Views on Life & on Equity Investing

Wonder, Wealth & Abundance

Emerging markets more juicy for long-only equity investors

with 3 comments

emerging

Written by amitdipsite

January 17, 2017 at 10:25 am

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Scale of opportunity is in India

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Written by amitdipsite

January 13, 2017 at 11:52 pm

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Industries to avoid in 2017 on Moral Grounds

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Cigarettes – Causes cancer

Private Hospitals – Most hospitals are driven by money, it should be a noble profession and promote/improve state hospitals

Banks,  NBFC  – It is a Haraam business, makes rich richer based on interest income, go for Sharia banking, if at all

MFI – Same as above, but to lower economic strata, let poor die or go to loan sharks, stock market is only for the rich by the rich

Cement, Steel, old manufacturing businesses – Prevents new wonder materials and green products from reaching critical mass

Oil – Global warming, go for Tesla / Chevy Volt etc.

Plastics, Furniture, Footwear – They use frozen form of fossil fuel

Leather footwear – If you are vegan / animal rights activist, you should know the pain of animals

Chemicals – Will you allow your country to be polluted just because China has woken up and imposed restriction on their chemical industry

Schools, Education providers – Private education providers are driven by money not by a sense of mission

Garments – 90% plus is non cotton, so its frozen oil / plastic / polyster. Cotton is also 99% polluted with pesticides

Seeds – Patents make poor farmers dependent on the companies for disease resistant strains

Fertilizer, Chemical, Insecticides, Fungicides – Out crowding organic farming, no support to local community, commercialization, and slow poisoning of humans, increase incidence of chronic illness

IT – Cause of chronic illnesses, long work hours, modern sweat shops

BPO – In human working hours, distrubs normal body clock and circadian rhythm

Food, Beverages, Drinks, Biscuits – All are killing you slowly, eat what your ancestors could recognise 2 million years back as food, i.e. nuts, seeds, leaves, who grains, fruits, meats, eggs, vegetables. #non_paleo

E-Commerce – Kills vintage classy businesses, local store, affects rural economy, mom-n-pop shops

Casino / Stock Exchange – Causes gambling addiction (NSE IPO, BSE IPO, Delta Corp. etc)

EDIT: Forgot to add 15 more industries due to lack of time. Added Food, E-commerce, Stock Exchange

 

Written by amitdipsite

January 1, 2017 at 3:06 am

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MFI Question

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Karthik: Can you respond to “… my problem with the microfinance area is that first you are borrowing money from the regular bankers and selling it at a higher rate which of course doesn’t make sense as a business model to me. If you see the peer-to-peer landing platforms in America they have all been now under pressure. Secondly, what microfinance assumes is that every person that you lent money to is an entrepreneur that he can go out and give you a return on capital so there will be a very low amount of non-performing debts. My personal sense and I could be completely wrong that this is better left in the NGO sector and the social sector rather than the stock market the idea that every entrepreneur take money and return it back at a higher rate of interest doesn’t make imminent sense to me,”  said Ramesh Damani.

My view:

Four parts to the statement:

a) Borrowing from bankers and lending at higher rates than bankers.

Banks move slow and others move fast. That is why personal loans from private finance companies, even in developed countries can charge 15%+ interest rates. And Banks that lend at 5% go bankrupt as well. Here is a lists of 100s-1000s of American banks that filed for bankruptcy, these are the private sector banks / cooperative banks.

https://www.fdic.gov/bank/individual/failed/banklist.html

https://en.wikipedia.org/wiki/List_of_largest_U.S._bank_failures

Business model of TV lending, Furniture lending, Fridge lending, or income based (to entrepreneurs) lending is all viable and works in both developed and developing countries. The more aggressive the company gets about lending the higher the risk.

I was anticipating a problem with MFI 2-3 years down the line, but now boys will be separated out from the men, now MFIs will have another good run for 3-4 years starting 2017.

Coming back to question about borrowing from Banks and lending at higher rates, will not work when both organisation start targeting same customer segment. But 60% people have not even got a bank account in India? It may stop working for NBFCs in the year 2100 perhaps. Not time to worry right now. Besides RBI already has got a roadmap of SFB MFIs. So, given the above logic even Bajaj Finance, or Cholamandalam has no viable business model.

Talking about failures, even companies with 100 year old vintage in India get into problems in the financial sector from time to time, such is the nature of lending sector.

b) Peer-to-peer lending platforms in America under pressure.

Every leveraged organisation will run into pressure if it shows slackness in discipline and chases too aggresively.

c)  What microfinance assumes is that every person that you lent money to is an entrepreneur

That is how they sell the story to investors. Some commercialization of NGO/social work may have occurred here.

d) My personal sense and I could be completely wrong that this is better left in the NGO sector and the social sector rather than the stock market

Everybody has a right to their opinion but we need to deal with facts on the ground as stock market investors. Even hospitals, medicines, schools should be a state matter in my opinion. No child should live in poverty, New Zealand and probably Denmark are the only countries that I know of whose Governments  acts like your parents in the absence of / neglected by your biological parents. Good idea but far from implementation in India. All four are a state matter in New Zealand, medicine, school, hospital and social sector for upliftment / re-skilling of under privileged. Though some schools and hospitals are private but a small minority.

Written by amitdipsite

December 30, 2016 at 7:15 am

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Social media addles the gullible

with 4 comments

Let me write some flak and slam on good for nothing noise on the social media…

As per my estimate there are/were less than 100 listed companies globally that have
a) Done 22% CAGR on Sales and Profits in the immediate preceding 5 year period.
b) With ROE above 22% in each of those five years.

That is not to say that only 100 stocks out of ~60,000 did CAGR above 22% in the preceding five years. In fact, in Australia alone 240+ stocks delivered returns of 100% in the immediate 52 week period to the buy-and-hold type investors (90% dubious of course like any other continent) out of ~1,800 listed companies.

Yet here is a tweet that may get who knows a million re-tweets, says that there is an “Ocean” of companies with excellent characteristics, so don’t worry buy all of them and get rich 🙂

As per my assessment its a trickle, not an ocean. Management isn’t a sufficient condition for success, luck, right industry, right time, right characteristics of the business model need to conjoin to make an investment worthwhile. Try giving handicraft industry to Isaac Newton.

ocean_baloney

So, don’t drown for the magic potion of Ocean baloney and keep the money folded in your pocket.

Second, summed up as “What a man wants, that he also believes”. This dude, organisation says that a certain XYZ Fund is “overweight” Kenya. While allocation to Thailand, Taiwan, Brazil, China, India is 8%, 13%, 9%, 16% and 15% or thereabouts and allocation to Kenya is 1.5%, do we have a different definition of the word “overweight” in Kenya ?

overweight_kenya

 

Edit: Corrected 25 to 100 companies

Written by amitdipsite

December 29, 2016 at 10:29 am

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Mental suicide, psychological recovery

with 2 comments

While the books and quarterly results have not yet been out on the Indian financial stocks hard hit post demonetization, we have not even seen the amount of provisions required in March 2017 or June 2017 and the rounded bottom for this sector (the so flogged at NBFCs). As per my post in the previous week Bharat Financial and Repco as leaders (that I wrote on the 21st of December https://lifeandequities.wordpress.com/2016/12/21/sensex-blues/) have shown signs of revival (market tickers). I hold all housing finance companies and actually buying more.

Asian Paints, a blue chip bell weather fell 31% from 1227 to 850 post demonetization, who cares if another NBFC stock fell by 40% but it seems to have become the season to label investors that invested in NBFCs are high risk takers who must now pay the price. Market it appears committed a mental suicide on the sector and now waking up, one man at a time. I love the stocks whose only fault is that they are “micro caps” and don’t move needle for the funds. I also like the fact that many investors spurn them as the minimum holding period is 3+ years in micro caps.

Here is an eye opening paragraph from the annual letter that I started writing which is relevant to NBFC / MFI discussion for NBFC bashers.

Someone who invested in Bharat Financial every month, SIP, in 2012, 2013, 2014, 2015, 2016 for 60 months would be in deep profits even after 50% down quote from 950 INR to 550 INR. Roughly 35% CAGR. However, if one invested only at the peak of 2016, then, you get the sad story.If someone bought it in 2014, then results would be 100% gain despite current correction. I bet you cannot say the same for Asian Paints. You see, I can slice the time periods any which way to support my story.

Similarly, someone who applied for an IPO in Equitas MFI in April 2016 at 110 INR is still up 35% as on 29th December 2016. What you hear in media or social media is a distorted and short term version of reality, you need to think independently and think long term. TV, news and “so called” long term investment articles are not that long term. This is further validated by portfolio turnover in all India based Mutual Funds from HDFC to Reliance which have portfolio churn over 100% and up to 300%, hardly a sign of long term mindset.

So, the general public opinion now doing the rounds that NBFC is a bad place to be in, is this correct? In my opinion it is nothing but a hyperbole and over reaction of over engaged and opinion of rather more-active-than-desirable people in equity markets.

bharatfinancial

Nearly 40% CAGR for a long term investor

Note that in 2017 will be a year of accumulating Housing Finance companies in India for me of all shapes and sizes and NBFCs. The only sector that I have sold is MFIs in India due to uncertainty, the top four MFIs by market cap. So, if you do the math and stick to NBFCs with a diversified portfolio, you cannot but get rich.

Disclosure: invested in all stocks mentioned

Written by amitdipsite

December 29, 2016 at 2:44 am

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Nick Vujicic

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Hopefully your problems are smaller than Nick’s

Written by amitdipsite

December 25, 2016 at 5:22 am

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