ValueeInvestor

Lets get down to Business

2013-07-02T01:43:00.005-04:00

Hello Everyone,

In our endeavour to come up with quality product, and at the same time educate ourselves about the business world, we are pleased to come up with two products. Hope our readers like them, and their feedback is always appreciated to help us develop and improve onto the same as we move ahead.

Without wasting much of your time and ours, here are the two new products :

1) Spin Off Report :

This is supposed to be a summary of, and a detailed analysis on selected companies on a list of select companies to be released every Saturday night EST.Historically Spin-off has been a area that has been ignored by a lot of the big funds, and our own experience suggests one can find a lot of good investing opportunities in this space.

2) Business Economics :

This is a once in a month publication looking at the Economics of businesses. For example the Hotel Business, QSR (Quick Service Restaurant) Business, Exhibition ( Theatre Business) etc. A detailed analysis of the Total Market Size, Market Growth prospects, players & competition.

We would like your feedback, about our first Spin Off Report this Saturday.

Thanks a lot for your patience.

ValueeInvestor Team

WE ARE BACK!

2013-06-11T06:34:00.001-04:00

It has been some time we posted anything, but we are back and back with a promise to keep our readers posted and updated with investment ideas, poems and what is happening at our end.

But before you listen to what we have to say, I think it makes all the more sense to see what happened to what we said .

Here is a list of ideas we talked about :

1) Gold

3) IBM Puts at 190

4) JP Morgan

5) BF Investment

6) Crude Oil

Our analysis and results do speak for themselves, and we are not going to blow our own horn.Again as a reminder, do not expect us to come out with writings when we think it does not change significantly at the margin, and none of the articles can be construed as an advice to buy/sell. We take no responsibility for the same.

We hope to have atleast one article a month.

Happy Reading, and Welcome back.

ValueeInvestor Team

Nobody Gets Fired for Buying from IBM

2012-03-01T01:56:00.001-05:00

As the old adage goes, and so does our trading idea (or ex-ante for now). One of the most talked about thing lately has been Mr.Buffets $10 B investment in IBM, and IBM’s 5 year plan of $20/share operating EPS till 2015.Nonetheless,before we delve ourselves into what the idea is all about, its important for us to understand the facts and the suggested commitment.

IBM:

Ibm 21

So what is that is offered by IBM ?

a) IBM closed 14th Feb’12 at 192.22.
b) It trades just 2 dollars shy of its 52 week high, and a PE of 14.72.
c) EPS has grown compounded by around 17 % approx over the past 7 years.
d) Plans to have $20/share Operating EPS by 2015 ( if history is any guide, they probably will achieve that target )

Here is where you can find historical comparison of IBM technicals over time.

That said, we are not fortune tellers here, and we are neither trying to predict what tomorrow would look to be. We are here to look at investments (or trading decisions), based on informed, and intelligent analysis.

Without further wait lets just move onto the present trading idea, and see how at times inefficiencies in the marketplace can help investors capitalize on information and knowledge. Fear is the friend of an intelligent investor, and optimism his worst enemy.

a) The idea is for the fixed income part of the portfolio
b) 2 year BBB rated bonds yield less than 3 % ( That comes along with a lot of risk itself , credit as well as interest rate risk)
c) We think options with Strike ranging from 180-200 on IBM spread out ( or just 190, which is the focus of the analysis here) offers a really attractive return for the amount of money at risk.

Now lets see how it works, and what are the assumptions implicit within the argument for the trade. Assume we select 190 as the strike price for options expiring in 2014, and get paid a premium of around 25. For the same, as we are risk averse we would like to have our accounts fully funded for the maximum net money which we shall ever be required to put which is around ($165). What are the things we can expect after two years ?

Scenario 1 : Options get exercised , and you are made to buy the options at a strike price of 190 two years from now. Even on a conservative basis, if EPS grows by 10 percent, you would be holding one of the blue chip stocks at a PE of around 12 ( at a price of $190), not bad when the lowest it dropped to was around 9 during the financial crisis, so very much limited downside. Even at this price you are still up around $ 25 to the actual money you had to put down 2 years ago.

Your buffer is 165, anything below that eats into capital for a dollar to dollar loss, that said 165 which would your actual cost relates into a PE of 10.5 and not 12 mentioned above, which was the PE at 190 two years from now considering EPS grew compounded at 10 percent. Historic average PE of IBM starting from 1985 is around 15.74.

Scenario 2: Options do not get exercised, in this case you get a return of approx 7.3 percent compounded over a period of 2 years.

As a Fixed Income investor, I think for the risks, the rewards offered by this transaction makes more sense as compared to even High Yield debt, and any other debt investment.

If you have any questions feel free to write us back at info@valueeinvestor.com

Ibm Technical Historic Valueeinvestor

Margin Trading , and its relation to PE

2012-01-27T22:38:00.000-05:00

As many of the readers know, we are neither interested nor are we willing to advice anyone to actively pursue trading. That said the topic of the post shall come across as a contradiction to what we have followed, and would like to follow in the future.

A closer look, and after going through the article might help you better understand our stand and our fixation on the topic and its importance on ones investment decision ( especially in India, as the topic is drawn onto from data on Indian Indices)

What you shall see below is a comparison between two graphs, which on a simultaneous basis seem to have increased significantly all of a sudden, followed by a sudden crash. Why is it that this graph is important in particular, and why one needs to pay attention to it ? How will this help one in his or her investment decisions , as well as timing ( which in itself is a tricky part at times can come in handy if one has looked around for all the pitfalls that come along with investing in the stock markets)

Without further wait , we shall look at the graphs first and then give our explanation.

Margin Data

Nifty Nse Pe

The first graph shows margin trading in Lakhs Rs, and the other one shows the trailing PE for the index. The margin data is much shorter which starts from 2005, and has been updated to Jan 2012, as compared to NIFTY PE which starts around 2001, and is complied to the Jan 2012 the latest day.

One striking thing, that calls for ones attention is the significant overlap in each of the graphs patterns. While this shall come as no surprise, increase in margin trading followed by increase in PE ( aka prices increasing higher than earnings ) eventually results into prices rising to levels which are not sustainable in the long run and are eventually followed by crash in the prices.

Now why does one needs to be aware of the absolute level , as well as the relative significance the variables have on each other ? Well it is quite intuitive, if PE is going high and so is margin what is the reason for the price increases ? Increase in earnings or a speculative excess in the markets ?

Henceforth, before and while investing in the market it is always necessary to make sure what are the averages, at what level you are getting in and what is the time one should get out of the market ?

As the saying goes, we buy cheap and sell dear. To follow the saying, one should know before investing if they are buying cheap or not.

Before we end this post, we forgot to mention one thing the long run PE of Nifty is around 18 (approx.) So every time keep an eye out for the levels.

If you have any further questions or are looking for data please contact us at info@valueeinvestor.com

DISCLAIMER: Anything on the website , including this post and or anything is not to be taken as an investment advice. Our sole purpose is to share our knowledge on an educational open forum basis. That is open for discussion, and is to be part of a learning process. Anything taken otherwise is at the readers own risk. We take no responsibility for any loss experienced in the markets, or otherwise in any ways. Please consult or financial advisor before investing in the markets.

Indian Credit Rating - Market Share (Corporate Bond Rating)

2012-01-27T21:47:00.003-05:00

Following is a graph breaking down the market share of corporate debt rating by different companies. It was complied through data collected from NSE on corporate debt on 18th Jan 2012, and is subject to change. At the time, which was not a while ago there were 3384 different corporate issues outstanding, with a total ratings of about 4020 ( some companies had two ratings agencies rate the bonds)

India Credit Rating Market Share

For any questions, please send an email to info@valueeinvestor.com

US Housing Crisis

2012-01-25T04:33:00.000-05:00

Four and a half years since the housing crisis began, and spread to other parts of the economy. Much of it still remains to be cleaned up. With sovereign nations and their financial systems under stress after leveraging themselves to save the financial system many of the questions still remain unanswered.

We sincerely appreciate the honest effort made by many in the government, but since our job does not relate to that we shall confine our views to ourselves and focus on the aspect we love and are good at, i.e financial analysis.

While we have moved away from the mess, we think moving ahead without learning from the past would be a big mistake.Especially learning from a financial perspective. What where the signs that many missed ? What we produce here while not is exhaustive, still gives a clear sign of a sudden change from the linkages of the past , and a flight to the moons for housing prices in just a matter of few years.

We represent graphs for a few states, as well as the US-10 Composite regression graph with one time variable Price Graphed against time in a simple Linear Regression Analysis. What would be and is noticeable from the Graph is a sudden rise in price and an ultimate collapse. History tells us that housing prices do not go up more than 1-2 percent on a real basis in the long run.However looking at it from hindsight does not make us any genius, choosing not to learn from our mistake sure does proves ones intentions on improvements.

Without much of a due we present to you the graphs, data for the graphs can be requested at info@valueeinvestor.com.

BF Investment Analysis

2011-12-20T14:41:00.001-05:00

BF Investment is an investment holding company for the Kalyani Group ( flagship Bharat Forge Ltd.) with investments in related promoter companies.BF Investment was formed as a de-merged entity that took over the investment management business of BF Utilities, and was listed on the exchange starting 14th January 2011.

Most of the investment value for BF Investment is hidden in its carried at cost investments portfolio in promotor companies. While it has significant direct investments in sister companies, its insignificant investment as shown on balance sheet in its unquoted investment( KSL Holdings Pvt Ltd 49.99%) is significantly higher. (documents provided for at the end of analysis, for some documents you might have to send in a request at pratik.thakkar@valueeinvestor.com)

Objective & Methodology:

To Find per share Intrinsic Value of BF Investments Ltd.

BF Investment is a core investment company, which shall be viewed and analyzed as a closed ended Mutual fund, with passive management.For the purpose of Analysis, most of the assumptions have been made on a conservative basis.

Operating and many other unquoted investments have not been considered in the analysis, which even though lend a significant value per share, some uncertainty and lack of data on them restrict their inclusion in the following analysis.

Even though some investments are not included in the analysis, if their carrying value were to be reduced down to zero (operating assets have a net operating asset position, significantly over current operating liabilities) the investment value of BF Investment wouldn't change , and even if it does it would on the upside.

Following is a table looking at the Quoted and one Unquoted Investment (KSL Holdings Portfolio) for BF Investments Ltd.

BF Investment Update

* Date of Shares at which price was taken was the closing price on Tuesday December 20th 2011.

Insiders Buying:

In the recent few months insiders have been buying a substantial portion of the company's shares in the open markets.On aggregate basis, they have bought 4.79 % .

Following the table there is a graph representing, at what levels insiders have been buying indicated by the green pop ups in the whole.

Insider Buying_ValueeInvestor Sheet3

* Data obtained through NSE

Adjusted Balance Sheet:

Adjusted Balance sheet can be found by clicking on the link. There were 37.7 million shares outstanding as of 31st March-2011. Giving a per share net operating value( without considering Investment Portfolio) of around 22.25 Rs/Share.Which for the purpose of calculation, and in the matter of conservative approach have not been included in the analysis.

Documents:

Following are the documents that could and would be made available on further request:

1) KSL Holdings Pvt Ltd. (Annual Report Filed with Registrar of Companies)

Disclaimer

Funds managed by ValueeInvestor and its affiliates own investments that are bullish on BF Investment’s prospects. ValueeInvestor generally invests in long positions and did so based upon our analysis of publicly available documents, general market data and other information.

This report is based uponValueeInvestor’s own reading of BF Investments BSE filings from 2010 to the present as well as other public documents. ValueeInvestor’s views are also informed by its knowledge of, experience in, and opinions about Investment related companies generally.

This report is not intended as investment advice to anyone. Others may disagree with some or all of the opinions expressed here.ValueeInvestor urges anyone interested in the company to read BF Investments public disclosures available on its website or on BSE,and to consult whatever other source they deem appropriate in order to form their own opinions on the topics covered in this report.

We welcome any reponse from anyone willing to get more information or clarification on the claims made inthe report. We are willing to make ourselves available

This is in no way an advice to buy or sell the shares of the company, and ValueeInvestor takes no responsibility for the same.

Crude Oil Analysis

2011-12-13T22:34:00.002-05:00

The objective in this post is to analyze crude oil prices with respect to two parameters initially and propose to look at further parameters to fully understand the things that do affect the pricing or crude oil on a general basis in the markets.

What we can see in the table below is Price of Crude oil with regards to Inflation adjusted prices, and compare that against Nominal Prices as well as Inflation in the corresponding Periods.Moreover, we look at Production & Consumption on a daily basis, as well as the change in the Consumption and Production Variable over the years.

One thing that strikes out from the table is the fact that much of the Crude oil Price on an Inflation adjusted basis is

1) Nowhere close to the Top,but is significantly above the all time lows. Suggesting more of an all time downside to the upside rewards for taking the risk of investing into Crude.

2) Inflation on the other hand is close to the lows seen during the 1960s right before the double digit inflation witnessed in the US for the next decade.

3) Differential between Nominal and Inflation adjusted Crude Price was higher during 1970s as compared to todays differential.

4) Consumption has outstripped demand in the last two decades, and has infact grown up 200 percent from 2000-2010 ( a big factor in the rise of crude oil prices)

The data above shows a positive bias for crude oil prices on a demand driven basis, but not as much of a solid footing based purely on inflation and its threats (which even though obvious, is hard to determine with regards to timing and becomes more of a speculative game, rather than one based on pure fundamental basis)

Now the question here is what could bring down the supply demand gap, and if there is something that can what happens to the price of crude oil.

While it is hard to predict what happens to the price of crude oil, it is much easier to say how and what can decrease the Consumption/Production Differential.

1) Increase in Exploration and Resulting Production from new reservoirs

A lot of efforts have been concentrated by many companies in their search for and production from new reservoirs of Oil, while the problem is usually the lead time from Exploration , Discovery & Production an increase in the crude oil supply from these new discoveries could negatively affect the Consumption/Production differential.

Henceforth, we suggest to look at the number of such production process underway , and the potential increase in crude oil supply estimated over the future years.

2) Change to Renewable Energy : If crude oil prices are to remain stubbornly as high as they are, renewable sources of energy could fill in the gap at some places decreasing the marginal demand at some places and substantial demand at others ( while it is hard to predict where, Utilities and Transportation is seeing a huge shift from Crude Oil Usage to CNG and Electric Cars)

Again while the process is slow, it is still underway and the ground no doubt is dynamic and shifting. Last but not the least Department of Energy publishes data on Crude Oil Reserves for United States, a really helpful determinant in the short term.

All said we at ValueeInvestor believe Crude oil might go high, or might go low in the coming years. We do not have any idea as to the course of actions , but what we definitely know is that we would want to stay away from the asset class, and have none of it in our portfolio.

Crude Oil Data

DISCLAIMER :To be sure we are in no way predicting or advising anybody to take action, the research is based purely for and on an educational basis.Any actions taken based on the research is purely ones own decision, and we do not take any responsibility for the same.

Nifty Quarterly Earnings and Subsequent Changes in Price the following Quarter

2011-11-15T17:44:00.001-05:00

The following graph shows the change in Earnings for nifty in any given quarter, and the price changes in the subsequent quarter.

Seven most important things about Investments

2011-11-03T16:53:00.000-04:00

Investments and investing is an intellectual game, with rewards which are financial in nature( makes the process all the more exciting). While easier said than done,picking the right investment is a skill and requires some work(discipline,curiosity and basic math skills) on behalf of the investigator (stock selector).

Moreover, while it is preferred to have as much information available about the company a few of the things becomes really important while looking at a business, and deciding if it has the characteristics of forming part of a long term investment.

In this article we touch at the things we consider to be really important while selecting a stock/business and talk about why these things are important and how can they make a big difference.

Investing is like working as a detective collecting and analyzing information and processing it intelligently to arrive at a decision, which in our case is valuation.

Listed below are the seven most important things to look at while selecting a long term business, we shall look at each one of them separately and in brief with as many examples to make the point clear for our readers.

So without wasting much of your time here are the 6 most important things to look in a business.

1) Product
2) Scalability
3) Return on Equity
4) Free Cash Flow
5) Cost Structure
6) Corporate Governance
7) Price

1) Product : The obvious question in everyone mind is why is product the first thing here ? If it is here why is it here ? Before we talk about product, we would like to touch upon what Mr.Buffett had to say about business in one of his famous quotes " If business does well, the stock would follow". Sounds like an amazing thing to say, and makes sense logically as well if we assume that there is a direct relationship with Business and Stock in the long term, which as a matter of fact do believe here at ValueeInvestor.

Now the question is so what forms a business ? Obviously it is nothing else, but the products a business has to offer. What forms Titan in India ? or Coca Cola business worldwide ? It is the products that these businesses have to offer.

However one may ask well all the businesses do offer products, how does one decide if the product is a good one, or something that can be relied to outperform or in demand for the long term. So to start with lets narrow our focus to things that are simple and easy to understand, products that either have a brand name and/or a monopolistic influence, or a lower cost structure in a competitive commodity like market which cannot be replicated by any other competitor.Things that make the product special, as well as give it a competitive edge over competitors is the product we want to look at.

Examples of which are : Coca Cola ( biggest in its industry with a dominant brand name) Posco ( steelmaker with a patented cost structure which makes the products cheaper by 15-20 percent in a commodity like business), Lovable Lingerie in India ( biggest market share , and dominant brands)

While it was a brief introduction to the product segment readers got an idea about, why and what products are important to look at during the preliminary search phase for strong products as well as products for which there is a recurring demand.

2) Scalability : Once we have recognized a product, the question that strikes first is how big is the market for this product? How many people can I sell this product to? The bigger the market the better the scope, and more the growth in earnings over the future years as well as increasing dividends.

For e.g How big is the market for underwear's ? Now sounds like a silly question but everybody world over needs it, and branded products do and have made a substantial foot print world over - Fruit of the Loom is a perfect example in the medium range branded product. Coca Cola is another.

While the market need not to on a world basis, if a company is just starting out and is domestic with a huge domestic need that is also a big market to look at, and plays a significant role during appraisal of the business.

3) Return on Equity(ROE): Why is return on equity of any consideration while buying a business/investment ? The same way why is interest important when you put your money in a savings account ? If money was free, we wouldn't have included this concept in here. But while that is not the case, and after selecting an outstanding product, with a big market the other most important check is to see if it is profitable or not as well. The best way to see if the product the way it proclaims about its outstanding stature in the industry is right, and you haven't made any errors yourself while looking at the company, and selecting a good product.

While Return on Equity is a matter of subjective choice , we prefer to look at Return on Equity in the 15-20 percent rage over a period of 5-10 years ( higher the better , but the higher ROE should be again to see if there hasn't been tempered with through financial engineering)

4) Free Cash Flow : What are the Free Cashflows from the business? Cash left after accounting for Capex, for the entire firm.( i.e debt holders as well as equity holders of the business) This is the cashflow that can be technically taken out of the business every year, and the one to use for valuation using the Discounted Cash Flow Analysis. It will be lower than Net Income for a growing company.

5) Cost Structure : The world if investment could be a scary place, if you don't know what affects your business, and its financial results.Keeping a tab and know how about costs affecting a business are ultimately really important.While one time change in cost structures ( e.g COGS , and SG&A) are less of a problem a certain addition or reduction in certain costs for the long run could change the valuation substantially.This is the part which can and will have maximum risk on the valuation if it is not fully accounted for, and understood during the stock selection process.

6) Corporate Governance: Most importantly who do you want as the stewards to your financial success ? People to look at the fact that things are running the way they are supposed to be running, and no nature of illegal activity is at play. If there is one it is detected at the first sight , taken care of and the system is cleared not to even think of that thing happening again. So every-time you look at a business make sure you know the history of the Management Committee , as well as the Board of Directors. While it might not be of a big difference in a short term , in the long term proven and successful management will stand miles apart from their weaker competitors financially, and in praise from their shareholders.

7) Price : Very last, but the most important of all is the price. You can end up being right on all the six factors mentioned above, but if you missed the last one you would still end up having a mediocre result. Price is ultimately what you pay , and value as Mr.Buffett would say is what you get. Value in our case is the valuation derived by us using the free cash flows that we can get out of the business for lets say 10 years and discounting it all back to todays time.

If that is higher than the current price the market puts on the business , you my friend have made yourself a fortune if not then even though you might be right on all counts a wrong price could certainly harm your results substantially.

As somebody once said , you make a fortune when you buy not when you sell. So if the price is right the sky is yours. Every asset has a value the only difference is the price paid to acquire that value. Lower the price relative to value paid higher the re

We hope our readers enjoyed , and learned from the 7 most crucial points about an investment , and would be able to look at investments in a better way now moving ahead.

If you have any questions feel free to write to us at info@valueeinvestor.com

ValueeInvestor Team®

FII and its Effects on the Indian Markets

2011-10-30T00:31:00.001-04:00

Foreign Institutional Investors play a big role in the Indian Securities markets , with the sheer volume of money at play their arrival or departure can make the markets either move or crumble onto their own. While we haven't done any co-relation analysis, we might put up that data pretty soon. We do not believe any mathematical analysis of such sort plays any significant role, and can be relied upon while trading , we so believe a rough estimate about the flow of money especially FII and DII ( Domestic Institutional Investors) do impact the markets from a price view as well as a know how of and about the same gives an extra sense about the pulse of the market. While it is hard to say what is happening or what could happen in the market by just looking at one parameter, mixed all together they give a clear view about the market and expectations.

Attached together is the data set for FII obtained from RBI , and a graph showing the Y-O-Y change as well as total change in terms of money invested by the FII in the Indian Equity Markets. By the end of June '11 FII had a net investment of 3.62 lac crores or $67.33 billion assuming an exchange rate of $1= 50 INR. FII has increased approximately at an annual compounded rate of 28 % since 93/94 till April 2010 last year. A substantial increase over a 17 year time span.

April-05

2011-10-29T02:26:00.001-04:00

Trading and Technicals ( India Specific )

2011-10-29T01:59:00.003-04:00

As we have indicated earlier in our posts, our emphasis shall be on emerging markets and on ways by which investor/traders can learn improve their returns in the market.

Now while we do know, and wish our readers to know as well that making money in the market is not an easy task a scientific approach towards securities followed with utmost discipline over a period of time promises decent return as compared to the markets.

In this blog we take a different path as compared to our usual posts, and as a disclaimer want readers to know that while all can invest intelligently trading is not everybody's cup of tea.

Before we delve ourselves into the world of trading, we need to understand what trading is, and how is it different from our usual approach.( i.e investing)

Trading: Trading is noting else but buying (selling) a stock, bond, derivative with the hope of selling(buying) it back later at a higher(lower) price.Whereas in investment the underlying play a significant role as to the decisions leading upto investment, trading is solely based on factors including the psychology and emotions of markets as well as people in the market.

While many may believe the process akin to gambling , some scientific approach to it can improve speculation and speculators profit.Trading in a simpler language is nothing less than intelligent speculating. Which requires one to do his/her work and make decisions accordingly.

Deciding onto peoples emotions is a hard guess, but interpretation of their actions when and as seen in the markets is a trading advantage.What are these trading advantages or emotional tests a trader shall or does use to get himself ahead of the market ?

While there are many tools out there in the technical space we deal with a few that we think are highly important and affect the Indian Markets. We might and do reserve the right to add/change/delete or modify these variables depending on how they span out in the markets , and or if they still remain valid from a traders perspective.

Now without much of a wait let us just get to a few important trading parameters :

1) Margin Trading

2) FII/DII Trading within the markets

3) NSE Open interest

4) Advances Declines

5) Volumes / Market Capitalization

6) PE Ratios ( Change in Earnings , Prices and overall Change )

7) Insiders buying/selling

8) Pledged and Un-pledged Shares
9) Cash levels at Mutual Funds , and Mutual Fund Activity

We shall look at each one of them individually and learn what they are and how they can aid a trader in his or her trading on a day to day basis.

For the convenience of our readers , we shall do our best to keep the data updated on a daily basis as well as go back to the maximum date we can so that it helps in the analysis of individual securities at hand.

Valuation Concern : On Going & Liquidation

2011-10-19T02:53:00.001-04:00

Valuation has been a really important parameter to arrive at the conclusion if any security/company is selling for cheap in the open market or not. But the decision about how to arrive at valuation is a pretty important matter as well.

There are two ways of Valuing a Company , i.e is the company to be valued as a Going Concern or Liquidation Basis ?

The reason why we mention Going Concern and Liquidation decides how does one value a business. One may ask what difference is there , and why such a difference in terms of valuation for business.The answer lies in the fact about capitalism, and the constant and dynamic change in business environment where either new industries are introduced from nowhere ( e.g -technology), or the destruction of other industries ( due to many reasons , outsourcing, technological change has made the industry obsolete,smaller commodity companies cannot keep up with changing business environment).

While many industries do not face the problem of obsolesce due to the products they offer (e.g chewing gum industry, food industry (taste might change),shaving industry,soft drink), certainly a few do.For the former class measuring the companies by their earnings or as a going concern is a much better yardstick for valuation , and for the latter a liquidation valuation does make a lot more sense.

That said, there are times when one can find companies valued fairly on an earnings or a going concern, but substantially cheap on a liquidation basis. While one might guess that the best way to make money would be to just liquidate the business , the other reason for such undervaluation is that assets operating or non operating are carried on the Balance Sheet at Historical Cost which happens to be really low, and now predictive of what it would be in today's market.

If the asset is non-operating we have two businesses combined in one entity, one is an ongoing business while the other a non-operating business which can be sold and a one time substantial gain can be realized by the shareholders.

If the asset is operating, and sells for relatively cheap much more care and attention should be put on the earnings and the Return on Assets (ROA) and Return on Equity (ROE) should be considered accordingly as this might result into higher ROA & ROE with comparable business, and a false undervaluation for the same.

So it is really necessary and important to know what the business is and what part of the growth cycle( either be mature or declining as well) it operates into to decide what valuation methodology to be used.

Commercial Banking , Credit Rating & Emerging Countries

2011-10-18T04:35:00.000-04:00

With the problems in the Euro Crisis , and the spread of the contagion to other AAA rates countries in the Euro region, one thing comes to mind. Who gets really affected by the change in a country's credit rating ? Well you guessed it right BANKS.

With the recent downgrades in the credit ratings of countries , the biggest impact that has been observed is a subsequent downgrade in the credit ratings of the banks in the same country. Which explains a really important fact. A Banks credit rating is highly dependant on its home country's ratings.

Why would credit ratings be important to a bank ? Obvious reason is a better credit ratings, leads to lesser interest cost and higher earnings. But it is not as simple as it seems in the world of Banking. Lending money is a commodity business, the only way a competitor can get advantage over the other is by producing (i.e getting money) at a cheaper rates, given Net Interest Margin ( Net Interest Earned- Net Interest Expense) remains the same for each bank.

Now to compete at a Global Scale the only banks that can be really competitive are the banks with a AAA credit rating , which has a lot to do with the credit rating of the Country. Recent Financial and Euro region crisis, has had an impact on many of these things and made developed banks if not now in the longer term less competitive at the global scale if not fully dysfunctional in some extreme cases ( Banks in Greece, Portugal , Spain and Italy)

How does credit ratings relate to Emerging Markets ? Much of the last decade has seen an improvement in any of the emerging markets, especially in growth , their debt servicing capacity, Debt to GDP ratio, exports etc.

In light of all these positive factors , and a simultaneous deterioration in the developed worlds credit rating opens up a significant opportunity for the developing markets and countries around the world that has a high possibility of leading to improvements in credit ratings.

What impact can this have for the Banks in Developing Markets one may ask ? For one it makes them competitive at a Global Scale , Increase in business and increase in Balance sheets as well as increase in earnings.

In this dynamic world, many opportunities do exist for the emerging markets. It is upto them to prove and grab their opportunity in this changed world.But, if things work right, many countries , and banks would and can benefit from a better credit ratings on a global level.

2011-05-19T18:36:00.001-04:00

Treasury Borrowing Advisory Committee : Amazing Presentation, and what to expect ?

2011-04-25T04:59:00.003-04:00

TBAC Discussion Charts Merged
 Cautio

Disclaimer : All the data provided is for educational purposes, and Valuee Investors takes no responsibility for any financial loss.

Jim Rogers : Reuters

2011-04-24T21:36:00.000-04:00

Japan Crisis, and a Follow Up on our recommendations Update 1

2011-04-15T03:02:00.001-04:00

Since our last post on 16th March 2011, many things as the world & news might make you feel has changed. At the heart of it all, we think the fundamental reasoning for many things that that lead us interested in precious metal.

NOTICE OF CAUTION : We agree with George Soros, when he says that Precious Metal (Gold) is the ultimate bubble.While we might be wrong, and take responsibility ( not from an investment perspective, but analytical perspective) and take it a step further that the bubble is not about to burst.( Again in the light of further information we do reserve the right to change our opinion, and does not bear responsibility of posting the same information onto the blog, but shall try too on a timely and a regular basis as best as we can)

In our last update about, Japan crisis we said that the markets did over react too much, and there was no need to be worried about Precious metals as such. Before we move ahead and make any analysis, and recommendations (purely for academic basis), it makes all the sense to look at how Precious Metals have performed, because if they haven't performed well and our analysis wasn't right there is no point for you to waste your time reading.

SILVER : Since we came out with our article, silver has risen approx. 22% in prices. Even though we think silver to benefit the most with inflation fears, we have reason to be cautioned about its sudden increase. While the long term story does remain intact with industrial growth, lower inventory levels, and increased inflation fear.In the short term Silver is notoriously known for its wild swings, which is hard for many people to take care off.In the short term we are a bit cautious, while the Mid and Long term prospects remain positive with inflation fear rising.

Next up , GOLD

GOLD : Gold since the last article has been up by around 5.5 %. While many believe GOLD to be the best hedge against inflation we differ on our perspective. While it might go up higher and further in the future, we are not as confident about GOLD as we are about SILVER. ( which we in the short term are still concerned about). The reason for our displeasure with GOLD involves two factors , limited industrial usage , and decreasing inventory.

Since the start of the year, the Gold Inventory levels have been dropping consistently and infact are down approx 5-6 percent as of the date of the article.Whereas Silver does have a lot of industrial usage, and its price is inversely proportional to Inventory levels Gold has a direct relationship ( again on an observed basis) to Inventory Levels. Increasing prices , with decreasing Inventory levels are a cause of concern to us, and because it lies outside our circle of competence beyond the Japan crisis trade, we shall stay away from the same.

Gold Inventory Data.

contd....

2011-04-10T12:37:00.003-04:00

Irish Bow to Trichet on Bondholders as Rescue Hits $142 Billion

2011-04-01T15:33:00.002-04:00

Ireland yielded to the European Central Bank to protect bondholders even as its bailout bill for the region’s worst banking crisis moved to as much as 100 billion euros ($142 billion) after stress tests.

The ECB in Frankfurt was “solidly opposed” to imposing losses on investors in senior bank debt, Finance Minister Michael Noonan told broadcaster RTE today. The ECB agreed to provide “ongoing” funding for the banks, he said.

Ireland agreed yesterday to inject as much as 24 billion euros into four banks, while leaving bondholders untouched. The government already funneled 46.3 billion euros into the financial system and set up an agency that paid more than 30 billion euros to assume risky property loans. The total equates to about two-thirds the size of the Irish economy.

“The government’s position is very clear: It doesn’t want to take action on senior bondholders for the four banks that are going forward,” said Matthew Elderfield, head of regulation at the central bank, said in an interview with Bloomberg Television. “It recognizes that, on balance, that if you want to have these viable banks able to return to the market that would hurt their capacity to do that.”

Standard & Poor’s Ratings Services today cut Ireland one notch to BBB+ from A-, though revised its outlook to stable.

The better forecast reflects “our opinion of the credibility of the stress tests conducted by the Central Bank of Ireland to determine additional capital needs for the Irish banking system,” S&P said in a statement.

‘Civil Servant’

The issue of who should share the burden of bailing out the banks has dominated Ireland, whose six government-guaranteed lenders have 63.3 billion euros in outstanding bonds, according to figures from the central bank.

During an election campaign last month, Eamon Gilmore, now deputy prime minister, dismissed ECB President Jean-Claude Trichet as a “civil servant” who would answer to politicians. As recently as March 28, Agriculture Minister Simon Coveney said the government planned to impose losses on senior bondholders in the banks to cut the costs of its bailout.

“Taking all of the losses of the banking system and putting them on the balance sheet of the government doesn’t make sense,” Nouriel Roubini, co-founder of Roubini Global Economics LLC, said today in an interview from Cernobbio, Italy, with Maryam Nemazee on Bloomberg Television’s “The Pulse.” “Eventually, the back of the government will be broken.”

Default Swaps

The cost of insuring against losses on the senior debt of European banks fell to the lowest in more than five months today. The Markit iTraxx Financial Index, linked to the senior debt of 25 banks and insurers, dropped as much as 6 basis points to 137, the lowest since November 19, before paring the decline, according to JPMorgan Chase & Co. Credit-default swaps on Portugal, Ireland, Greece and Spain also declined.

Allied Irish Banks Plc (ALBK), the largest lender during the decade-long economic boom, requires 13.3 billion euros of additional capital after its stress test, the central bank said yesterday. Bank of Ireland Plc needs 5.2 billion euros, while Irish Life & Permanent Plc must raise 4 billion euros and EBS Building Society has to find 1.5 billion euros.

Irish Life’s stock plunged 51 percent as the bank prepared to spin off its life assurance and asset management unit through a share sale. Both the government and central bank also said they expect the company to end up in state control.

EBS, the fifth-largest bank, will be merged into Allied Irish, while Bank of Ireland will focus on being a stronger domestic bank, Noonan told parliament yesterday. The total bailout cost for Allied Irish almost equals its peak stock market value of 21 billion euros in 2007.

Taxpayer Burden

“Rather than go after over 20 billion euros in unguaranteed bonds, the government is making ordinary citizens bear the burden of this debt,” Gerry Adams, leader of nationalist party Sinn Fein, said in statement today. “Rather than act in the interests of the Irish people they are acting in the interest of the banks.”

Ireland set aside 35 billion euros of funds for its banks last year as part of the country’s rescue package by the European Union and International Monetary Fund. The money includes 17.5 billion euros from Ireland’s own resources.

The banks were reliant on the ECB for 88.7 billion euros of funding at the end of last month, the Irish central bank said. They may have borrowed another 70.1 billion euros in exceptional liquidity from the Irish central bank, according to figures released on March 11.

The decision not to seek burden-sharing with senior bondholders “is a recognition of reality that Ireland is depending on continued funding for its banks from the ECB, which is setting the rules,” said Dermot O’Leary, chief economist at Goodbody Stockbrokers.

Ireland will now seek to reopen terms of the country’s 85 billion-euro EU and IMF bailout. Noonan will bring the results to a meeting of European finance ministers in Budapest starting on April 8 as he pushes for a reduction in the 5.8 percent interest rate on the loans.

To contact the reporter on this story: Dara Doyle in Dublin at ddoyle1@bloomberg.net

To contact the editor responsible for this story: Tim Quinson at tquinson@bloomberg.net

Warren Buffett India Part 6

2011-04-01T07:05:00.000-04:00

Warren Buffett India Part 5

2011-04-01T06:53:00.000-04:00

Warren Buffett India Part 4

2011-04-01T06:44:00.000-04:00

Warren Buffett India Part 3

2011-04-01T06:42:00.000-04:00