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Industrialisation or Ciggeratisation?

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Wine, Marijuana are grey areas but cigarette is confirmed at causing cancer besides being addictive, (some might say same as sugar/ice cream). I am not judgmental about smokers, one person imo is not better than the other because of a habit or two.

While Cigarette cannot be displayed openly in the supermarkets any more, let alone Ads in the media in most parts of the world today, and we chuckle at the movies of 80s where coppers are smoking at workplace, some places even today, are quite different.

Look at the priorities of this country: Tanzania, it may perhaps be the only country that commends growth and investment in this business. They likely haven’t done a cost benefit analysis for the country as a whole and included medical costs or do not care.

So, I found the below news item baffling in terms of prevailing trend in the society. You could argue that the cigarette street vendors sent the kids to school who became a genuis scientist, and that kid discovered news laws of physics, that made life inter stellar. End justifying means, a bit of a stretch?

Chalo bhai Industrialisation toh ho raha hai na, desh aagey toh badh raha hai na on GDP basis!

Written by amitdipsite

December 11, 2018 at 6:15 pm

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Macro approximations & Micro equally important in value investing

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Human brain likes to simplify. Macro predictions are hard in short term but approximations are not hard for the long term.

But value investors have been trained to look at companies in isolation of the economic winds (macro factors) because the latter have too many variables to be usable reliably on an investment.

All value investors take pride in the following statement from Peter Lynch or Buffett.

“The way you lose money in the stock market is to start off with an economic picture. I also spend 15 minutes a year on where the stock market is going.”

Ignoring macro is a surefire formula to lose a lot of money in frontier markets. It may work, or has been working in the 20th century, so far, in the developed markets or Chindia but doesnt work in frontier markets. It doesn’t matter how mighty or stalwart the company you choose, you can still lose 95% of your investment if macro environment is not paid heed to.

Neither Lynch nor Buffett have had much experience in investing in Frontier markets, who grew in a stable economic country, hence the investors who grew on that staple diet need to un-learn some of their principles and biases.

Imagine, you ignored everything macro, and imbibed learning from 50 books on Buffett and Lynch, and invested in Cadbury Nigeria being a strong stalwart conpany in 2013. You would be 90% down today.

OOPS, I ignored the Nigerian Naira, depreciation, you will be down 98%. 1 million dollars US invested in Cadbury will be worth 20,000 dollars US today. So much for ignoring macro.

Glaxosmithkline would be no different.

Had you found a decent 20% grower at 12-16 PE multiple in other frontier markets like Pakistan, Turkey, Brazil, Argentina you would still be behind the 3% cagr fixed deposits.

Lesson is, rules of the game are different and as the normal laws of physics do not apply in black holes, traditional value investing does not work in frontier markets.

At the end of the day its not that hard to forecast marcos, inflation, trade deficit, direction of innovation, peace and political corruption in the country are good yardsticks to guage the future.

Start small, fail fast and do not keep reading books on meditation until the age of 80. Doing it is more important.

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.

Written by amitdipsite

December 1, 2018 at 7:06 pm

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What a business for sale

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Written by amitdipsite

December 1, 2018 at 5:05 am

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Obsession justified

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In the past I wrote that a certain country, starting with I is obsessed with the search of multibagger stocks as per google trends. A few years back #2 country was Phillipines but looks like the South Asian diaspora in the Gulf is equally keen to find multibaggers.

I was looking for books to read, coincidentally I stumbled that if you search in amazon for the word ‘multibagger stocks’ or ‘multibaggers’ the top 4 results are from the authors of the same country that is googling for multibaggers.

To an extent it is justified as there are likely to be lots of them in the next 10 years.

Look at the economic comparison between Indian States vs Chinese Provinces, not even a comparison

The unfortunate difference is that India is a more complicated system still rooted in its past, which has strenghts of its own but you feel sorry when the career politicians are pandering to religious sentiments for populist reasons, who themselves are trillion miles away from the concept of God, notwithstanding the silver tongue, you can be assured that half the country must be delusional or blind to the economic realities and incapable of making an intellectual distinction. A fictitious past is more dear to the denizens more than a brighter future. Choice has been made.

Written by amitdipsite

November 13, 2018 at 6:41 pm

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C&D Analysis – hard but rewarding

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The gist is that if you are able to study the sector and apply sectoral and macro analysis rather than being blinded to micro analysis of a company, it may prove be a profitable and differentiating strategy.

You need to bet against the consensus, more often than not.

Ref: Valentine James, Best Practices for Equity Analysts

Written by amitdipsite

November 12, 2018 at 8:21 pm

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Success at 65

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Once, there was an older man, who was broke, living in a tiny house and owned a beat up car. He was living off of $99 social security checks. At 65 years of age, he decided things had to change.

He left Kentucky and traveled to different states to try to sell his recipe. He told restaurant owners that he had a mouthwatering chicken recipe. He offered the recipe to them for free, just asking for a small percentage on the items sold. Sounds like a good deal, right?

Unfortunately, not to most of the restaurants. He heard NO over 1000 times. Even after all of those rejections, he didn’t give up. He believed his chicken recipe was something special. He got rejected 1009 times before he heard his first yes.


In 1952, Sanders franchised his secret recipe “Kentucky Fried Chicken” for the first time, to Pete Harma of South Salt Lake, Utah, the operator of one of that city’s largest restaurants. In the first year of selling the product, restaurant sales more than tripled, with 75% of the increase coming from sales of fried chicken. For Harman, the addition of fried chicken was a way of differentiating his restaurant from competitors; in Utah, a product hailing from Kentucky was unique and evoked imagery of Southern Hospitality. Don Anderson, a sign painter hired by Harman, coined the name Kentucky Fried Chicken. After Harman’s success, several other restaurant owners franchised the concept and paid Sanders $0.04 per chicken.

Sanders believed that his North Corbin restaurant would remain successful indefinitely, but at age 65 it was sold after the new Interstate 75 reduced customer traffic. Left only with his savings and $105 a month from Social Security, Sanders decided to begin to franchise his chicken concept in earnest, and traveled the US looking for suitable restaurants. After closing the North Corbin site, Sanders and Claudia opened a new restaurant and company headquarters in Shelbyville in 1959.Often sleeping in the back of his car, Sanders visited restaurants, offered to cook his chicken, and if workers liked it negotiated franchise rights.

KFC was one of the first fast food chains to expand internationally, opening outlets in Canada and later in the UK, Mexico and Jamaica by the mid-1960s. Sanders obtained a patent protecting his method of pressure frying chicken in 1962, and trademarked the phrase “It’s Finger Lickin’ Good” in 1963.

The company’s rapid expansion to more than 600 locations became overwhelming for the aging Sanders. In 1964, then 73 years old, he sold the Kentucky Fried Chicken corporation for $2 million ($15.8 million today).

Sold too soon because of business conflicts with his franchisees.

KFC market cap today is thousands of millions USD.

Written by amitdipsite

October 27, 2018 at 8:08 pm

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Chalk Talk from the past

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In case of leveraged entities (NBFI/NBFC/Banks/FI), mere liquidity drying up is a solvency concern, financial institution is no longer a “going concern”. This was learnt by me after losing 100% of the portfolio in 2008 financial crisis. Government can step in to take over the entire 100% shareholding of the company and rig the terms of the deal that the company is worthless. That has happened in the past and can happen again. eg: Numerous banks including 3rd Biggest Mortgage lender in the UK, Northern Rock.

In the financial sector many times there is no difference between “crisis of confidence” and actual “crisis because of NPAs”. Only when a bigger institution is able to buy out the other because of technical liquidity crisis, or liquidity issue gets resolved does the difference come into play.

Alistair Darling on Sunday announced the first nationalisation of a sizeable British bank in a quarter of a century as he put Northern Rock into public ownership, infuriating shareholders and shocking the two private bidders hoping to take over the stricken mortgage lender.

Worst still, the shenanigans who considered the company worthless sold it a handsome profit for couple of billion pounds few years later and flipped the company over to Virgin Money for close to a billion dollars.

Equivalent to a Navy ship saving your merchant vessel and claiming all goods belong to Navy, or locksmith saving your jewelry locked up in the safe and claiming it to be his. A mere rumour is enough to cause the run on banks and self implosion.

Assume you were living for three generations in your maternal grandparents house for over 60 years, and Government needed to resolve the traffic issue by building a flyover or MRTS over/under your house and that your house needed relocation. Can the Government take your house and give you Zero compensation ? Will you not feel your human rights have been violated ? In stock market, Government, Regulators do not have the same sympathy and they consider it a game played by the rich. Even though many pensioners in the UK lost 100s of thousands of pounds, some their entire liquid net worth, Government did not differentiate and High Court, Supreme Court and European Court of Human Right refused to listen to the appeal of shareholders.

So, as an investor you are pretty much on your own, don’t expect help from any quarter and your the last in pecking order post creditors have had their claim.

Such seems to be the market mood in India where financial sector is facing difficulty in rolling over short term debt, asset liability mismatch can kill any blue whale, nobody is too big to fail, though RBI’s aura and character is not sending similar vibes as the indignation and rage was against the hungry reprehensible mortgage lendors in 2008.

In a nutshell, if you want to bet on the financial sector, rule of the game, as I have learnt is to make a diversified bet in mid cap NBFCs as any company can go down another 90% from this point if solvency is at stake. If two out of ten go down, losses will be more than offset by a comeback in other eight.

The spiral of redemptions, margin calls, less funds, less commercial paper, wind down, less liquidity for NBFCs is a self feeding cycle. Solution cannot come from the same mentality and mindset that caused the crisis.

Result of investments YTD: India portfolio is down 25% and Global Portfolio down 5% in 2018 YTD.

Don’t think you are very smart when it comes to analysing risks in a financial institution for the teacher of this game also lost massively in 2009 “The tennis crowd would call my mistakes ‘unforced errors’,” Buffett admitted.

Once again, the name of the game is to always have the wherewithal to be in the game and position yourself for some great performances, not a 3 stock portfolio of fast growers without stop loss. Only 4% of the stocks in S&P have made all the gains in the past 30 years, the other 96% have done nothing since the last few decades. Concentrate on Amazon and Apple and you are a legend, concentrate on any other 96% companies and you look like a fool or worse, written off.

My bet is on the NBFC space, notwithstanding, one day many Indian banks will also fail and go to Zero like the UK and US banks, but that day is not today or the next year. This is what equity is supposed to be, you cannot make 15% CAGR while the bulk of money earns 3% CAGR in bank deposits. This is an emotional game for the most part (less of a science/maths) by the market participants with indeed financial and real life consequences for people and society.

Written by amitdipsite

October 19, 2018 at 10:06 pm

Posted in Uncategorized