I have just completed 3 years in the stock market :
Gained a lot of wisdom ... but have just touched the tip of the iceberg
Gained good sense of humility ... hope I learnt from it...
Gained good amount of returns ... hope this is also just the tip of the iceberg!
Some Key Thoughts:
1. When I started investing, the market was at its bottom. Today it seems to be at some intermediate peak (as per common view). While it was easy to make money, it was difficult to match the market's performance, especially in the last one year. I am happy that I matched the market's performance at low risk (as measured by stock up/ down ratio over 3 years, permanent loss of capital is yet to be decided), and now realize Warren Buffet's comment - something to the effect 'Its easier to beat the market in bear market than bull market'.
2. I have always made profits when I invested after my own research, and have always made losses when I invested on secondary analysis/ tips.
3. Another Buffet principle 'Its better to pay fair price for good business than bargain price for poor business'. Though I made good money by buying 'Cheap & Safe', I could have made more money with investments in good growth businesses that I undertstand.
- Am now looking for multibaggers : difficult but not impossible
- If a stock gives annualized returns of 26% for 10 years, you have a 10 bagger in 10 years
- If a stock gives annualized returns of 60% for 10 years, you have a 100 bagger in 10 years
4. Focus Investing : Bet Big on few opportunities; In-depth analysis of 1 stock better than cursary analysis of 2 stocks.
5. Periodic & dispassionate review of Portfolio Structure/ Stocks / Performance essential to move ahead
6. Portfolio construction : 'Cheap & Safe', 'Multibagger', 'Special Situation', 'Dividend' etc.
Again, I hope that I add more lessons to this list in future rather than just repeat these again !!!
Monday, April 17, 2006
Monday, March 13, 2006
1958 United States - 2006 India ??
In 1958, Warren Buffet wrote -
A friend who runs a medium-sized investment trust recently wrote: “The mercurial temperament characteristic of the American people, produced a major transformation in 1958 and ‘exuberant’ would be the proper word for the stock market, at least”.
I think this summarizes the change in psychology dominating the stock market in 1958 at both the amateur and professional levels. During the past year; almost any reason has been seized upon to justify “Investing” in the market. There are undoubtedly more mercurially-tempered people in the stock market now than for a good many years and the duration of their stay will be limited to how long they think profits can be made quickly and effortlessly. While it is impossible to determine how long they will continue to add numbers to their ranks and thereby stimulate rising prices, I believe it is valid to say that the longer their visit, the greater the reaction from it.
Are we in a similar pahse in India ?
A friend who runs a medium-sized investment trust recently wrote: “The mercurial temperament characteristic of the American people, produced a major transformation in 1958 and ‘exuberant’ would be the proper word for the stock market, at least”.
I think this summarizes the change in psychology dominating the stock market in 1958 at both the amateur and professional levels. During the past year; almost any reason has been seized upon to justify “Investing” in the market. There are undoubtedly more mercurially-tempered people in the stock market now than for a good many years and the duration of their stay will be limited to how long they think profits can be made quickly and effortlessly. While it is impossible to determine how long they will continue to add numbers to their ranks and thereby stimulate rising prices, I believe it is valid to say that the longer their visit, the greater the reaction from it.
Are we in a similar pahse in India ?
Monday, March 06, 2006
Property Allotment - Lottery ??
Considering the mad craze for governmental allocation of plots and flats at controlled prices (with bank financing of even application amount making it a IPO-in-boom-times like gold rush), it seems more like a lottery. Analyzing any such opportunity is like calculating the expected payoff:
The variables are:
- number of likely applications for the given area (say a = 0.2 m)
- number of plots in the area (say b = 100)
- your application (say c = 1)
- expected payoff in case of allotment (difference between allotment & market price say d = Rs. 2 m)
- cost of money (say e = Rs. 2000 (@10% pa of Rs. 40,000 earnest money blocked for 6 months))
The Expected Payoff is :
= (b * c * d / a) - ((a - c)* e / a) = Rs. (1000)
The data points taken are similar to past real examples. In any frenzy, most cases have negative expected payoff and are similar to lottery (but with lower payoff, higher cost of money, and lower number of applications). So, do your calculation before investing !!!
Now just calculate the interest that the government earned by holding the above collected amount for 6 months interest free (assume government bond rate, 10% of property value as earnest money) - You will be totally zapped!
The variables are:
- number of likely applications for the given area (say a = 0.2 m)
- number of plots in the area (say b = 100)
- your application (say c = 1)
- expected payoff in case of allotment (difference between allotment & market price say d = Rs. 2 m)
- cost of money (say e = Rs. 2000 (@10% pa of Rs. 40,000 earnest money blocked for 6 months))
The Expected Payoff is :
= (b * c * d / a) - ((a - c)* e / a) = Rs. (1000)
The data points taken are similar to past real examples. In any frenzy, most cases have negative expected payoff and are similar to lottery (but with lower payoff, higher cost of money, and lower number of applications). So, do your calculation before investing !!!
Now just calculate the interest that the government earned by holding the above collected amount for 6 months interest free (assume government bond rate, 10% of property value as earnest money) - You will be totally zapped!
Thursday, February 16, 2006
Excellent article by Sunil Mittal
ALL THINGS MUST PASS AROUND
As the pilot taxied at Heathrow on a flight to Barcelona, I looked out at the busy airport from the tiny window and thought, “Well, we will have spanking new airports in India in the next few years”. In particular, the mess of Delhi and the greater embarrassment in Mumbai would be behind us.
Who are at the forefront of this much awaited change? GMR and GVK. India’s most important infrastructure model will rest on the shoulders of these two rookies. Who are they? GVK has sales of Rs 350 crore; GMR, while having a sale of over Rs 2,000 crore, has it all in brick and mortar business of construction. Will they be able to handle the multimillion dollar projects? Will they manage to gauge customer (passenger) needs, the complications of air regulation and the pressures of running a mission-critical business? How could newcomers upstage the big boys?
Whenever new opportunities are thrown open by the government, a new set of entrepreneurs emerge on the national scene, who then go on to become powerhouses in their own right. Bharti Airtel is a case in point. When the government opened up the telecom sector, four rookies took the grandstand along with the big boys. Bharti, Siva, Max and BPL took the key Delhi and Mumbai mobile licences while competing with the who’s who of Indian industry. The Tatas lost out, as did many other established business houses. Modi & Usha got Kolkata, Thapars and RPG got Chennai. The rookies pushed hard. The rest is history.
Bharti Airtel is today India’s largest telecom company. Yet, it did not go on to win the airport deal in Delhi. Changi pulled out at the eleventh hour. Yes, Bharti-Changi would have scored the highest in technical parameters, but this would be too simplistic a conclusion. Bharti would not have won against the rookies.
What makes these new kids succeed where established players fail — or in many cases, wake up to the potential when the train has left the station? There are some exceptions. Reliance stood in front of a running train and, as we all know, managed to jump on to it. However, the rookies could not be hurled out of the moving train. They are the leaders.
India’s corporate history has several examples of the new kids taking over the block. Reliance came from nowhere when the government opened up the petrochem sector to become a formidable player. Subhash Chandra sneaked into the media world with Zee even before the ground rules were laid out. IT threw up Infosys, Wipro, HCL and Satyam. TCS is also a formidable player, but that does not take away from the glorious rise of the ‘new’ IT boys.
Then there’s Naresh Goyal. Jet Airways is the most admired airlines of the world — yup, the world. Anil Agarwal picked up the important metal companies divested by the government through stiff competition from the established houses.
I will use my own loss of airport opportunity to proffer my own reasoning. Bharti went into the opportunity of developing the airport ahead of others. The company started work on the airports even before the government woke up to this possibility. Large established players are required to think ahead of time and shape the economic agenda of a nation. We tied up with the best operator in the world, Changi. All stakeholders, including the government, gave this potent combination a thumbs up to win the Delhi airport.
The nation needs to celebrate the victory of GVK and GMR. It reinforces the fact that Indian economy and politics have matured to allow new players to partake the new opportunities being thrown up in India. The rise of the rookies will inspire thousands more. Today the economy is bringing forth a hundred new faces. In a few years, GVK and GMR will run dozens of airports and will be household names and in the round beyond, they will also sit and wonder how they lost to the new kids on the block.
(The writer is Chairman & Managing Director, Bharti Enterprises)
Hindustan Times, Feb 16, 2006
As the pilot taxied at Heathrow on a flight to Barcelona, I looked out at the busy airport from the tiny window and thought, “Well, we will have spanking new airports in India in the next few years”. In particular, the mess of Delhi and the greater embarrassment in Mumbai would be behind us.
Who are at the forefront of this much awaited change? GMR and GVK. India’s most important infrastructure model will rest on the shoulders of these two rookies. Who are they? GVK has sales of Rs 350 crore; GMR, while having a sale of over Rs 2,000 crore, has it all in brick and mortar business of construction. Will they be able to handle the multimillion dollar projects? Will they manage to gauge customer (passenger) needs, the complications of air regulation and the pressures of running a mission-critical business? How could newcomers upstage the big boys?
Whenever new opportunities are thrown open by the government, a new set of entrepreneurs emerge on the national scene, who then go on to become powerhouses in their own right. Bharti Airtel is a case in point. When the government opened up the telecom sector, four rookies took the grandstand along with the big boys. Bharti, Siva, Max and BPL took the key Delhi and Mumbai mobile licences while competing with the who’s who of Indian industry. The Tatas lost out, as did many other established business houses. Modi & Usha got Kolkata, Thapars and RPG got Chennai. The rookies pushed hard. The rest is history.
Bharti Airtel is today India’s largest telecom company. Yet, it did not go on to win the airport deal in Delhi. Changi pulled out at the eleventh hour. Yes, Bharti-Changi would have scored the highest in technical parameters, but this would be too simplistic a conclusion. Bharti would not have won against the rookies.
What makes these new kids succeed where established players fail — or in many cases, wake up to the potential when the train has left the station? There are some exceptions. Reliance stood in front of a running train and, as we all know, managed to jump on to it. However, the rookies could not be hurled out of the moving train. They are the leaders.
India’s corporate history has several examples of the new kids taking over the block. Reliance came from nowhere when the government opened up the petrochem sector to become a formidable player. Subhash Chandra sneaked into the media world with Zee even before the ground rules were laid out. IT threw up Infosys, Wipro, HCL and Satyam. TCS is also a formidable player, but that does not take away from the glorious rise of the ‘new’ IT boys.
Then there’s Naresh Goyal. Jet Airways is the most admired airlines of the world — yup, the world. Anil Agarwal picked up the important metal companies divested by the government through stiff competition from the established houses.
I will use my own loss of airport opportunity to proffer my own reasoning. Bharti went into the opportunity of developing the airport ahead of others. The company started work on the airports even before the government woke up to this possibility. Large established players are required to think ahead of time and shape the economic agenda of a nation. We tied up with the best operator in the world, Changi. All stakeholders, including the government, gave this potent combination a thumbs up to win the Delhi airport.
The nation needs to celebrate the victory of GVK and GMR. It reinforces the fact that Indian economy and politics have matured to allow new players to partake the new opportunities being thrown up in India. The rise of the rookies will inspire thousands more. Today the economy is bringing forth a hundred new faces. In a few years, GVK and GMR will run dozens of airports and will be household names and in the round beyond, they will also sit and wonder how they lost to the new kids on the block.
(The writer is Chairman & Managing Director, Bharti Enterprises)
Hindustan Times, Feb 16, 2006
Monday, January 30, 2006
Key Takeaways from Capitalideasonline Investor Meet - 2006
I am summarizing key takeaways from Capitalideasonline Indian Investor and Fund Manager Meet, held in Mumbai on 25th Jan’06. It was a great event, with free flow of ideas, with most of the biggest Indian investors & fund managers in full attendance. The full transcript will be available on www.capitalideasonline.com.
The Rountable key points:
1. We know the price of everything, and the value of nothing. Investing is all about gauging the difference between the two.
2. In the last 10 years, Indian Market Index Sensex has only doubled (from 4000 level to 9000 levels), but many stocks have created enormous wealth. Most important is to study individual stocks, rather than track market.
3. There will be humungous opportunities in India over the next 10-15 years, market movement in 2006 per se don’t matter.
4. India is on the cusp of major change – Paraphrasing Warren Buffet’s comment on America and Bangladesh, we are present in India at the right time.
5. American market may go down in the future, but will not be out. You can bet against dollar, but not against American Economy.
6. Patience, Luck and discipline will be important to make money in the near term.
7. Indian companies have started pumping in capex in the last 2-3 years, its efficiency over the next 3-4 years is yet to be seen.
8. Saving as % of GDP has increased from 24% to 30%, yet investment in stock market is 2% of saving. Assuming even 10% goes into stock market over next couple of years, this amounts of USD 100 b and growing – more than USD 10 b on FII, USD 3.5 b of Mutual Funds, and USD 2 b of LIC. With growth in insurance sector, this money will come to stock market.
9. The three main worries in the medium term are:
- American Economy slow down
- Oil prices
- Strange situation of all asset classes at their peaks
10. India economy will get accelerated power of compounding with Rupee appreciation.
11. Indian GDP has increased from USD 300 b to USD 750 b and will increase to USD 1500 b. Thus absolute increase will be much higher.
12. Some of themes discussed :
- Indian consumption story (GDP/ per capita at inflection point)
- Capex Cycle with high ROCE
- Outsourcing across sectors (not limited to Technology)
- Rural consumption increase with increase in land and gold price
- Duopolies / Monopolies in many sectors
- Lifestyle companies with disproportionate increase in volume and value of upper end customers
- Unlisted companies in lucrative sectors getting listed with surging stock market
- Banks with Indian Economy growth
- Large Textile companies after MFA
13. Around 10-12 individual stock ideas were discussed, but I would rather wait for capitalideasonline.com to publish these.
14. Unfortunately, Rakesh Jhunjhunwala did not discuss specific ideas but gave the following comments :
- Conviction in the Indian growth story will get tested in the near future (I think means increased volatility)
- Need to Learn about entering stock in value phase and moving out in ebullience phase to get higher return (i.e. allowing momentum investing to benefit from bull market)
- Need to stick to winners rather than pure value plays
- Stick to investing decision in face of skepticism and volatility
- Return will be moderate going forward
- Need to develop own investing philosophy rather than following any investing guru
15. On a sidenote, Mr. Chandrakant Sampat told me the following investing principle:
- Keep it simple
- Invest in business you understand
- Invest in Business you can predict for next 8 – 10 years
- Company which generates FCF/ has little debt
The Rountable key points:
1. We know the price of everything, and the value of nothing. Investing is all about gauging the difference between the two.
2. In the last 10 years, Indian Market Index Sensex has only doubled (from 4000 level to 9000 levels), but many stocks have created enormous wealth. Most important is to study individual stocks, rather than track market.
3. There will be humungous opportunities in India over the next 10-15 years, market movement in 2006 per se don’t matter.
4. India is on the cusp of major change – Paraphrasing Warren Buffet’s comment on America and Bangladesh, we are present in India at the right time.
5. American market may go down in the future, but will not be out. You can bet against dollar, but not against American Economy.
6. Patience, Luck and discipline will be important to make money in the near term.
7. Indian companies have started pumping in capex in the last 2-3 years, its efficiency over the next 3-4 years is yet to be seen.
8. Saving as % of GDP has increased from 24% to 30%, yet investment in stock market is 2% of saving. Assuming even 10% goes into stock market over next couple of years, this amounts of USD 100 b and growing – more than USD 10 b on FII, USD 3.5 b of Mutual Funds, and USD 2 b of LIC. With growth in insurance sector, this money will come to stock market.
9. The three main worries in the medium term are:
- American Economy slow down
- Oil prices
- Strange situation of all asset classes at their peaks
10. India economy will get accelerated power of compounding with Rupee appreciation.
11. Indian GDP has increased from USD 300 b to USD 750 b and will increase to USD 1500 b. Thus absolute increase will be much higher.
12. Some of themes discussed :
- Indian consumption story (GDP/ per capita at inflection point)
- Capex Cycle with high ROCE
- Outsourcing across sectors (not limited to Technology)
- Rural consumption increase with increase in land and gold price
- Duopolies / Monopolies in many sectors
- Lifestyle companies with disproportionate increase in volume and value of upper end customers
- Unlisted companies in lucrative sectors getting listed with surging stock market
- Banks with Indian Economy growth
- Large Textile companies after MFA
13. Around 10-12 individual stock ideas were discussed, but I would rather wait for capitalideasonline.com to publish these.
14. Unfortunately, Rakesh Jhunjhunwala did not discuss specific ideas but gave the following comments :
- Conviction in the Indian growth story will get tested in the near future (I think means increased volatility)
- Need to Learn about entering stock in value phase and moving out in ebullience phase to get higher return (i.e. allowing momentum investing to benefit from bull market)
- Need to stick to winners rather than pure value plays
- Stick to investing decision in face of skepticism and volatility
- Return will be moderate going forward
- Need to develop own investing philosophy rather than following any investing guru
15. On a sidenote, Mr. Chandrakant Sampat told me the following investing principle:
- Keep it simple
- Invest in business you understand
- Invest in Business you can predict for next 8 – 10 years
- Company which generates FCF/ has little debt
Subscribe to:
Comments (Atom)