	Cr	0.86
Cash Value per share		526
CMP at a discount to Net Cash		32%	109

Rough cut Business Valuation			Total Discount to Fair Value	Per share incremental value
Price/Book of 0.5	Rs per share	53.8	38%	163
Earning Power at a multiple of 5 (5y avg EPS of 11.6)	Rs per share	58.4	39%	168


Nutshell,
You are basically getting the business for free along with surplus cash of Rs 109 per share

However, The utilisation of cash like Piramal case will be a key trigger...

Before ap paper announcement it was a strategic stake for Bangur's n mkt doesn't value holding co's whose inv's are strategic in nature as there is no clarity when they will be realised.
.

for excel attachments: Link

Interviews with 14 greatest hedge fund managers

2008-07-02T23:02:00.006+05:30

Snippets from their interviews - links for full story embedded

Bruce Kovner

What market lessons have you learned over the years?

Some markets have very long, quiet periods. Some markets and some instruments become obsolete. Some markets become arbitraged out. The excess return in them goes away. One of the most important skills you need is to constantly reinvent where you put resources. Commodities markets were quiet for years. Now they’re very strong.
Does this mean that you must constantly make a macro judgment?

The view I started with and embodied in Caxton’s fund was that business cycles were very important and that they occurred all over the world, and it was useful to observe them and to take advantage of the opportunities across four different asset classes.
Which four asset classes?

Equities, fixed income, commodities and currencies. The raison d’être of the company is to observe the nature of the macro cycle across multiple economic and political zones and to take advantage of the character of each business cycle so that we would have multiple business cycles to trade.

Julian Robertson

Not many managers change their investment style?

I don’t think I did. I think I wised up a bit and realized it wasn’t just price that created value. If you can buy a stock at 25 times earnings that you are sure will grow at 20 percent for a long period of time, it is a better value than a stock trading at seven times earnings that is going to grow at 3 to 5 percent. The investor makes money on both the multiple and the growth in earnings.

"The Best Advice I Ever Got"

2008-06-15T12:42:00.002+05:30

Warren Buffett, Richard Branson, Meg Whitman, A.G. Lafley, and 24 other luminaries on the people who most influenced their business lives.

You're right not because others agree with you, but because your facts are right.
Warren Buffett, CEO of Berkshire Hathaway
***

Make a fool of yourself. Otherwise you won't survive.
Richard Branson, Founder of Virgin Atlantic Airways and the Virgin Group
***

Recognize the skills and traits you don't possess, and hire people who have them.
Howard Schultz, Chairman of Starbucks
***

Have the courage to stick with tough job
A.G. Lafley, Chairman and CEO of Procter & Gamble
***

Follow your own instincts, not those of people who see the world differently.
Sumner Redstone, Chairman and CEO of Viacom
***

Be nice, do your best--and most important, keep it in perspective. "'Always do the best job you can do at whatever you're assigned, even if you think it's boring.' you get ahead by crediting other people
Meg Whitman, CEO and President of eBay
***

Be yourself.
He said to me, 'Jack, don't forget who you are and how you got here.'
Jack Welch, Former chairman and CEO of General Electric
***

Don't listen to the naysayers.
Sallie Krawcheck, CFO of Citigroup
***

Don't limit yourself by past expectations.
"The best advice I ever got was from an elephant trainer in the jungle outside Bangalore. I was doing a hike through the jungle as a tourist. I saw these large elephants tethered to a small stake. I asked him, 'How can you keep such a large elephant tied to such a small stake?' He said, 'When the elephants are small, they try to pull out the stake, and they fail. When they grow large, they never try to pull out the stake again.' ",
Vivek Paul, President and CEO of Wipro Technologies
***

When you negotiate, leave a little something on the table.
John Donahoe Dick Parsons, Chairman and CEO of Time Warner
***

When "everyone knows" something to be true, nobody knows nothing'.
Professor Schmidt's saying prompted me to think for myself, go back to first principles, and base knowledge on facts and analysis rather than on what 'everybody knew.'"
Andy Grove, Chairman of Intel
***

Remember the parable of the cow in the ditch..
Anne Mulcahy, CEO of Xerox
***

All you really own are ideas and the confidence to write them down.
Brian Grazer Academy Award--winning movie and TV producer, Imagine Entertainment
***

Regularly sit at the feet of Peter Drucker.
One of them is that there's a difference between effectiveness and efficiency. Efficiency is doing things right, and effectiveness is doing the right thing.
Rick Warren, Minister, founder of Saddleback Church and author of The Purpose-Driven Life
***

The real discipline comes in saying no to the wrong opportunities.
Jim Collins, Author of the bestseller Good to Great
***

Get good--or get out.
Peter Drucker, Business consultant
***

Start young.
Ted Turner, Founder of CNN and former vice chairman of Time Warner
***

Balance your work with your family.
If you have a closer family, you can be a lot more focused when you're at work
David Neeleman, CEO of JetBlue
***

Bail out of a business that isn't growing.
Mickey Drexler, CEO of J. Crew
***

Let others take the credit.
Brian Roberts, CEO of Comcast
***

Incorporate philanthropy into your corporate structure.
Marc Benioff, Founder and CEO of Salesforce.com
***

Surround yourself with people of integrity, and get out of their way.
The right people will feel far more pressure to perform well when they are trusted.
Hector Ruiz, CEO of AMD
***

If you love something, the money will come.
Donny Deutsch, CEO of Deutsch Inc. and host of CNBC's The Big Idea With Donny Deutsch
***

Keenly visualize the future.
Klaus Kleinfeld, CEO of Siemens
***

Don't chart your career path too soon.
Ann Fudge, Chairman and CEO of Young & Rubicam Brands
***

Respect people for who they are, not for what their titles are.
Herb Kelleher, Founder and chairman of Southwest Airlines
***

You can learn from anyone.
Clayton Christensen, Harvard Business School professor
***

Do what you love.
Ted Koppel, Anchor of ABC's Nightline
***

Source Fortune Magazine – March 21, 2005

Snippets from Richard pzena interview

2008-06-01T18:32:00.001+05:30

• Pzena’s investment approach is very straightforward:
o he purchases shares in good businesses that are selling at a low price.
o He understands that it is often unrealistic to expect such opportunities to be available absent some sort of problem which causes the price of the shares to drop.
o The question Pzena and his team try to answer is whether the issue that caused the drop in price is temporary or permanent.

• ROE vs growth – which is more EPS accretive ?
o Prefer co’s with high ROE’s vis-à-vis growth rates as then growth is self sustaining and you wont need to dilute ur equity base to raise capital or leverage ur balance sheet. Infact stock buybacks can be a possibility.
• Odds & psychology
o Risk reward tradeoff
 50% chance of doubling ur money ..50% of losing a qtr ..good investment bet
• Strong discipline
• Talks about reasons for buying stocks like tenet healthcare, fannie, Freddie mac,computer associates

Summary of "Dhandho Investor" by Mohnish Pabrai

2008-06-01T18:24:00.001+05:30

The books focuses on taking few ultra low risk bets which have a high pay-off…key being ultra low risk

Dhandho Framework
• Heads I win, tails I don’t lose much
• Few bets, big bets, infrequent bets
• Focus on buying existing businesses
o Long operating history
• Simple businesses with ultra slow rate of change
o We look for mundane products that everyone needs (WB)
o Five ascending levels of intellect: Smart, Intelligent, Brilliant, Genius, Simple.(Einsteen)
• Buy distresses businesses in distressed industries
o Getting the purchase price right is more important
o Entrance strategy is more important than the exit strategy
o Be fearful when others r greedy, Be greedy when others r fearful (WB)
• Look for moats – sustainable competitive advantage
• Bet heavily when odds r in ur favour
• Focus on Arbitrage
• Buy businesses at big discounts to their underlying intrinsic value – Margin of safety
• Look for low risk, high uncertainty business
o Leads to severely depressed prices for buying businesses
• Better to be copycat than innovator

Relevance of SOTP in bear markets

2008-06-01T18:19:00.000+05:30

In bear markets hardly anyone looks at SOTP. But i guess certain assets can be valued by this method only...

The SOTP valuation is done to include valuation of non core businesses. When the core business is under pressure investors do not look at non core valuations. M&M and Tata Motors are examples of this phenomen...

“The little book that beats the market” - By Joel Greenblatt

2008-06-01T13:48:00.004+05:30

Grahmian principles used in the Magic formula
· Mr Market is subject to mood swings
· Margin of safety – buy shares only when they trade at significant discount to their true value

Magic Formula

buy shares in good businesses (one with high ROE’s) but only when they are available at bargain prices (priced to give us a high earning yield)

Choose simplicity

Willing suspension of disbelief – we choose to ignore simplicity. An analogy to the movie “karate kid” is shown; how Mr. Miyagi teaches karate to his apprentice Daniel by making him wax cars, paint fences. Daniel who is initially reluctant on the merits of such methods later realises how such primitive methods create a solid foundation for him to learn karate.

Magic formula computation
· Rank companies first with ROC and then Earnings Yield with higher rank being given to high ROC and Yield resp.
· Aggregate the above two ranks
· Magi c formula stocks are the ones which rank higher on a combined basis

ROC – Return on capital = EBIT/(Net working capital + Net fixed assets)

Depreciation is assumed to be equal to maintenance capital spending requirements, so EBITDA – Maintenance Capex = EBIT
Net working capital – how much capital is needed to run business
Excess cash not needed to run business is excluded
Short term interest bearing debt was also excluded
Net fixed assets excludes goodwill

Earnings Yield - EBIT/EV

EBIT/EV is used instead of E/P (Earnings Price) ratio as it doesn’t get distorted by leverage

Links for various value investing gurus

2008-02-23T16:07:00.001+05:30

John C Bogle

How buffet does it – by James Pardoe

2007-09-19T22:35:00.000+05:30

a brief summary

Investing

o Ben graham says you don’t have to do extraordinary things to do get extraordinary results. Keep it simple.

o Give the kid a hammer n everything starts looking like a nail.

o Don’t own a stock that would cause you to panic and dump your shares if the price falls by 50%

o Think 10 yrs rather than 10 minutes, if you cant hold the stock for a decade, don’t buy it in the first place

o Investing is where you find a few great companies and sit on your ass

o Don’t be contrarian for the sake of it

o Better to hit singles n doubles regularly than to strike out swinging for the fences

o Make a list of your top companies n the max prices u will be willing to pay for them. Wait on the sidelines for opportunities

o Shun the ticker. Turn off the noise. Study the playing field n not the scoreboard. Ben graham says, “in the short run, mkt is a voting machine, but in the long run it is a weighting machine”

o Don’t swing at every pitch

o Mistakes of commission are worse than mistakes of omission
a) Omission – missing a multibagger – discipline in action
b) Commission – investing in losers – reflects breakdown of discipline

o Don’t get distracted by macro issues, focus on what you know ie the workings of the business

o Stay within ur circle of competence

o Volatility – Mr market’s dramatic mood swings creates opportunities .. look for those with significant margin of safety

o Be greedy when others r fearful; be fearful when others r greedy

o Read a lot

What to look for
o If you don’t understand a business don’t buy it

o Differentiate between a volatile stock and volatile business

o Mkt caps r a measure of co’s clout n borrowing power but cash in the door qtr after qtr matters more

o Look for companies with favourable long term prospects run by honest n competent mgt

o Look for a business that has been doing the same thing that it was doing a decade ago. Why
a) It had plenty of time to figure out how to get things right
b) Co. has likely found a niche

o Look for economic franchises – cos which provide products
a) Needed or desired
b) Not overly capital intensive
c) Seen by its customers to have no close substitutes
d) No price regulation

o Look for companies with moats – sustainable competitive advantages

o Look for absence of change..old economy ..boring n mundane businesses

o Concentrate – too much of a good thing is wonderful

o If you are on the right flower, stay there. Avoid the temptations of hyperactivity

o Evaluate the mgt
a) Frugal or spendthrift
b) Repurchases shares/ avoids dilution
c) Candid annual report
d) If the mgt claims to know the future, earnings projections n growth expectations – bad sign.If they hit the targets repeatedly – something is being manipulated