Views on Life & on Equity Investing

Wonder, Wealth & Abundance

Cheap or Expensive

with 9 comments

I am sinfully invested in my personal capacity in equities since I fortunately have source of income other than stock market as yet. 


It is amusing to notice biases that affect others but harder to detect that pervade within us. Neither too proud of my own mistakes or biases, nor dwelling on them, it would be worth sharing a few anecdotes. 


An analyst long on Hawkins Cooker expects that promise of heavenly bliss would launch PE from 25 current to 45. For all I know it might well go, Gillette is at 70+ PE ratio, it wont be heavenly though. Another one proving the stickiness nature of business expounded that 8 whistles of TTK prestige cooker are not same as that of Hawkins cooker. It has been about 10 years and Hawkins Cookers has not grown its Sales numbers even once by 25%. 
That kind of analysis into bells of Cookers is like too microscopic a study, trying to extrapolate meaning out of everything not likely to yield results. Fortunately, until now my broad line of thinking saved me in the past 15 months, that if Hawkins does not think beyond cookers – 82% of their revenues – and extend its brand to other products, then it will deceive innocents into lures of consumer business while under the garb, its a non-repeat use engineering business likely to disappoint  like a cyclical and croak like a monsoon frog. A cooker lasts 30 years.


The problem of Hawkins Cooker or Gillette India, Dabur etc is the focus on not-losing-money, makes complete sense for those who have too much to lose, it could be best accomplished by TIPS.


You may find RS Software sub par investment due to client concentration risk or average quality of management. I went through last 10 years of results and annual reports of RS Software. I feel their expansion in Asia will bear fruits  – already 10% of revenues accrue from this geography from 0% in 2008 – and focus on Payment Card domain has made them stronger. Debt has been retired in the past 5 years leaving balance sheet squeaky clean. Only 6-7 other players in India match the size and depth in this domain.


Its consolidated PE ratio is 2. Debt is nil. Dividends are likely to increase providing a floor of 45 or so to the price. What remains is concentration risk, which we don’t have to assume by allocating 1-1.5% max of portfolio. Other cost is opportunity lost, which is decreasing with rise in general market. This fine business boat of 40%+ ROE does not burden the oarsman. 6-7 PE ratio may come without divine  intervention leaving you with some happiness if not eternal joy to walk away with a 3 bagger !  


Mind you thats a big achievement, TTK Prestige with its scorching growth is NOT likely to become a 3 bagger now for atleat 4+ years ! i.e. 12000 by 2016.


Discussing Stocks: Its great to discuss about stocks and seek others’ valuable experience and knowledge and I email my fellow investors for their opinion but I reflect and decide on my own. Arguments for their own sake become a forum for spleen-venting. There is diminishing utility of discussion as the years roll by. Its amazing what can be accomplished by sitting alone for years and thinking in right direction  in a room, some men found God – a topic not easily understood by faculties of reasoning mind – let alone discussed, and others discovered theory of relativity in closed doors.


Economy: While the experts cannot agree themselves on future of the world, our best bet with limited time is to stick to good businesses. As voiced by a wise man, investment in terrible industry is as rewarding as struggling in quicksand. 


Compounding: “Marrying for money is a bad idea under all circumstances, but madness if you are already rich”. It can be construed in various ways – today I would adapt it as “Knowledge that long term compounding will make you rich any way, why risk un-nessarily over enthusiastically for a few percentage points”. 1 Lac Rs invested per annum for 30 years compounds to 16 Crores at 20% compounding and 139 Crores at 30% compounding. Blessed are those who invest in equities so long as they diversify adequately.


Be Rich and Stay So

Written by amitdipsite

February 18, 2012 at 12:34 am

Posted in Uncategorized

9 Responses

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  1. Dear Amit

    About Compounding – 25-30% CAGR return for 30 years
    (very long term) is possible if one has very good knowledge and experience dealing with stocks. If we consider average to good investor who can generate 15% CAGR return, then 2 Lac Rs invested per annum for 30 years compounds to 10 Crores at 15%.

    Regards
    Manjunatha

    Manjunatha

    February 20, 2012 at 2:10 pm

  2. Dear Manjunatha

    Sensex has done 20% including dividends for the past 31 year. It was at 100 Levels in 1979, that computes to 18% Capital Gain and 2% Dividend = 20%. I agree beating 20% over very long term is quite hard.

    Regards

    Amit Arora

    February 20, 2012 at 9:45 pm

  3. Hi amit,
    where can i find ARs of RS software for last 10 years
    and, just wondering if u believe in the company why aren't u willing to take a bigger position ?

    Aditya

    February 24, 2012 at 4:47 am

  4. Hi Aditya

    http://www.reportjunction.com/Reports/R-S-Software-India-Limited-R0008.htm

    or

    reportSjunction.com

    The less clear the future in terms of growth prospects, smaller the position needs to be for me. If everything else becomes very expensive then makes sense to increase this position so long as company is likely to stay financially sound. So, its about reducing downside and also growing with high “certainty”

    Regards

    Amit Arora

    February 24, 2012 at 5:26 am

  5. Can you give your view on Grauer&Weil, industry leader with 50% marketshare in its area and huge real estate value

    satya

    February 24, 2012 at 11:41 am

  6. Thanks for the video link.

    Raja Panda

    February 25, 2012 at 5:12 am

  7. Shree Ganesh jewellry is trading at p/e ratio of 2 and has decent ROE, also it is trading below book. Compared to other players like Gitanjali and thangamayil it is quite cheap. So here one is getting tangible assets at a discount whereas in case of RS software you are getting a software business at premium to book, only this year they made a net proft of around 20cr and next year they are most likely going to surpass that figure. I have not read the annual report yet but just to get an idea what makes those earnings sustainable? The reason i compared it to shree ganesh is just to get a sense of how should one look at investment options where one is getting tangible assets at discount whereas in the other you get earnings at a cheap rate and also given that both the situations dont seem very attractive candidates for a concentrated portfolio

    Unknown

    March 23, 2012 at 3:37 pm

  8. Hi Amit,

    Could you pls suggest some safe bets like HDFC bank for me. This is for my grandfather who wants to put his money in market for a timeframe of 5 yrs and is expecting a returns of 15% cagr. His risk appetite is very low.Some of the stocks in my watch list are:-
    1. hdfc twins
    2. l&t
    3. Hawkins
    4. itc
    5. Page industries
    6.axis bank

    Please let me know your comments.. I would do my due diligence.. thanks

    jm

    May 5, 2012 at 9:56 pm


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