Views on Life & on Equity Investing

Wonder, Wealth & Abundance

Did you triple money in stocks in the past 10 years

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Well if you did it in Pakistan as a foreign investor then you ran but are still standing at the same place where you started. Red Queen.

Written by amitdipsite

September 20, 2018 at 7:36 pm

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A Brick and Mortar success story

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If you closely look at the market share loss of multi-billion dollar conventional bix box supermarkets in the retail segment and compare market share gains of Amazon over the previous decade, it’s a scary picture in terms of wealth erosion for investors. Worse, unlike a stock that drops 50% for a year or two, it unlikely that there will be any rebound, the loss is permanent.

Below is 2016, Amazon is nearly 3X of the size now.

amazon1.jpgretail_returnstable

The only company able to hold ground against Amazon was Costco.

I recently invested and sold out in a Brick and Mortar company called Lovisa listed in Australia, which makes jewelry for working women and teenagers. The company has brick and mortar business with small retail stores.

https://www.lovisa.com/

lovisa

Why would I do despite the daily obituary of retailers?

Reasons for buying:

  1. Amazon or Online retailer cannot compete in shipping 5$ jewelry
  2. Rents are low relative to volume/turnover
  3. Competition is benign
  4. Artificial jewellery is a BRANDLESS segment (Andhon mein Kaana raja)
  5. Fast refresh rates, over 100 designs updated per week
  6. Bought competitor
  7. 15 years+ survival in industry without change of business
  8. Vertical integration, own design and production in Thailand
  9. Global expansion, now present in more than 8 countries

 

Reason for selling:

 

  1. Bought at 15 PE at 350 Million AUD MCAP sold at 35 PE, 1.2 Billion AUD MCAP
  2. Other opportunities

 

Lesson:

 

Brands are being killed for breakfast now. Invest in a brand less industry with a company that is perceived as a brand with the lowest cost of production.

 

Disclosure: Vested interest in positions discussed. Views are personal notions and do not represent any organisation or company. Investment in stock market can (and many a times do) result in loss of principal capital.

http://www.elevendimension-funds.com

Written by amitdipsite

September 18, 2018 at 2:31 am

Posted in Uncategorized

Interesting news from Africa

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Speaker Ndugai (TANZANIA Parliament) bans women MPs with false eyelashes, finger nails from entering Parliament.

http://www.thecitizen.co.tz/News/Speaker-Ndugai-bans-women-MPs-with-false-eyelashes–finger-nails/1840340-4752324-u4bidaz/index.html

He who giveth and who taketh is both feared.

US imposes tariffs to collect 2 USD per used trouser/garment on poor African countries is hated. China that doles out 60 Billion USD to Africa with ‘no strings attached’ is also feared of neo-colonialism.

https://www.telegraph.co.uk/news/2018/09/03/china-invest-60-billion-across-continent-raising-fears-new-colonialism/

Written by amitdipsite

September 10, 2018 at 10:37 am

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Social media in our life

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Read two books on either side of the debate pro and against social media. The pro book also had sinister and disturbing facts.

Jaron Lanier in Deleting Social media accounts cites:

Here’s Sean Parker, the first president of Facebook:

We need to sort of give you a little dopamine hit every once in a while, because someone liked or commented on a photo or a post or whatever.… It’s a social-validation feedback loop … exactly the kind of thing that a hacker like myself would come up with, because you’re exploiting a vulnerability in human psychology.… The inventors, creators—it’s me, it’s Mark [Zuckerberg], it’s Kevin Systrom on Instagram, it’s all of these people—understood this consciously. And we did it anyway … it literally changes your relationship with society, with each other.… It probably interferes with productivity in weird ways. God only knows what it’s doing to our children’s brains.

Here’s Chamath Palihapitiya, former vice president of user growth at Facebook:

The short-term, dopamine-driven feedback loops we’ve created are destroying how society works.… No civil discourse, no cooperation; misinformation, mistruth. And it’s not an American problem—this is not about Russian ads. This is a global problem.… I feel tremendous guilt. I think we all knew in the back of our minds—even though we feigned this whole line of, like, there probably aren’t any bad unintended consequences. I think in the back, deep, deep recesses of, we kind of knew something bad could happen.… So we are in a really bad state of affairs right now, in my opinion. It is eroding the core foundation of how people behave by and between each other. And I don’t have a good solution. My solution is I just don’t use these tools anymore. I haven’t for years.

We need to foster joy, intellectual challenge, individuality, curiosity, and other qualities that don’t fit into a tidy chart.

The term “engagement” is part of the familiar, sanitized language that hides how stupid a machine we have built. We must start using terms like “addiction” and “behavior modification.” Here’s

another example of sanitized language: We still call the customers of social media companies “advertisers”—and, to be fair, many of them are. They want you to buy a particular brand of soap or something. But they might also be nasty, hidden creeps who want to undermine democracy. So I prefer to call this class of person a manipulator.

Sorry, soap sellers.… Actually, I can report, the people at companies like Procter & Gamble are just fine—I’ve met a bunch of them—and their world would be happier if they weren’t beholden to social media companies.”

What started as advertising morphed into what would better be called “empires of behavior modification for rent.” That transformation has often attracted new kinds of customers/manipulators, and they aren’t pretty.

You can’t pay social media companies to help end wars and make everyone kind. Social media is biased, not to the Left or the Right, but downward.

Once you can use a pocket device to order rides and food and find out where to meet your friends right away, it’s hard to go back. It’s hard to remember that people with rare medical conditions used to have no way of finding other people in the same boat, so there was no one to talk to about unusual problems. What a blessing that it has become possible.

Solitary/Pack Switch

My working hypothesis has long been that there’s a switch deep in every human personality that can be set in one of two modes. We’re like wolves. We can either be solitary or members of a pack of wolves. I call this switch the Solitary/Pack switch.

When we’re solitary wolves, we’re more free. We’re cautious, but also capable of more joy. We think for ourselves, improvise, create. We scavenge, hunt, hide. We howl once in a while out of pure exuberance.

When we’re in a pack, interactions with others become the most important thing in the world. I don’t know how far that goes with wolves, but it’s dramatic in people. When people are locked in a competitive, hierarchical power structure, as in a corporation, they can lose sight of the reality of what they’re doing because the immediate power struggle looms larger than reality itself.

Scientific communities can also suffer from the switch being set to Pack. For instance, the theoretical physicist Lee Smolin documented how string theorists exerted mob rule for a while in the world of theoretical physics. The pattern is found whenever people form into groups. Street gangs perceive only pack concepts such as territory and revenge, even as they destroy their lives, families, and neighborhoods. The Pack setting of the switch makes you pay so much attention to your peers and enemies in the world of packs that you can become blind to what’s happening right in front of your face.

The switch in people should generally be kept in the Solitary Wolf position. Manias and economic bubbles are also caused by Pack position.

When people are solitary wolves, then each individual has access to slightly different information about the world, and slightly different ways of thinking about that information. I’ve been talking about the relationship between the Solitary setting and personal character, but there are other reasons to keep the switch in the Solitary position.

Jar candy Analogy

Consider a demonstration that is often enacted on the first day of business school. A professor shows a class a big jar of jelly beans and asks each person to estimate the number of beans. Averaging all the estimates usually results in a pretty accurate count. Each person brings different perspectives, cognitive styles, skills, and strategies to the mystery, and the average gets at the agreements between them. (This only works for single-number answers. If you ask a committee to design a product or write a novel, the result comes out like something made by a committee.)

Now suppose that the students could look at the jar only through photos in a social media feed. Different camps of people with different ideas about the number of beans would form and would ridicule each other. Russian intelligence services would add pictures of similar jars with different numbers of beans. Bean promoters would motivate trolls to argue that there aren’t enough beans and you must buy more. And so on. There would no longer be a way to guess the number of beans because the power of diversity will have been compromised. When that happens, markets can no longer offer utility to the world.

You can replace the jar with a political candidate, a product, or anything else.

Creepy = Relevant Ads

Facebook is listening

Scott Galloway in Four says:When you have the Facebook app open on your phone in the United States, Facebook is listening . . . and analyzing. That’s right: Anything you do involving Facebook is likely to be gathered and stored. The firm claims it’s not using the data to tailor ads, but to better serve up content you may be interested in, or want to share, based on what you are doing (shopping at Target, watching Game of Thrones).

What we do know is that Facebook can indeed eavesdrop on ambient noise, picked up on your phone’s microphone.

If you want to turn off Facebook listen to conversations while in bed at night or confidential meetings:

https://qz.com/697923/heres-how-to-stop-facebook-from-listening-to-you-on-your-phone

That means Facebook can feed this noise into AI-augmented listening software and determine whom you are with, and what you are doing—and even what the people around you are talking about. The targeting isn’t any creepier than what happens on the wider web when you have a pixel dropped on your browser and get retargeted ads. That pair of shoes that’s following you around the internet? You’ve been targeted. What’s creepy is how good Facebook is getting at it and the number of platforms it can gather and share data across. Double-tap a Vans image on Instagram, and you may find an ad for those same Vans in your Facebook feed the next day. “Creepy” is correlated to relevance.

This is tantamount to a car that becomes more valuable with mileage. We now have a Benjamin Button class of products that age in reverse. Wearing your Nikes makes them less valuable. But posting to Facebook that you are wearing Nikes makes the network more valuable. This is referred to as “network effects” or “agility.” Not only do users make the network more powerful (everyone being on Facebook), but also when you turn on Waze, the service gets better for everyone, as it can geolocate you and calibrate traffic patterns.

Facebook’s algorithm can be used to microtarget distinct populations in specific geographic areas. An advertiser can say, “Give me all the millennial women around Portland looking to buy a car.” Using data mined from the social media accounts of millions of Americans, Cambridge Analytica, a data firm that worked on Brexit and on the Trump campaign, created a “psychographic profile” of voters ahead of the 2016 election. The company used behavioral microtargeting to deliver specific pro-Trump messages that resonated with specific voters for highly personal reasons. With knowledge of 150 likes, their model could predict someone’s personality better than their spouse. With 300, it understood you better than yourself.

Some digital companies also lag. Twitter, for example, doesn’t know much about its customers. Millions of them have fake names, and as many as 48 million (15 percent) are bots.

1 billion USD per employee acquisition cost

Much of this enormous beast is Instagram. Facebook bought the photo-sharing site in 2012 for $1 billion. It’s proving to be one of the greatest acquisitions of all time. In the face of ridicule (“A billion for a company with nineteen people?”), the Zuck was steadfast and pulled the trigger on an asset that’s worth fifty-plus times what he paid for it. Whether or not you believe Instagram is the premier platform in its market, it’s less of a stretch to acknowledge that it may have been the best acquisition of the last twenty years. (And Zuckerberg wasn’t as lucky two years later—he paid twenty times that for WhatsApp, which had about the same number of employees.

Written by amitdipsite

August 23, 2018 at 7:32 pm

Posted in Uncategorized

No bad teams only bad leaders

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I agree with the above statement. It is the main principle in the book Extreme Ownership by Jocko Willink and Leif Babin, Navy Seals who served their country in Iraq, now also provide leadership advise to the businesses.

Bad leaders blame their staff, good leader own failure and do not blame, they turn staff and teams around by owning failure or seldom let them go (fire them), a difficult decision.

The Dichotomy of Leadership

A good leader must be:

• confident but not cocky;

• courageous but not foolhardy;

• competitive but a gracious loser;

• attentive to details but not obsessed by them;

• strong but have endurance;

• a leader and follower;

• humble not passive;

• aggressive not overbearing;

• quiet not silent;

• calm but not robotic, logical but not devoid of emotions;

• close with the troops but not so close that one becomes more important than another or more important than the good of the team; not so close that they forget who is in charge.

• able to execute Extreme Ownership, while exercising Decentralized Command.

Business case study

The chief financial officer (CFO) finally caught me alone, in between meetings, and made the point clear: the whole electrical division was losing money. The CFO could not believe that Andy, the company’s CEO, kept the division running. Perhaps at some future point, the division might turn things around and become profitable. But that future was likely more than five years away— five very long years in the construction industry, where market conditions, weather, competition, contracts, and costs of labor could radically change forecasts.”

“The only way we can make the electrical division profitable is if we pay them thirty to forty percent above the market rate for electrical work. And if we do that, sure, they might make money, but we will lose big.”

“Why do you think Andy is keeping it open and running?” I asked with curiosity. “He is a smart guy. He must see what’s happening.”

The CFO looked down to the ground and then over each shoulder. “It’s Mike,” he said solemnly.

“Mike, the CEO of the electrical division?” I asked.

“Yeah. He’s an old friend of Andy’s,” answered the CFO, “and a very good friend that has stuck with him through thick and thin.”

“OK,” I replied, understanding what was being implied. Andy was taking care of his friend.”

“What are the consequences of keeping the electrical division open?” I asked.

“If we keep it open, we will continue to bleed capital. That by itself won’t kill us,” answered the CFO. “But if we are that tight on cash and we encounter any unexpected cost, we would be extremely vulnerable. I don’t mind risk, but this simply does not make sense.”

The next day I sat down with Andy. While I had worked with this company for about a year, it was mostly with the middle managers. My latest two-day workshop had been with the C-level executives. Andy had brought me in to help with the other leaders but it turned out he too could use some guidance.

Waiting for an opportunity to open the discussion, I sat with Andy to review the strengths and weaknesses of his leadership team across divisions. Eventually, we got to Mike.”

“He’s a great guy,” said Andy. “Known him for years. He really knows the business, inside and out.”

“That’s great,” I replied. “His division must be making a lot of money for you.”

“Well you know, I saw some good opportunity on the electrical side, and wanted to get into it,” Andy said, with obvious unease. “With Mike’s experience, I knew he could run a good show.”

“So the division is profitable?” I asked.

“Not yet,” Andy answered, “but it will be.”

“How many months until it is?” I asked.

Andy paused. “Honestly,” he said, “it could be three to five years.”

“Ouch,” I said. “That sounds like a long time in this business.”

“And it could be too long. It is costing us money every month to keep him operating,” Andy admitted. “But they just aren’t getting any contracts outside of our company right now.”

“Have you thought about shutting it down?” I asked directly.”

“I have … but … you know, it will be profitable in a few years,” he replied slowly.

“Let me ask you this,” I said. “What if some other unforeseen event comes up? Costs you didn’t expect? A major incident or accident? A large contract that falls through? Could you afford this kind of drain on the company if things went sideways?”

“Probably not,” Andy replied.

“Is that the best strategy for the company?” I asked.

“You know, it’s not that simple. I’ve known Mike for a long time. Long time,” Andy said. “He has always done me right. I can’t just shut him down.”

There it was. Andy knew this loyalty was misguided. I just needed to get him to come to terms with it and see it for what it was.

Since Andy had just sat through my brief on the Dichotomy of Leadership, I stole one of my own lines right from it: “So one of your men is more important than the mission?” I asked bluntly.

“I didn’t say that,” Andy insisted.

“As a leader, you have to be close to your people,” I told him. “And just like I said in the brief, the balance is that you can’t be so close that one person becomes more important than the mission or the good of the team. Frankly, it sounds to me like Mike is more important than the financial stability and success of your company.”

It was evident that Andy knew he was leaning too far in one direction. As with many of the dichotomies of leadership, a person’s biggest strength can be his greatest weakness when he doesn’t know how to balance it. A leader’s best quality might be her aggressiveness, but if she goes too far she becomes reckless. A leader’s best quality might be his confidence, but when he becomes overconfident he doesn’t listen to others. In this case, Andy was a very loyal leader. He knew his people well and took care of his leaders and employees. But here, his loyalty to Mike was jeopardizing the financial stability of the entire company. His loyalty was out of equilibrium. But beyond the company’s balance sheet, Andy’s other leaders throughout the company saw what was happening, and it slowly undermined Andy’s leadership as their CEO.

Finally, Andy relented, “I know, I know. I should shut it down, cut my losses. But it’s hard in a situation like this.”

“Of course it is. Being a leader is never easy,” I said. “Imagine the U.S. Navy Sailors in World War II whose ships had been severely damaged. With their ship taking on water and in danger of sinking, those sailors sometimes had to secure the hatch to a flooded compartment when men who were their friends were still in those compartments, in order to save the ship. That’s an unbelievably hard decision. But they knew if they did not make that call, they risked everyone else. They needed discipline to make the toughest decision in order to save the ship and save all the other men aboard. There is a lesson in that for your situation here with Mike. You require discipline to shut this hatch, to shut down the electrical division, in order to ensure the safety of your company—and all the other employees here.”

“Andy got the message. Two days later, he called me and told me he had made a decision to cut the company’s losses and commenced the shutdown of Mike’s division. He knew it was the right move and was now confident in the decision. To Andy’s surprise, Mike had told him he fully understood and had expected this would come. It did not impact their friendship. Andy found another place in the company to incorporate Mike’s substantial experience and expertise, which allowed him to add value. The cost savings from the cut allowed them some freedom to invest in other, more-profitable divisions in the company.”

Reference::

Extreme Ownership: How U.S. Navy SEALs Lead and Win

Written by amitdipsite

August 12, 2018 at 9:20 pm

Posted in Uncategorized

ABDP UK – Dream investment

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What a dream type of investment this was for a buy and hold investor – ABDP UK Ltd.

I earlier wrote about it here: https://lifeandequities.wordpress.com/2018/04/13/abdp-uk-ltd/

https://www.abdynamics.com/

Since the IPO in 2013 the company has been a 13+ bagger since placing its share on AIM market at 86 cents per share.

i.e. 68% CAGR since the IPO.

They were always punching above weight and had blue chip clients to start with. I had bought it for the Fund and investors sometime in September-October 2017 at ~5 GBP at 22 times earnings and 5 times revenues and sold recently at ~10 GBP.

ABDP

What the company does ?

It makes driver-less testing cars and motorcycles software and hardware.

Who uses it?

All automotive companies in the world

Why I bought it?

Two reasons:

1/ Because I read a statement in its corporate presentation “Our products are routinely used by 20 out of 20 top automotive companies globally”.

One qualitative statement is all you need sometimes than a boat load of scuttlebutt! I knew that everybody’s uncle is investing in driverless car for R&D.

2/ Company was expanding factory to meet more demand

Other reasons:

3/ I love companies that are Global and not dependent on single geography

4/ Niche company with the primary sin of being a small cap. The best kind of sin. I don’t yet, have the problem of investing 100s of millions of dollars.

Why I sold?

I get uncomfortable when a company trades at 10 times revenues and 50 times earnings if the juice of efficiency and operating leverage has been extracted and the secular growth is not above 30%.

The company could still be a long run winner and have respectable growth of 20-25% in revenues ahead but I don’t think it will be easy to replicate the past performance in stock price now that it trades at 50 times earnings. Something very spectacular would have to happen to grow at even 30% CAGR in share price let alone 68% that it did in the past.

I think its time for individual and small institutions to quit and let the big Funds who are satisfied with 10% CAGR invest in it.

6 out 10 such investments is all one needs. Damn, I will be satisfied with 5 out of 10.

 

Disclosure: Vested interest in positions discussed. Views are personal notions and do not represent any organisation or company. Investment in stock market can (and many a times do) result in loss of principal capital.

http://www.elevendimension-funds.com

 

Written by amitdipsite

June 23, 2018 at 9:57 pm

Posted in Uncategorized

Reverse arthritis

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Written by amitdipsite

June 16, 2018 at 3:59 am

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