New @ PseudoSocial?

Friday 9 January 2009

Tiger ,Tiger Everywhere

reminds me of "there is never just one cockroach in the kitchen" though i think this is becoming cliched. Well the tiger in question is a very well covered company in recent days (though most funds have discontinued research). and the 80% market fall does it warrant buying on account of over reaction. Well a company where the top man admits the books are wrong, not sure how the stock can be valued.

probably a wiser thing will be to buy one of the business devlopment managers which will help some tigers eat other tigers, and not the people riding them, or riding with them.

Saturday 18 October 2008

Warren Buffett advices to buy American :D

WEB wrote this piece for New York Times on Oct 16.

THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.

Key takeaway, put your money where your mouth is !!

Friday 4 July 2008

When everyone is scared ...

When markets are choppy and everyone is scared, I think its the best time to identify some interesting opportunities. In fact WEB has this very famous quote "Be greedy when others are scared and be scared when others are greedy" that echoes the same thing.

Everyone from an individual investor to a Mutual Fund to an Institutional Investor is very very scared of Indian stock markets right now. Does this translate into oppurtunity? And if it does, how do we find companies that are worth investigating?

I am listing few things that I have used to identify stocks.

  • Look for companies where management (or insiders) have hiked their stake since this turbulence began in markets. Rationale: Management are the first people to know about the shape of the company and if they are covertly buying, that means that they are confident about the performance, and since Mr. Market is offering them a good price, they are buying.
  • Create a list of stocks where prices (after adjusting splits, bonuses, amalgamations etc.) are at the same levels as they were two, three years ago. Check if there has been a noticeable growth in terms of revenues, margins, return on capital employed etc. If there is, then these are being priced irrationally by Mr. Market and can be further investigated.
  • Look out for all the BSE and NSE notifications and updates. Since a lot of companies are being priced irrationally quite a few takeovers, buyouts, mergers would be on card. These notices might throw few very interesting ideas.
Please note that I am not trying to teach anyone anything here. I am just sharing my understanding of Mr. Market. Obviously a lot of it would be flawed and I hope someone will help me correct it.

How are you screening stocks? Is there another way to identify companies?

Monday 23 June 2008

Long Term Investment



Awesome ad for Allan Gray Investments.

"Always look for potential .. and
Have the patience to wait for it."

Isnt this true for investing also?

Monday 7 April 2008

What kind of companies to put money in?

I have been thinking what kind of companies should I put my money in. Here is a small checklist...

1. Should have a product that caters to a large chunk of population. (Why not niche markets? Afterall, a brand can command a premium in niche markets?)

2. The market should be growing. (For obvious reasons)

3. The market should not be crowded with competition. At max three players in the market.

4. Barriers to entry should be high. The company should not be susceptible to competition from fly-by-night operators.

5. It should have a huge brand name. I dont know how to quantify brand names but it should be easily recognizable and trusted by its customers.


Obviously price is still the most important factor in the buy decision.

Need to put a lot of thought before I can finalize the checklist. Can anyone point out flaws?

Wednesday 2 April 2008

Superinvestors of Grahamsville and Doddsville

This is one of the most famous piece of work from Warren Buffet. Prof. Bakshi talked about this back in 2005. Finally found it on one of the old harddrives and uploading it.

Here is a link to Superinvestors of Grahamsville and Doddsville.

Monday 3 March 2008

2007 Berkshire Hathaway Annual Report

The 2007 annual report is out. Get it here.

I will update the highlights and my thoughts soon.

Thursday 14 February 2008

Recent Investment Positions

In last week, I took active position in two securities.

1. Cheviot Company Ltd.
2. Mid Day Multimedia Ltd.

One is a deep value play and another is an unfolding growth story.

Me and Sandy have spoken about Cheviot earlier too. This is the link to the previous post. Nothing has changed since then. Mr. Market is still pricing Cheviot for bankruptcy. Cheviot still holds all those assets that make it a value play. I am still trying to figure out what can be the trigger.

Mid Day is another company that has been on our radar for a long time. Here is our earlier post on the same. It just happened that Mr. Market has been really kind and is pricing the company at really attractive valuations. When we started tracking Mid Day almost an year back, its price is what it is trading at right now.

Any thoughts from any readers on either company?

Thursday 31 January 2008

Investments history and lessons

Been long time since I updated the blog. Here is a post out of compulsion rather than necessity. SA is out of the country for some time and hence its me who will have to post things here now.

Investments history.

When I started investing in 2006, I started with Rs. 10000. My investing philosophy was what it is right now. Pick 5-8 stocks and divide the capital equally amongst these 8. Obviously it is difficult to get 8 value picks at the same time. I thus decided to put 2500 in every opportunity.

Over a period of time, I got a job and started saving. Now suddenly I had more money to invest. 10000 looked like a paltry sum. I reached a point where I had invested 50000 in market. I did not hike my stake in earlier investments and merely added new securities. My portfolio now had investments of less than 5000 in 5 or 6 companies and about 10000 in 3 companies.

Moment my savings reached a lakh, I did a review again and realized that I still haven’t sold a single company and the portfolio had less than 5000 in 6 companies, about 10000 in 3 companies and 25000 in 2 companies.

And by the way the portfolio was doing really well. The ones I had put money in 2006 were at-least two-baggers (one stock was up 5 times too). The ones I put Rs, 10000 in had almost doubled and the ones where I put 25000 were up some 30 odd percent. Overall the portfolio was about 40 percent up. And I owned about 12 companies.

Today I did yet another analysis. I realized that I have put in 2 lakhs in all. Since I haven’t sold any stock since I started investing, I own about 16 companies now. 5 are multi-baggers, 5 are two-baggers, 1 is making a loss of about 10% and rest are up by 30 odd percent. Portfolio on the whole is up by 30%. Even thought I have 7 multi-baggers, my portfolio as a whole is up only 30%. One side, I am happy that I have not lost money in the market. On the other hand, I am disappointed that I did not beat the index.

Lessons and feedback

1. I need to start thinking about investments again. I was under the assumption that I don’t have time and if I let the portfolio hang on forever, it would only increase. I have now realized the hard way that selling is as important as identifying and buying is.

2. I need to know when to sell. Few of my stocks are down 50 percent from their highs. I have never sold a stock. Ok, I sold one stock when I needed money but I recently bought it again when market fell 10% on a single day.

3. Since I never thought I would sell, I would need to formulate a selling strategy also. I can sell my stocks when they have reached their fair value (what I think/calculate as the fair value). Or I can sell them moment they are up by 50% or some other such number. Or I can sell them when I see a better opportunity. I will have to sit down and think.

And if you dint notice, I just made it public. I have a 2.5 lakh portfolio. And this is all the saving I have. Lets see how many ransom calls do I get now and how many new friends spring up cos of that.

P.S.: If anyone has any feedback, please revert.

Saturday 13 October 2007

Monday 8 October 2007

IFCI Ltd. - How NOT to Invest In Indian Stock Markets

IFCI Ltd. - Company Details

SA and SG write Pseudosocial. This is an conversation they had today in the afternoon.

Please read. A very good example on how are people moved by greed and are blinded by lure of quick gains.

**** refers to names that we dint want to disclose.

SG: market 18k ho gayi?
SA: kya lena hai?
SG: IFCI
SA: :) woh to leh hi raha hoon. uske alawa aur kya lena hai. IFCI ki bid kitne par hai?
SG: maloom nahin. lekin log bol rahe hai 200 ho jaaega.
SA: :) yeh log kaun hai?
SG: pata nahi. main soch raha hoon ki 100 ho to bech doon :D
SA: who is log? :)
SG: random people yaar
SA: abe mein soch raha hoon 15-20% return mile to bech doo. Kher aur kya lena hai?
SG: maloom nahin. IGL dekh raha tha main. maza nahin aaya
SA: IGL kaun hai? indraprastha gas?
SG: haan
SA: Ok. IFCI aur kitna girega? Mujhe lowest pe lena hia :)
SG: mera lowest **** hai !
SG: Abhi kitna hai? Mera nse nahin khul raha.
SA: 77
SG: 77 fuk .. ?
SA: :). Aur kitna girega?
SG: maloom nahin. Lekin itna to nahin girna chahiye yaar
SA: mujhe lowest pe lena hai
SG: it should not go below 85. Ruk lemme see. Koi news aayi hai kya?
SA: haan thoda overreaction hai shayad
SG: 85 pay sab logon nay bid kiya hai
SA: (log bol rahe hai) minimum bid is for 120
SG: yaar mujhe 85 maloom hai kyonki it was documented in paper. Agar 77 hai to khareed sakte hain 500 share!
SA: 85 kisne document kiya tha? Or rather which document?
SG: 85 pay **** nay akhbaar main bola tha
SA: oh ok
SG: paper main tha ki they have given open offer to acquire at 85. Uskay baad hi IFCI wale so kay uthe aur bid ki naubat aayi
SA: **** ne hi bola hai minimum bid for 120
SG: ok ok. 77 pay hai to khareedna shuru kar sakte hain thoda thoda but don’t know the bottom. Lekin margin of safety nahin hai
SA: **** ke "untrustworthy" sources ne. But at 77 it is a buy for around 10 - 15 %
SG: abey FnO main we can go for killing
SA: it is banned in FnO
SG: aaj neeche hai, kal badega, tereko maloom hain FnO kaise khelte hain?
SA: jaise jua khelte hai waise hi fno khelte hai
SG: haan lekin mere ko fno nahin maloom. jua maloom hai.
SA: horse racing jaise khelte hia, koi ghoda acha laga to paise laga
SG: lekin yaar yeh news based hai
SA: jeeta to sahi nahi to bhi sahi. What is the news?
SG: matlab news aaegi to 10% upper and bad news aayi to 10% lower
SA: IFCI ka stake kiske pass hai? GOI? Who is selling stake?
SG: IFCI itself it selling stake
SA: ok. To who all? Pvt. Companies? Oh fuck it is 75 now
SG: http://www.IFCIltd.com/shholdpattern.pdf and IFCI kay liye moja sey pooch ki story ya hai
SA: I am not sure I have just put some money in IFCI. Fingers can be burnt here but lets see i have just bought 200 shares
SG: greed @ play!!
SA: :) :) a lesson can be learnt
SG: saale. Greed hai aur kuch nahin hai. Sun TFCI dekh. That can be bought for long term
SA: tourism finance corp
SG: ye IFCI type hai. I saw it at 10 bucks and now its 30
SA: haan
SG: may main 10 ka tha and I think I told you about it also
SA: ya I want it lower than 30. It has gone up very quickly. IFCI should be sold at at least 90. That’s what I think. So I will buy more
SG: abey! Irrational exuberance!
SA: :) mujh pe model lag raha hai. But I will stick my neck out and buy more
SG: saale. I will post this conversation on blog!! and on lollapalooza
SA: :)
SG: serious!
SA: ok no issues. but some parts should be removed. like references to some company names as done earlier
SG: hehe. I will remove things that I think should be removed and maine bhi 100 khareed liye :). ab meri IFCI holding *** shares ho gayi
SA: :)
SG: saale tune model laga diya. achha khasa chup chap kaam kar raha tha main
SA: maine kya kiya
SG: lekin ab khareed liya hai to lite. mera average price 75 ho gaya
SA: 75 average price kaise ho sakta hai, jab lowest price *** rs hai
SG: I meant abhi ki purchase
SA: oh ok
SG: till yesterday my average price was **** including taxes
SA: :) mujhe kaam nahi hota hia to bahut bira hota hia :)
SG: seriously! 100 share khareed liye maine bhi
SA: maine bhi 250 share khareed liye
SG: 250 ?
SA: haan
SG: ok
SA: 200 pehle 50 baad mein. But all after we started chatting
SG: this will make an interesting post on blog!
SA::) I know
SG: I will post this after correcting spellings and removing names of people and companies
SA: yes companies definitely
SG: IFCI is now 79 :D
SA: let's sell :) but on a more serious note it should have gone down more I wanted to buy another 50
SG: sell kar dooon ?
SA: mein bhi wohi soch raha hoon
SG: this will be my first experience with intra day trading!!
SA: :) abhi mujhe thoda kaam bhi hai
SG: ok
SA: thodi der kaam karna padega
SG: you carry on. I will post about it on the blog after editing some parts of the conversation
SA: ok

Disclaimer: Both of us now have a stake in IFCI. Please be advised.

And this is a very good example of how NOT to invest.

Wednesday 3 October 2007

Aftek Ltd.: Am I Missing Something

Aftek Ltd.

Company Website: Aftek Ltd.
Company Details: Google Finance on Aftek Ltd., Kotak Securities on Aftek Ltd
Annual Report: Aftek Ltd. Annual Report 2006, Aftek Ltd. Annual Report 2005

I am not comfortable with the kind of business they are in. Also I am not very sure of the products they make. They sound complex and it is a business that keeps changing. Also the company has an uncharged amount around 17 crores against foreign exchange that is essentially a reduction of 17 crores.

Consider the market cap (857 lac shares * 73rs = 625 crores), cash flows the company is generating (they claim in excess of 300 crores as cash and cash equivalent) and reported profit after tax around 100 crores. The company is not very heavily loaded as far as debt is concerned (aroud 50 odd crores).

Is this some kind of a scam or is all this true. Add to this a subsidiary (25% holding I think) which is currently valued at 600 crores (25% stake was purchased in lieu of knowledge transfer). The company exists for sure as I had once appeared for an interview for a job oppurtunity with the company (don't ask what was the result).

And the chairman starts his speech with a line from "Sound of Music"

Lets start from the very begining
a very good place to start


ANY COMMENTS, whoever has read this far ...?

Monday 1 October 2007

Few Videos on Worldy Wisdom

With Youtube, sharing and viewing videos is easy and fun. Here are a few very highly recommended video - for investors, speculators, traders, students, random people alike!

1. Steve Jobs at Stanford Graduation Commencement - June 12, 2005

Video on YouTube | Full Text

"Your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma — which is living with the results of other people's thinking. Don't let the noise of others' opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary."


2. Warren E. Buffett at University of Florida MBA - 1998
Video on YouTube | Video on Google Videos | Full Text


3. Guy Kawasaki at TIEcon - May 13, 2006
Video Link | Full Text


4. Randy Pausch at Carnegie Mellon
Video on Google Videos | Video on Youtube | Full Text

Credits: Ravi, Value Investing


Please recommend more videos and help make this a comprehensive list.
Last updated: 1.Oct.2007

Sunday 23 September 2007

Linguistics - Finance

We have a new section. We will post articles on Finance, Valuation and Investing written by friends and guests.

To kick off, Prasad contributed this very interesting article about Linguistics and Finance on Lollapalooza. With his permission, it is being reproduced here.


Hi,

Some thoughts to share about, on the application of linguistics in finance. These are in no way any conclusions, but only thoughts to reflect upon. Please share your comments/ideas on the same.

Human "line of thought"(LOT) is divided into natural sciences, applied sciences, arts and humanity etc and many a times one "line of thought" (LOT) is enriched by findings from other "lines of thought". Such a division itself is difficult because of overlapping nature. Sometimes findings in one are found to be erroneous before taking into consideration the findings from other. Example: study of history is enriched by anthropology, evolution, biology etc; Even in the area of finance, we are applying insights from various fields like evolution, biology, chemistry, psychology etc. And there are many other such examples of inter-disciplinary dependancies. I have some thoughts to ponder upon regarding linguists and finance.

1. In Linguistics, one question posed often is "can we think with out language"? Isn't the existing knowledge bounded by the limitations of "language"? We may not always express correctly what we felt/thought. Actions resulted from thinking that we do with out associated words(language), are difficult to analyze further. We try to find situations where various mental models or their combinations have relevance in area of finance and life at large. People's awareness/understanding/susceptibility/application of mental models differ. In such cases, does't it get more dificult to find the right mental model/combination of models, compounded by the problem of actions resulted from thinking with out language, and analysis limited by language?

2. Many disciplines/sciences add new jargons, being limited by existing words. Does the innovation in the discipline (even finance) becomes limited by language constraint? Is it that "I cant express myself in words" a question to be limited to disciplines of arts, metaphysics etc?

3. Is the application of mental models/finding the right model limited by language as in case of study of history, with out inputs from paleontology/archealogy etc.Any such situations one noticed? Are such situations so rare that they don't demand further analysis with regard to applications in behavioural finance? Even if they are not rare, the fact that everyone is bounded by such limitations makes this discussion irrelevant?

I doubt even the above sentences are, limited by langauge as well as my ability to use language effectively. Please share your comments/ideas on the same.

Regards
Prasad.

P.S.: Wiki on Linguistics

Sunday 2 September 2007

Delhi Autorickshaw Drivers - A Fare Deal ... ?

Autorickshaw (aka autos) drivers in Delhi have always been notorious for fleecing customers and demanding exorbitant fares from passengers. Autos are supposed to charge by a fare meter (installed on the auto). A fare meter is an essential part of any public transport system. All the autos had a meter but no driver ever used them. Even people in Delhi got used to haggling with the drivers before they took an auto. I have spent good part of 25 years in Delhi and have never travelled in an auto that runs on fare meter. Even Lonely Planet Guide and other Delhi travel advisories told people to fix rate before they get into the auto.

I moved to Mumbai three months back and on a recent visit to Delhi, I was surprised to see that somehow all autos were going by meter. All means all autos on the road. I took autos at 2 AM, 8 PM, 6 AM and all the time I paid by meter. This was something new to me. How can this radical a change happen in less than 3 months? What changed? This is equal to a social epidemic. The very basic behaviour of people (in this case autodrivers) changed in less than three months. What brought about the change?

It took almost a day to figure out and this is what I could find.

In last three months, few things changed.

1. The per kilometre tariff for auto was hiked (from Rs. 4.5 per KM to Rs. 5.5 per KM).

2. The fine on not going by a fare meter was hiked. From Rs. 100 to Rs. 2000. In case of second default, the autos could be impounded.

3. Policemen were given incentives for catching defaulters. I asked a cop, he did not share the exact numbers but he said that if they catch even 5 defaulters a day, they make same money as they would make in bribes in a week.(This is what a cop told me when I acted as an innocent college kid :))


Now these three changes had following effects
1. Auto Drivers: Most of these auto drivers do not actually own the autos they drive. These are rented (Rs. 250 per day). It was easy for most of the drivers to cough up 100 bucks if at all they were caught. They could either pay Rs. 100 or bribe a cop Rs. 50. To compensate, all they needed to do was over charge 2 other customers. Now with fine at 2000, if they are caught even once, they are in a soup (large fine and possibility of not getting the auto for next day). And with super-incentives to cops, chances of getting caught and fined became higher. It also became difficult to bribe cops as they make more money if they issue challans (traffic violation ticket).

2. Cops: Earlier, cops were happy catching autos for petty things (no driving license, improper uniform etc) and getting Rs. 50 as bribe. With high incentives, they cracked down on autos like anything. They stop autos at random and instead of asking the driver, they ask the passenger about the fare and if the meter is being used or not. Suddenly cops were making quick and easy money and above all, this money came in form of awards. This probably became the tipping point and suddenly every auto driver wanted to go by meter.


So basically it took two simple step to solve an age old problem of over-charging. An awesome application of what Robert Cialdini, Seth Godin, Malcolm Gladwell and a lot of other unknown social scientists have been doing (I am taking the liberty of categorizing all of them as social scientists).

Moral of the story is that next time you take an auto in Delhi, make it a point to go by meter (spread the Ideavirus - become a sneezer).

Post BFBV, everything is reduced to application of Mental Models.There are quite a few evident Mental Models in the entire episode. The ones I could spot immediately are
1. Reciprocation – we have increased the fares, now you start using the meters and stop fleecing the commuters.

2. Incentives – catch defaulters and make fast money.

3. Punishments – large (comparatively) and enforced strictly.

4. Positive Feedback Loop – Initially cops made money, they got stricter, autos started going by meter to avoid getting caught, cops getting even stricter with lesser autos defaulting.


If there is a different opinion, please share. Please point out flaws in arguments.

I have also made following two assumptions
1. No one paid fines earlier and most cops were happy to take bribes than issue challans (aka traffic violation tickets)

2. Assumed that this exercise is success. However the effectiveness is yet to be proved. Until commuters start demanding to travel by meter and use of meters becomes a norm, the effects would start fading in some time.

Friday 22 June 2007

Three A's (AAA)

First the three A's are for Adhunik Metallics, Alps Industries, and Abhishek Industries. Moja introduced us to the first 2 A's and the third one is just another company from the textile sector.

2 of the three are from the textile sector which is a "sitting duck" as someone may like to quote. Actually Arvind Mills could also have been covered here but will save that for some other time. Moving on we came across Abhishek Industries while trying to look for something new. The company has been posting a PAT for around 40 crores for the last 4 years and at the present market cap of 340 crores is not an expensive buy. But none the less as Sudhir says he does not like the managment and the share price though not high will be better still if it goes somewhere below 15. Again why the textile sector is in such a shape currently we do not know and will love pointers on the same. Is it the capacity utilisation of some of these textile firms or ...

The other 2 were stories given by Moja and though moja gave the adhunik story at 36 - 37 the price has risen since and oscillated as well. Both these stocks are discussed here on behalf of Moja who on repeated requests has not produced an article for the same. Adhunik looks to be in a promising industry where the tailwinds seem to be with the company for sometime to come. The company is definitely on a growth track but we will not like to take the discounted value for the growth into the valuation for the stock. With the kind of results posted for FY 2006 -07 the company was worth a dekho at 36 but at current level (well, price changes everything) ... :-)

As for Alps industries this is the fav of the three, something which is trading at a huge discount to the book value of Rs. 147. Does this book value really represents the liquidation value, we have not done the calculations. But surely as per the numbers go this one looks the most comfortable but again is a company in the market cap of 100 - 200 crores and we are already saturated with companies with similar market values. Though one of the important criteria in picking a stock should be the marketability of the scrip, and this scrip satisfies those criteria unlike some of the others in similar M Cap range.

All in all not too much numbers presented here for the three companies but this is more for getting some views on the same especially for the ones belonging to the textile industry.

We have interest in one of these scripts, moja and freinds have interest in another and the third one is Just for ...

Wednesday 23 May 2007

Neembu Mirchi

I sent this to my alumni group ...

I was standing on this traffic light when I saw a small kid tying Neembu-Mirchi to a bike. I had seen auto drivers and taxi drivers using Neembu Mirchi to drive away the bad spirits but a biker using Neembu Mirchi was something I hadnt even imagined!

Got curious, got down from the auto and stood there for some time. Realized that the Neembu Mirchi was done with all the bikers even though none of the bikers had originally asked for the thing to be put on the bike.

Classic Cialdini at play. The Neembu Mirchi is traditionally used to prevent something from "Buri Nazar". Everyone has seen it, everyone knows it and most of the people believe in it (for the record - I dont).

Since these were small kids, giving away Neembu Mirchi for free and helping you save yourself from "Buri Nazar". He is doing you a favour. You have this strong urgent of returning the favour. How do you do it ... ? Give Money! Saves you from the guilt of taking services from a kind hearted kid who is there to help you. Further, since the Neembu is tied up, you dont want to drive away with something from a starving kid without paying for the cost. PUSH selling .. :D

Wiping of windscreens on traffic lights, giving you a photograph of some god, now Neembu Mirchi - Reciprocation ! AND RELIGION (in last two cases) !
Regards,
SG


Prof. Bakshi replied
Yah Saurabh, I think you're right abt Cialdini's models at work here.

Actually, the road is a wonderful place to see psychology at work.

On Saturday's in Delhi, its common for beggars to put oil in containers with coins inside and approach you - you NEVER find a container without coins in them - social proof - others have given, so should you.

The eye-to-eye contact which the beggars are so eager to establish and ppl are most reluctant to have enforced on them is contrast effect as in "you're so rich, look at me, look at the contrast between us!"

When people accelerate their vehicles instead of slowing down when approaching a crossing and when the light has just turned from green to yellow - its deprival super reaction - most of us do this - we lose control of ourselves and our perception of risk goes for a toss when we see our chances of sailing through a crossing diminish by the second - total impairment of cognition... When ppl lose something or are almost about to lose something, they becoming willing to take huge gambles to avoid losing it - what you see on the road happens all the time in the casino and of course in the stock market...

Road rage is a function of reciprocation (retaliation is a form of reciprocation), and envy (sometimes).

Even clustering of "similar others" (social proof) takes place. If you hit a cyclist and he falls down and you stop, you can be sure that most pedestrians and cyclists who gather there will take his side - regardless of who was at fault, and most motorists who stop by will take your side - again regardless of who was at fault.

And when one sees someone obviously hurt lying on the street in pain and agony, one is reluctant to stop and help because no one is helping (social proof means we not just copy actions of others, but also their inactions), and our own personal calculations (let someone else do it).



==SB

Thursday 3 May 2007

Kenny Loggins - Playing with the Boys - Current Fav Song

Kenny Loggins - Playing with the Boys - Current Fav Song

Featured in the Motion Picture Top Gun ! (OST)

I'd say it was the right time
To walk away
When dreaming takes you nowhere
It's time to play
Bodies working overtime
Your money don't matter
The clock keeps ticking
When someone's on your mind
I'm moving in slow motion
Feels so good
It's a strange anticipation
Knock, knock, knocking on wood
Bodies working overtime
Man against man
And all that ever matters
Is baby who's ahead in the game
Funny but it's always the same

After chasing sunsets
One of life's simple joys
Is playing with the boys
Said it was the wrong thing
For me to do
I said it's just a boys' game
Girls play too
My heart is working overtime
In this kind of game
Someone gets hurt
I'm afraid that someone is me
If you want to find me,
I'll bePlaying with the boys

I don't want to be the moth around your fire
I don't want to be obsessed by your desire
I'm ready, I'm leavingI've seen enough
I've got to goYou play too rough

Sunday 29 April 2007

Cheviot Company Ltd

Company Website: Cheviot Company Ltd
Company Details: Kotak Securities
Annual Report: Cheviot Company Annual Report 2006

I read about Cheviot on Rohit Chauhan's blog first. Then Prem Sagar talked about it. And since it was on their radar, I had to look at it.

Cheviot is a West Bengal based company into Jute products. It has 100+ years history. 100 years don't guarantee anything. Recently a 1400 year old business succumbed to excess debt.

Company is into two businesses - Jute goods and Captive power generation. Annual Report 2006 says that power generation contributes less than 10% of revenues and hence is not covered in the annual report. Jute goods include Jute Yarn, Sacking Bag and Canvas Bags.

Its products are used extensively in packaging. In India, GOI has made it mandatory to pack sugar and some other food items to be packed in jute bags. However more than 70% of revenues come from exports and even if these regulations are taken away by GOI, there would not be a major impact on earnings.

Since the entire jute industry has been facing losses, small competitors and most of the players in the unorganized sector have been forced to shut shops. Cheviot remains the lowest cost producer and one of the few companies left making money in the industry.

+ives

1.Company deploys excess cash in mutual funds and other companies. Subsequently company is sitting on Rs 212 cash per share (and this is at cost of investments – with market giving 46% return last year, the market value could be much much higher).

2.Current trading price is about 238. With 212 per share in cash, Cheviot can be effectively bought at Rs. 26 per share.

3.Promoter group holds about 73% of outstaying shares – may be a reason for their love of giving out generous dividends! It would have been interesting to know the dividend payout if promotes had only 27% holding in the company.


-ves
1.Jute industry has been given sops by GOI and in absence of these sops, profitability might come down. Most of the revenues come from exports and in case sops for packaging are taken away, Cheviot would still be unaffected.

2.There is no catalyst that might initiate the value unlock process. In case of Venkys, people just had to start eating chicken again. Here there is no such natural catalyst.

3.Labour issues in West Bengal are very sensitive. Strikes happen on whims and fancies of the union and might have some effect on operations of the company.


Inputs
1. Jute – prices and availability of raw jute.
2. Annual report mentions about petroleum prices being an input.


Dividend History
2007 - 80% interim
2006 - 100% final

Numbers as on April 27, 2007
Market Cap: 108 Crores
Current Market Price: 238
Face Value per share: 10

Numbers of shares outstanding: 3007500

52 week low: 214 on 02 April 2007
52 week high: 492 on 04 May 2006

All time low: 10 on 06 Dec 1996
All time high: 492 on 04 May 2006

EPS: 78 (as per 2006 annual report)
PE Ratio: 3 (as Rohit and Prem say ... market is pricing Cheviot for bankruptcy!!)


To be read more
1. Mention of bonus shares in 2006 report. What happened to it?

2. Read about Jute industry, mandatory packaging of food grains in Jute bags in India, products from Bangladesh and China etc.

3. Use of petroleum in manufacturing jute bags.

4. Operational cost margins to be considered. With 58 crores in bank, the real figures of ROE and ROI have to be better.


Please point out mistakes and errors ... !

Investing Checklist - Set of questions to be asked before investing

I am trying to come with a string of questions that I would ask before I am comfortable investing in a company.

Following are the questions ...


1.What is the quality of management? Are they shareholder friendly? Is the company paying taxes? Do the promoters attend shareholder meetings?

2.Why is stock a pick? How did it become a value stock? Is it a special situation? Does it have huge growth potential in future? Does it have hidden value in terms of cash or cash equivalents?

3.What is the potential downside?

4.If it’s a special situation, is there a catalyst that would unlock the value? How much time would it take for the catalyst to unlock value? what happens in absence of the catalyst? Is there a sign of emerging catalyst?

5.If it’s a growth story, has Mr. Market factored in the growth potential already (by reflecting the optimism for future years in the current prices)? In other words does the stock has high PE multiple?

6.What can change the value proposition? Environmental changes? Regulatory changes? Competitive scenario?

7.If the equation might change, how can the company cope with it? What will be the new downside? Will the company still be a value play?

8.How long will the money be kept blocked? Can the money be freed in case of emergency before the stock appreciates to expected levels?

9.What is the expected return?


Right now I don’t have anything that considers competition, prevalent mood of Mr. Market, Interest rates, return from other avenues. I know there are other things also that I have missed.

Also the list is very big. I ideally want to have not more than 5 questions.

I will keep updating this list as and when I learn more. If someone reads this, please point flaws and omissions.

Wednesday 25 April 2007

Pseudosocial Stockbook

Pseudosocial Stockbook is another effort towards capturing information and details at one place.

Even though human mind has unlimited potential, but there are limits to even the unlimited. We are mere mortals and Pseudosocial stockbook is is a collection of news, views, thoughts, comments, links etc about companies in one place. This would be our own TOP SECRET file on a particular company.

Some of these views would be positive, some negative and most only a collection of facts. But it's a place where we would store our thoughts in a chronological order and this shall help us revisit these companies as and when scenario changes.

Tuesday 17 April 2007

The Great Hargeisa Goat Bubble

Julian Gough came up with this piece about The Great Hargeisa Goat Bubble in one of his novels in 2003.

This is a must read for someone who wants to understand the way markets become irrational. A journey from discovery of a new market to its boom to its subsequent bust. This short 4 pager covers it all. Very highly recommended.

Here is an extract ...

"By this time the goat craze had become a mania. A severe shortage of goats, and infinite demand, led to excesses. The price of goats became ludicrous, and many animals were led to the town market which were loudly proclaimed to be goats but which on closer inspection proved to be dogs, dressed up. They were purchased anyway, the frightful animals, at grotesque prices.

"The sheer length of the boom was now leading to increased confidence. There was a loosening in credit. It seemed madness not to lend to a man who could pay you back handsomely the next day. And as a creditor, once you'd borrowed and repaid with interest a couple of times, the banks began to persuade you to borrow more.

"Soon the shortage of actual goats led to a booming market in goat futures, goat options and increasingly arcane goat derivative products. This trade in young, unborn, and even theoretical goats allowed yet more money into a market whose only bottleneck or brake up to this time had been the physical shortage of actual goats.


Link to Julian Gough's website
Link to The Great Hargeisa Goat Bubble

Tuesday 10 April 2007

How to (Actually) Invest Like Warren Buffett… and Charlie Munger

I found this on JoeCit

Some excerpts ...

On WEB

When Buffett claims to understand something, he means he understands it almost 100% and can say with virtual certainty what the company will look like in ten or twenty years. It’s not that Buffett is out of touch and doesn’t know what a computer or a prescription drug is. He may have you think that in jest, but, as Bill Gates has said, he knows their businesses, opportunities, and challenges quite well. Yet, and here’s the key, he does not have any advantage or insight into how the will perform in ten years due to the fickleness of their industries.


On Munger
I personally believe Munger’s influence at Berkshire and on Buffett’s thinking goes, regrettably, unsung. Very unsung. If Munger hadn’t been around, Buffett arguably would not have gained an appreciation of buying great businesses rather than cigar butts. Munger helped make Berkshire’s returns phenomenal, while allowing for scalability that could not have otherwise been achieved. In other words, Berkshire could never have been scaled to its huge size by purchasing cigar butts — there aren’t enough of them, and the returns are not “continuing” (i.e. when they reach fair value, there’s no further upside. You must sell it and move on). Berkshire, therefore, needed to invest in great businesses that it could hold on to.


There is more but the article is best read from the original source (link).

Above passages were copy-pasted from JoeCit.

Thursday 5 April 2007

Revathi Equipment Ltd

Company Website: Revathi Equipment Ltd.
Company Details: Kotak Securities

Revathi Equipment Ltd. is a part of Mr. Abhishek Dalmia's Renaissance Group. Revathi are manufacturers of drilling equipments and accessories for Mining, Construction and Water Well / Exploration Drilling applications.

Revathi Equipment Ltd came into our radar some time September or October 2006. We thought the company is overpriced. But we loved Mr. Dalmia's letters to his shareholders and with our investment, we just wanted to be among the legitimate recipient of his letters.

As Ben said, price changes everything, the price had to be correct. The price was hovering between 600 and 700. It was still out of our comfort zone. But one fine day the company started share buy back. The company was buying it's shares for prices between 600 - 700 with some shares being bought for 699 as well.

We thought we would follow smart money and put our money and faith with Mr. Dalmia. Though our reasons for buying were very rudimentary (no valuations, no price decline, not sure about 52 week lows) but we bought some shares. We just wanted to be with someone who is so much like WEB in his writing and most probably in his thinking.

Talking about the letters, Mr. Abhishek Dalmia issues Letters to the shareholders (FY0304, FY0405, FY0506) annually. These are must read for anyone looking out for words of wisdom. Similarities between Warren Buffet's Letters to shareholders of Berkshire Hathaway can be easily observed.

These letters tell a lot about intent and motivation of the Chairman and the probable direction the company would go in.

Parting Notes
We dont have access to annual reports for Revathi. If someones got a copy, please drop in a line.

P.S.: We own Revathi. Even if we try real hard, out views would be biased. Satisficing .... ?

Tuesday 3 April 2007

Balmer Lawrie Investment Ltd

Balmer Lawrie Investment Ltd: Special Situation ...?

Company Details: Kotak Securities

Balmer Lawrie Investment (BLI) holds 1,00,64,700 shares of Balmer Lawrie & Company (BL) and is available at 50% discount to market cap.

Some facts to start with...

Balmer Lawrie & Company (BL) Numbers

Total number of shares outstanding: 1,62,86,081
Price per share (as on 03APR07): 405.10
Total Market Cap: 643 crores

SEBI EDIFAR
reports that Balmer Lawrie Investment holds 1,00,64,700 shares of Balmer Lawrie & Company (or about 60% of outstanding shares).

60% of 643 crores is roughly 397 crores. Ideally, Balmer Lawrie Investment should be worth 397 crores give or take few crores.

Numbers for Balmer Lawrie Investment Ltd however, show a different picture.
Total number of shares outstanding: 2,21,97,269
Price per share (as on 03APR07): 89.45
Total Market Cap: 196 crores

Put simply, for some reason Mr. Market has decided to price a company worth 397 crores at 196 crores. A whopping 50% discount or 100% potential profit.

Now the obvious question. Should we or should not we?

I would not buy Balmer Lawrie Investments because ...

1. Since it is only a holding company (BLI was created when govt. decided to divest stake in IBP and needed another vehicle to hold BL shares), it is very unlikely that they will liquidate their position in Balmer Lawrie. The value in Balmer Lawrie Investments will stay locked. My money would also get locked in the vehicle.

The annual report says "Your Company is not engaged in any other business activity except to hold the Equity shares of Balmer Lawrie & Co. Ltd. and accordingly matters to be covered under 'Management Discussion and Analysis Report' are not applicable for your Company."

2. The stock price of Balmer Lawrie Investments can move up if Mr. Market suddenly sees opportunity or BLI starts making more investments in other companies. So far neither of the two has happened and I don't know when it would happen in future. I am happy loosing my shirt by betting on probability but I am not happy winning a bet on uncertainty.

Further the annual report says "Your Company as you are aware is prohibited by the Reserve Bank of India to do any sort of non-banking business. Dividend received from Balmer Lawrie & Co. Ltd., is the only major income of your Company. Estimated surplus money instead of keeping in the Current Account is deployed in the Fixed Deposits Schemes of the Banks. As of 31 March 2006 the total amount of deployment in the Fixed Deposit Schemes of the Banks stood at Rs. 733.56 lakhs. Your Company during the financial year ended on 31 March 2006, out of such deployment in Fixed Deposits earned to the tune of Rs. 35.28 lakhs."

3. The business Balmer Lawrie is in (its a govt. company all right) might also go down and subsequently the book value and price of BLI might go down. I don't know if this would happen but this is another aspect that has to be kept under consideration.

4. Then there are other things like low trading quantities that make the stock unattractive.


On the other hand, I would buy Balmer Lawrie Investments because
1. Its trading at close to 52 week low (of course... this is a bad strategy but I have used it earlier and reaped rewards .. am not scared to use it again

2. A lot of mutual funds, institutional investors hold positions in BLI. Proponents of follow-smart-money theory (including me) might argue that they seek safety in crowds and if MFs and FIIs are putting money here, their money is also safe. (assuming that institutional investors ARE smart !!)

3. This is like one of those opportunities where you don't know how long would it take to reward the shareholder. Tomorrow all of a sudden, govt. might announce the merger of two entities, buy back or something else. At this time, we don't know.


More Links
Google Finance Profile for Balmer Lawrie & Company
Kotak Securities Profile for Balmer Lawrie & Company

Thanks to Mohit for idea and numbers!

Friday 23 March 2007

Averaging Down - Yes or No?

Averaging Down was talked about in Gurufocus here.

Here are my comments.


Hi,

I have a slightly different view.

Averaging down is good. Even I have averaged my stocks down to reduce my holding cost. But there are certain things that one must take care of.

1. The company you have put your money in should be fundamentally a good company and price fall must be irrational (not logical - YES NOT LOGICAL!!!!). In other words if the stock prices of chicken hatcheries is down because of bird flu (irrational reason), makes sense to average the cost down. And if price is down because the industry has been made obsolete (logical reason), don't average down (eg: pagers, CD manufacturers etc.)

I am from India and when Bird Flu struck us last year, all the hatcheries stocks tanked and there was nothing wrong with the business. It made all the sense in the world to get into hatcheries and poultry farm businesses.

2. Once it's made sure that market price is down because of some irrationality, another thing to keep in mind is upside potential. How soon can market realize that it was being irrational? For example bird flu sooner or later has to be cured and people would not stop eating chicken. Return to mean would thus happen in predictable amount of time. If in any case, return to mean takes longer than predictable amount of time, IMHO, averaging might be a bad idea. Personally I would not average down. It would be like putting more weight on a sinking ship (trying my hands at churning out one liners like WEB).

3. Finally averaging down must also consider the biggest cost of all - the opportunity cost. Averaging down is made possible only because market is down or some unrelated thing is affecting investor behavior and confidence (butterfly in New York cooks up a storm in Sahara). In these times, there could be other companies available even cheaper with higher upside potential. Better check out other opportunities before averaging down.

Please point if I am incorrect somewhere.

Tuesday 13 March 2007

SRF Ltd.

Company Details: Google Finance, Kotak Securities

Prof. Bakshi posted his views on SRF Ltd. yesterday on his blog.

Shankar asked me to look at SRF. SRF is currently trading at close to its 52 week low (CMP as on 13-MAR-07 is 120 and 52 week low is 110 on 12-MAR-07). For me this is a very important criterion in stock selection. I dont understand PE Ratios and hence I look at historical prices to see if a stock is "cheap" or not. Almost every investor would disagree with me but until I learn about PE and other ratios, I would keep using this.

The stock was cheap in first glance. Prof. Bakshi had talked about it (although it was more negative than positive) and Shankar asked me to look at it. I had to dig in. I smelled another investment opportunity.

Unaudited financial results for Dec 06 are available here and the press release is available here. It said

"SRF Q3 FY2007 revenues up 52% to Rs. 450.36 crores (vs. Q3 FY2006)" and "PAT up 418% to Rs. 70.11 crores; EPS at Rs. 10.33".
Looked like a turnaround story with huge improvements in revenues and margins.

Mr. Arun Bhagat Ram, Chairman, SRF Limited, added:
" ...The revenues and profits improved significantly by 52 % and 418 % respectively in the third quarter. Though there have been pressures on realizations and margins in our businesses, we believe our continued focus on cost efficiencies and improvement in margins will see the current businesses revert to providing healthy returns."
However there is one thing in the financial results that struck me as odd. One of the notes to results said
"The receipt of CERs (Certified Emission Reduction) income is likely to vary and may not recur from Quarter to Quarter."
When I looked at the results, I found out that income from CERs was 122.28 crores (out of total income of 450.36 crores). And this is where I had problems.

If this income of 122 crores was taken out, revenues would fall to 330 crore (compared with previous years' 296.27). Increase in just about 10%. With the economy growing at 9% and inflation at 6%, its less than average. And this income is temporary in nature and might not recur. I might be proved wrong and this income might get even more money for the company but I am not willing to bet my money on a company that doesn't make money from its core business.

Talking about the core business, SRF is majorly into
1. Technical Textiles (input for automobile tyres including aeroplanes, conveyor belts, contributes 65% of revenues before income from CERs starting coming in),
2. Chemical Business (majorly greenhouse gases and other chemicals, contributes 20% to revenues, and according to management, as these are governed by Montreal protocol, there is limited growth) and
3. Packaging Films (currently loss making business, stiff competition from domestic firms, problems with exports because of anti-dumping restrictions by EU).

These core businesses are not making any strong ripples in profitability or revenues or market expansion.

The cash flow from CERs (not permanent), the revenues and hence profitability is expected to be jittery in my opinion. CER income might dry up all of a sudden or it might start churning money - in either case, I would loose my sleep over this stock and this is unacceptable to me.

In the end, I do not have the advantage of making decision by looking into future. In view of current situations and conditions I would not want to invest into this "cheap" company.

I know I would be wrong at a lot of places. Please correct me if you happen to stumble on this post.

Wednesday 7 March 2007

HB Stockholdings Ltd

Company Details: Kotak Securities

Few facts to begin with.

Current Market Price (As on March 7, 2007): 26.75
Market Cap: 68.56 Crores

The company is in the business of investing. They try to make money by investing smart. They invest smart all right but they don't always make money (evident from last years result).

They have a huge portfolio with. Major holdings in Jaiprakash Associates Ltd and IFCI. Apart from these two they have a three page long list of stock under "investments" schedule.

Here is the interesting part. HB holds about 140 crores of Jaiprakash Associates Ltd.

If someone can buy out HB Stock and liquidate JP at current prices (although JP has taken a toll in the recent weeks), the money made would be two times the money put in. Basically its like paying 68 crores to pick up 140 or more crores. This investment has been with them for over a year and hence it's tax-free.

I somehow don't see any catches. May be am turning blind to the risk free short-term profit.

I was told that company is not making any profits and hence not lucrative. In my opinion, since HB is in the business of investments, they can't really make profits. And they shouldn't aim to make any profits at all (The power of compounding !!!!).

All they do is buy stocks and forget about them. After 5,6,7 years they wake up and suddenly realize that their holdings have turned into multibaggers. Reminds me of one Mr. Buffet ... he does essentially the same thing - buys a stock, forgets about it and one day he realizes he’s become a billionaire. And no I am not trying to compare HB to Berkshire Hathaway.

Question at the end of all remains ... Why aren't people like Jhunjhunwala, Prof. Bakshi buying this company out ...? Why cant this company be bought out and all the holdings liquidated ...? There are simply tons of wads of money on the table and its there for the taking.

And no ... I dont have any holding but yes, few friends have HB in thier portfolios.

PseudoSocial@gmail.com

Wednesday 21 February 2007

Carnation Nutra

Company Details: Kotak Securities

Prem Sagar posted this about Carnation Nutra on his blog.

I sent it to my group, Sandeep replied ...

Actually have not read much into it but just read an interview of one of the Amul guys somewhere around a week back

he said that this product margarine is more harmful than butter as it contains fatty acids more harmful than butter. Actually both companies will promote there products and will speak in favour of their products.

But the question here is that this company has 60% of market share because none of the other biggies britania and amul are in this market (correct me if i am wrong as i am just speaking from GK, and i am very .... )

If this product becomes a big hit then do you think that these biggies will not jump in the fray (whatever the amul employees may think about it )

views invited

Sandeep A

sorry for spamming
Nalin said...
I would agree with Sandeep (hi!!). For any company to exploit growth opportunity, should establish entry barriers. In this case entry barriers are not obvious. I dont have an informed opinion on this. just a laymans perspective. Furthuremore a large market for the product in US doesnt translate into an immediate opportunity in india.
case in point is cornflakes. breakfast meals are big in us but are only now beginning to get into the indian mind space. and the puny li'l reason was that indian drink hot milk unlike americans who like it cold. ;-). It required a sustained ad campaign over the years by a major like kellogs. I don think carnation nutra has such deep pockets.

At the current valuations it is trading at 14.28x over EBITDA (operating EV) and 20x over EBITDA (entire EV). I doesnt seem to be cheap as well.

Nalin
Prem replied ...
Hi Saurabh,
Thanks for the mails. I enjoyed reading them.
Here is my reply to all your friends, and welcome any more discussions on same.

1. Both butter and margarine have their pros and cons. Butter is more natural (and some would argue more flavorful), is not hydrogenated and, thus does not contain trans-fats. Margarine, on the other hand, is cholesterol free, lower in saturated fats and is increasingly becoming available in trans-fat free varieties. Whichever you choose, experts say moderation is key. Too much of either is definitely a bad thing. Indians are prone to cholesterol related diseases..that is where margarine has an upper hand I believe (not to be taken at face value)

2. As far as the biggies foray is concerned, its a free market, so anything can happen. But taking the cue from Sugar Free, and the fact that its a Cadilla company, I dont see a very huge risk..though that means a mkt share drop. Execution is a different thing. that can only be seen with time... as of now, I am only concerned with the opportunity.. what the co will really do is anybody's guess. for that reason, a scaling up of shares as and when they do well is a good idea. I dont want to take a guess on execution capabilities now! An average purchase on the way up (as execution is proved) should be the key.

3. Kellogs was a great product, but ahead of its time. I think if they had introduced Kellogs in 2005, it would have been a better performer. Back in 90s the health consciousness was poor and the willingness of the Indians to pay for cornflakes was questionable.

4. Its not a question of comparing how well it did in US, but how good it is for any Indian, given our lifestyle. The market is huge in the sense, Indians are getting health conscious.. if Margarine is good for health, or not, is for us to investigate. We need to remember that an average Indian is frugal and cost conscious, and not so health conscious. Educating them will take time.

5. Its too early to do a competitive advantage check. But it has a first mover advantage. Being a single product, and being the product of a co with 0 debt, they can afford to focus on it..and give more advertising focus.. money should not be an issue, though profitabilty will be affected in the early days... again too early to talk abt it.

6. I am not saying its a truly wonderful opportunity. I think this is an area where as a consumer we have a competitive advantage to check things out, a product thats easy to anlayse and review, a compnay thats not complicated with a myriad of things and the like.

Will be eager to receive more comments.

Thanks
Prem
The floor is now open for further discussion. Views and Comments invitied ... !

Wednesday 24 January 2007

Venkys (India) Ltd

Chicken Chengezi

Company Details: Google Finance, Kotak Securities

Around the same time last year, bird flu broke out in India and everyone was scared of chicken. They dint want to eat it, they dint want to see it and they dint want to own any chicken stock. In Feburary we had finished our final exams at MDI and everyone was preparing for their respective India tours. Me (aka 04p048) and Utti Singh (aka Ram Singh aka 04p122) along with a guy called hawk (aka Gandhi aka 04p049) and the biggest hogger in MDI called bhai went to have Chicken Chengezi @ Azad Market, New Delhi. Believe me the Chicken Chengezi there is something you should not miss if you have some time to spare in Delhi and savour non-veg food. Bird flu was at its peak in Feb/March and we had to wait for over 20 minutes just to get a seat, leave alone hogging on to the Chengezi. In sharp contrast the hatchery stocks plummeted to their 52 week/lifetime lows.

Venkeys the largest hatchery in the country with a share price of 170 odd was available for a share price of 120 odd which further went down to 90 odd (though only for a couple of days). The market cap of the company today is around 108 crores with the share price at around 112. Consider this with respect to a reported profit after tax of 16 crores for the previous 2 years, 8 crores for 3rd last year and 10 crores before that. For the FY 2006 Q4 the company posted a loss of around 4 crores and a PAT of 11 crores for the whole year.

The company also boasts of R&S of 104 crores compared with a market cap of 108 crores. About 4 months ago, the promoters bought back around 5% stake at around 120 bucks per share. I have not stopped eating chicken though have considerably reduced it for the love of fish and mutton. But I am sure Utti, Bhai and Hawk are still very much at it and hopefully so are millions of others. The company has a total debt of 83 crores which is or can be a cause of concern. The company also has a book value of 120 bucks per share and is trading at a P/E multiple of 9.

Well really don't know why someone should pay more for a company which makes some excellent frozen foods, read chicken keema, my staple diet on so many Saturday mornings in Pune, after bunking the DSGT (discrete structures and graph theory) classes. I think staying in the class rather than cooking keema, would have saved me from loosing some money behind hens and saved people from the painful exercise of reading this (assumption you are still reading).

Monday 27 November 2006

Prof. Sanjay Bakshi - Introduction

A professor, a philosopher, an inspiration, a way of life, a dream and ... a reality. Prof. Sanjay Bakshi.

Presenting Prof. Bakshi ...


-----Original Message-----
From: Sanjay [mailto:(####)]
Sent: Thu 11/18/2004 12:41 PM
To:
Cc:
Subject: My Own Story
Some time ago, Kumar Saurabh sent me a mail in which he asked me some personal questions that got me to reflect on my life. I then wrote a long mail to KS in which I tried to give answers to his questions. Subsequently, with KS's permission, our mail exchanges were posted on my yahoo group.

I am now posting the same exchange between KS and me over here. Read KS' mail first which is at the bottom and then my reply.

Some minor mistakes relating to dates were subsequently found but I have chosen not to make any changes.

SB



From: Sanjay
Date: 10/04/04 00:12:20
To: [####]
Subject: Re: Not Urgent

Hi Kumar:

I wonder if you know about feedback theory? In a negative feedback loop, like a thermostat geyser, suppose the maximum level of temperature is set to 90 degrees. Assume that the geyser is on and the water is getting heated. Soon enough the temperature will rise to 90 degrees and the sensor in the thermostat will sense this and will act by cutting off the circuit. The water will now stop getting heated and will slowly but surely cool. Sooner or later it will reach the minimum level of set temperature, say 60 degrees - whereupon the sensor in the thermostat will sense this and will re-connect the circuit and the process will start all over again. Negative feedbacks loops like this one are stable i.e. they restore stability. A whole lot of things around inside us are negative feedback loops - stuff like our own body temperatures, our digestive system, our, respiratory systems. In fact negative feedback loops are visible all around in nature as well.

Now think of a positive feedback loop. Suppose that the sensor instead of stopping the heat from getting hotter, when the temperature reaches 90% starts to send even more heat energy in the water. This will ensure that the process of heating accelerates. Of course, in this case, the heating cannot accelerate indefinitely because it will break some laws of physics if it did but there are many other feedback loops which can last for a long long time.

Your reference to the profit multiplier model reminded me of this theory. If you really think about it, all business successes have an element of positive feedback loop in them. My own success has followed a positive feedback loop. But I didn't design it like that. I just worked out that way. Its only now that I am recognizing these patterns in success that you are also recognising and given that you are much younger than me, you are way ahead of me in thinking along the right track . . .

I'd like to tell you my story which is quite fascinating. I was not very good in my studies in school. The only subject I really liked was math and even there I had terrible teachers. So school (DPS, Mathura Road) was a disappointment. In 1983, I entered Kirori Mal college to do my B.Com and started liking the subjects I was studying - accounting, economics, law etc. My interest in academics started to increase. I also got myself a girlfriend, who was also my first student (she studied accounting from me in college) so you can understand why I got attracted to teaching! After we finished college, in which did I extremely well, I joined Price Waterhouse as an articled clerk in 1986 and my girlfriend joined some other local CA firm to pursue the same profession as me but she found she hated it, so she moved on to do a Masters in Finance and Control in University of Delhi. I started to love accounting and auditing and learned a lot about how businesses perform, or d o not perform, by going to audit many clients over the three years I spent at PW.

Because my love of the subject like accounting, economics, law, finance, auditing had grown quite a bit by then, I did well. I passed both my CA exams - the intermediate and the final in the first attempt (which is quite a feat) and in the minimum possible time. Even before I completed my statutory article period of 3 years, I got a job offer from American Express. At that time Amex was the place to get work for CAs. Giving into social proof, I took the plunge and joined Amex sometime in June 1999. By December I had quit my job with no other job in hand. Obviously, this will give you an idea of my nature. Whenever I have made the big decisions in my life by deciding to do something or to run away from something, I have never really had a plan B. In case of Amex, I just knew I had to quit (Big decision # 1). The job was quite rotten, and I came out of it swearing that I will never work for anyone ever again. So, in a sense, I have much to thank Amex fo r!

I went back to my favourite partner at PW and told her that I'd like to go abroad to study and until I got a chance could I come back to PW? She said, sure, why not. And so I found myself back in PW as an audit officer. By then, of course, I had been applying to many colleges including the LSE. Also, by then, seven years had gone since I had got this girlfriend towards whom I was much devoted, and since I had a job, we now decided to get married. That's when all hell broke loose as often happens with young couples who want to get married without the consent of their parents. In our case, the problem was with my parents. Well, again I knew I was taking the right decision. (Big Decision # 2).

After a lot of agony, I finally got married in Feb 1990. For a while I thought my troubles were now over, but little did I know that they had just begun! My house became an Ekta Kapoor TV serial. Soon, I moved out of my parents' house with my wife and took an apartment on rent in the far end of east Delhi. We had no money. We slept on the floor. No bed, no chair, no furniture, no fridge, no TV, no AC but plenty of love to share. Life was still hell, though.With both of us working hard, often reaching home at 10:30 PM- the stress of family tension, poverty, and a whole lot of factors made life pretty miserable.

Then, one fine day, I got a letter from the LSE telling me that not only had I got admission for an MSc course in Information systems, but also had I been granted a scholarship to pay for my fee. There was no scholarship offered for living expenses. By now, you can probably guess as to what decision I would take. I just knew I had to go to London - living expenses or no living expenses. (Big Decision # 3)

So, in September of 1990, a few months after I was married, with no money, I arrived in cold London with my wife and plunged into my studies. But what about my living expenses, you should now ask? My scholarship only paid for my fee and I had to pay rent and we also had to eat. We had no savings.

My wife took up a job as a tiller girl in a grocery store. A Masters in Finance from University of Delhi found herself scanning groceries for customers and packing their shopping for them. If she ever complained, I never heard it.

Both of us also took part time jobs working in Burger King. Yes, I and my wife made burgers earning the minimum wage of 4 pounds an hour less deductions. And, oh, the burger making part was the best part. There was the other part like cleaning the toilets, sweeping floors, clearing tables, listening patiently to screaming customers and many similar activities which made making burgers seem like heaven!

One year went by and I finished my course at LSE. Incidentally, I never actually studied much of Information systems. I went and sat in the finance classes where I encountered, unsurprisingly the efficient market theory. Then on one of the most important days of my life, although I do not now remember what day it was, I read in the Financial Times, an article about a strange fellow called Warren Buffett who made money in the stock market by keeping away from the market. The positive feedback loop had just begun.

Within a few days of reading about Buffett, I knew that I had found a meaning in my life. (Big decision # 4). I simply knew that his ideas were learnable and that they would work in India. But I also knew that I hardly knew anything about investing using Buffett's philosophy. And so, I went berserk about learning everything I could about this fellow. I read and read and read. I wrote to him asking him to send me his annual reports (there was no Berkshire website in those days). His reports arrived in four days. It was as if he was waiting for my request. He could, perhaps, almost hear me shout, "Teach me, what you know" and he responded by sending me those reports. I still have them with me, of course, and if you see them you'll find every page has been underlined, highlighted, with extensive notes questions etc written pencilled in the columns. And the more I read about Buffett, the more sense he made to me. Of course, when you read Buffett, you eventually discover Graham and once you discover Graham, he can keep you busy for a couple of years. I now knew my education was woefully incomplete so I decided to stay back in London to learn everything I could about value investing. I took up a part-time job as a research assistant with an academic publishing company. This job came with certain privileges - such as a photocopying machine with unlimited paper, and toner, and access to the best libraries in London. I furiously copied all the books on value investing that I could get my hands on. The money I earned was sufficient to keep us alive and that was all I wanted anyway at that time. We stayed in London for a total of three and a half years. Then, suddenly, one fine day, I told my wife that we're going back to India. She was shocked. How did I decide to come back? I just knew I was now ready to come back to India. (Big decision # 5).

And so about 10 years ago, we returned to India, with Rs 3 lacs as our total savings, lots of wisdom, and a daughter. And what did I do when I returned? Take up a job? No, the pain from the Amex experience will take many decades to go away, so a job was out of the question. So, despite the advice from parents and my best friends, I decided to float a company. I approached my closest friends and relatives and asked them to invest in it. I think they invested more out of pity than for having any confidence in me. Remember, I had no track record. I didn't surprise them. By 1996, the money had shrunk by 40%. And that of course is the most wonderful thing to happen to someone who wants to make a career out of value investing - losing your friends' and your relatives' money. Believe me, its the best lesson in getting a risk averse nature. I had to start all over again. I corrected my mistakes and remade the portfolio following Graham's advice. And I have never looked back since t hen.

As mentioned earlier, when I returned to India 10 years ago, my total savings were Rs 3 lacs. Today, I can say with confidence that I am financially independent. To use Robert Kayosaki's (author of Rich Dad Poor Dad) words I no longer work for money. Rather, I find myself in a position where money works for me. I have given up all my clients. The money I get from MDI is not even 1% of what I now earn in a year.

It wasn't like this a few years ago. In 1996 when I went to IMI, I needed to find some way to feed my family while I was practicing value investing. Teaching was the last thing on my mind. I had already started writing columns for the Investor's Guide in the Economic Times. One day, one reader of my column, who was teaching at IMI made the effort of calling ET, got my phone number, and called me up. He asked me to come and see him. I went to see this person and he convinced me to come teach one class. I must confess here that till then I had never spoken a word in my life while standing on a stage - not in school, not in college, not in PW or LSE or anywhere. I am by nature an introvert. I hate going to parties. I probably go to less than 3 parties in a year. The whole idea of doing public speaking was so scary that I don't know how I said yes to this person. He must have used some weapon of influence - I don't remember anymore. Incredibly, I also don't remem ber who this person was. His memory has faded away.

Anyway, I prepared many days for that one lecture, and went and delivered it in a total state of panic. In those days we had to use transparencies instead of powerpoint, and that was useful because one could actually talk without having the need to look at the audience, which to me was less preferable than to go alone in a graveyard at night. The lecture was well-received, and I was now on my way to becoming a part academic, part value investor - following the footsteps of Graham. So, after all this, Kumar, I have now provided you with the answer to your first question.

Over the next few years I taught at IMI, Fore School, and ICFAI Business School. There were days when I would teach 3 hours in Chattarpur branch of ICFAI and then go to Kirti Nagar branch and deliver the same lecture another 3 hours. Talking for six hours and driving 120 kms in June in Delhi in a car which had no AC, and doing it twice a week was some feat, I guess. When you have to find a way to feed your family and you don't want to compromise your cherished ideas (in this case of not working for anyone but myself), life makes you hard enough to endure pretty much anything.

So, my decision to teach was driven by the need to feed my family. Of course, once I started to teach, I started to really enjoy it. Remember my experience of teaching back in Kirori Mal College. I guess I was cut out to be a teacher, after all. Over the years, I found that there was a great deal of synergy in what I was teaching and what I was practicing. Teaching makes me focus better on my work and my work provides me with cases to discuss in class. In other words, a positive feedback loop is in operation.

How did I shift to MDI? Well over the years I became better and more confident, and one day a friend told me that he knows a professor at MDI (now retired). I had heard about MDI, and I knew that it has a lovely campus, and I enjoyed driving. Now I know this sounds silly, but the desire to drive to MDI was one important reason for my approaching it in the first place! I love cars. And since I work from home, I hardly get a chance to drive long distances. So, incredibly as it may sound Kumar, its is true that you and I met probably because of my desire to drive!

Of course, my experience of teaching at MDI was great from the very beginning. But, over the years, as I look at the course outlines and the slides I displayed, I can see how I have become better and better. There's nothing unusual here. One should get better and better over time in any activity that requires brain power. I found that my professional experience grew, I could use them as cases in my class and the process of preparing for my classes forced me to study which generated more ideas. The positive feedback at work again. Indeed, some ideas started coming from the students themselves. In 2001, one student, using the ideas of identifying cheap stocks taught by me, submitted a project report on Trent as a cash bargain. I instantly recognised the value of the idea and implemented it by buying the stock. What was I to do? I teach the subject. I teach how to recognise opportunities. If someone brought one to me, should I ignore it? Does the fact that its a student project report make it worthless? And if I ignore it, am I being smart or foolish? Well, I decided not to ignore it. I went and bought 1.5% of the company at Rs 65 per share. And, of course, I made a killing.

The Trent experience made me realise two things: (1) security analysis is learnable; (2) there are huge synergies in teaching it well and and practicing it. The experience, however, made me a bit uncomfortable. Was I using my students to generate ideas for personal gain? It was a problem which was difficult to solve. There were only two solutions: (1) ignore good ideas generated in class but talk about good ideas generated out of class, which to me looked rather foolish; or (2) give public recognition to the person who floated the idea with the effect that he/she will get confidence about his/her own abilities and can also be used as a role model for other students. I chose (2) and it seems to have worked. There are several ex-students, including you, who feel that my approach of practicing security analysis is workable and learnable. Indeed my adoption of (2) has, in my view, accelerated the positive feedback loop.

And then, Lollapalooza happened. As you may know, the idea was not mine at all. It was all Sumit Khanna's idea. After passing out from MDI, he sent me a mail in which he said that he had created a yahoo group in which all the SABV students of last year were members and he wanted me to be a member. Instantly recognising the value of Sumit's idea, I agreed. But, within two days, I felt, why are we limiting to only those who just passed out? And why are we limiting to only MDI? If I was the common thing in the group, then surely the presence of many other people who were my ex-students, and who, by now had valuable experience, might be interested in becoming part of Sumit's group. They may have something to offer. I wrote a mail to Sumit telling him what I felt. In that mail I suggested that we create a new yahoo group in which we invite only my students including past students from MDI and other places. Because the group was to include non-MDI students, I suggested we have a diffe rent name (the earlier group was called wowmdi). Sumit readily agreed and suggested a list which, of course, had the name, Lollapalooza. So, this is how Lollapalooza was born. It wasn't planned by me or anything. It just happened, pretty much like everything else in my life happened, as described above.

I want to mention here the role of a very dear friend and colleague of mine in my ability to instantly recognise the potential of Lollapalooza. This friend is a deep value investor like me and is probably the smartest man I ever met. Incidentally he's a school dropout and has learnt to survive and prosper pretty much as I have. In 1998, this friend, who was then unknown to me approached me after reading some of my articles. He came and met me and gave me the annual reports of three companies - Kirloskar Oil Engines, Unichem Labs, and IVR Infrastructure (the name of this company was different then). He owned stocks in all the three companies and he wanted my advice on his investments. He also wanted to know what I found attractive in my own portfolio. When he went away I thought along the following lines:

"This fellow is a school drop out. What the hell does he know. I am a CA, a MSc from LSE and I am an expert on investing as my ET articles vouch. Investment ideas are intellectual property. They are extremely valuable. Why the hell should I share my ideas with him? And if I am not sharing my ideas with him, I also see no point in looking at these annual reports." Well, that mistake cost me tons of money because each of those stocks became multi-baggers.

But I didn't know this fellow well enough. He kept on calling me. Then he started to advice me. He told me in 2000 to keep away from IT sector. After the great crash I realised that I had made a terrible mistake by ignoring him and I apologised to him, and he forgave me. He told me one sentence that I'll never forget: He said:

"Bakshi, always remember, that knowledge grows through sharing."

By now I has also learnt how utterly simple this friend is. He's now probably worth more than Rs 50 cr. He lives in a middle-class apartment in Chennai. He drives a Honda City. I can continue writing about him for hours, but maybe on another day. Right now, I just want you to know the most important thing that he patiently taught me was that knowledge grows through sharing. I now spend at least an hour a day with him sharing ideas.

It really changed my view of the world and my view of myself. I realised that I had been a total fool in thinking that I was the master of the universe. I changed. I started talking about my investment ideas with other like-minded people. The process continued until I reached a stage in my life when I was creating like-minded people in the classroom. So, when Lollapalooza arrived, I instantly knew that knowledge shared selflessly will increase. And, in my view, it has.

I learnt one more lesson from my friend. He taught me that if you do good things, you get them back with interest. And if you do bad things, you get them back with interest too. God had, in effect, an yield curve with an interest rate implied from deeds we do and the rewards/punishments we get. And that advice has worked for me in life. I have found this over and over again that some people who only want to take but never give suffer while those who give, also receive, and with interest. And that pretty much explains part of the reason as to why I go and teach security analysis. I am often asked by friends who have seen my track record as to why am I telling others how to do it? Well, I guess, you got my reason now. The other reason, of course, is that I simply love it and I feel obligated to give back to society from which I have taken so much.

As of now, I don't know whether Lollapalooza was my big idea # 6. (In fact, it wasn't even my idea.) Time will tell, but it has the common elements that was present in all of the previous ideas - it was not deliberately planned by me. But when it arrived, I instantly knew I had to do it. I am reminded of a wonderful passage in the autobiography of Herb Simon, which I reproduce below:

"I have encountered many branches in the maze of life's path, where I have followed now the left fork, now the right. . . .In describing my life as mazelike, I do not mean that I have a large number of deliberate, wrenching decisions to go off in one direction or another. On the contrary, I have made very few. Obvious responses to opportunities and circumstances, rather than studied decisions, have put me on the particular roads I have followed"

So, as you can see, Kumar (if you are still awake that is), my life has largely followed the above Simon quote. So that was my story so far, You can seek answers to your questions from what I have written above, or you can look elsewhere, or both. It's obviously, up to you.

Regards

Sanjay Bakshi
http://www.sanjbak.com/
-------Original Message-------

From: Kumar Saurabh
Date: 10/01/04 12:49:01
To: [####]
Subject: Not Urgent

Sir,

I was recently reading a book on profit models and I found one that fit your profile. It talks about using one skill to make it big, its called the profit multiplier. I realized that it roughly fits you, you make money for yourself by investing your own savings, also manage other people's money which yields fees, teach at MDI, which would net you some more money.

Finally, you have pieced together a research unit with ZERO cost (or minimal). This essentially means that now you have a skill, which you can use in decreasing quantities since now you have a larger body of
similar thinking individuals. I assume at least 10% of the ideas generated from the e-groups would be worthwhile for you. So now you earn even more with the added advantage of having the option to work
less (very Bertrand Russell like) or the chance to increase your gains further by maintaining your work schedule.

I truly see the mastery in what you do. Now I have a few questions. Please do not be offended, that is not my intent, I am simply evaluating a few aspects of a professional life, which will form the very core of my philosophy for life.

Q1. Was the decision to teach at IMI taken with the consideration of multiplying your profit or for the sheer exhilaration that comes with teaching? If neither what was the factor that drove you to teach first at IMI then at MDI?

Q2. How did you get an idea to start the business you run now and what were some of the things that formed the basis of your decision?

The second question will probably take a little time to answer, let me explain why I'm asking this particular question.

Recently a friend, who works at Wipro, informed me that their head, a Vivek Paul or somesuch earns Rs 5 crore annually. This really got me thinking, if the man who understands business better than most, is
exceptionally intelligent, a great people person among many other qualities he would have to possess to be at such a position was paid what seems like not all that great a sum. Is it really worthwhile to
stay in a job knowing that I will perhaps never be as good as him and hence would never earn even a fraction of that amount of money?

In this case does it not make sense finding out what I'm good at or finding out what people are good at and using their skills to multiply my profits through a business run by me?

This is not a very urgent query; please take your time in answering them. I also understand that you may not want to answer some questions, so please feel free to strike either or both of them off the list.

Inquisitively,
Kumar S.


PS: The Russell reference is to an essay, 'in praise of idleness', a must read if you haven't come across it.


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