Archive for the ‘Uncategorized’ Category
Sustainable growth is only possible by sustainable ROE
ROE dream of 21% is not possible to sustain
I checked the data and out of 143 countries only 13 had ROE above 20%
India had ROE of 24% in FY07 and 14% as of today.
Regardless of whatever has compressed ROE, profit margin, asset turnover, leverage etc. its not coming back to 20% for any sustained period of time.
Because why should trillions of $ earn 4% in one part of the world and 20% in another part ? Money chases returns, or averages out returns.
So, to convert the saying, you can fool some people all the time or all some, but not all of them all the time…
You can earn high ROE in select geographies or select time slots but not in a geography all the time, esp. if you have been selling the story to the whole world to “Make in India”.
If your story has not been marketed well and not sold, then only can you earn high roe.
The following countries have an ROE above 20% as on 2017
|Turks & Caicos Islands|
In this post I mentioned that India is uniquely positioned
to find paranoid in the search of ‘multibaggers’ https://lifeandequities.wordpress.com/2017/03/29/many-money-matters/
First the stock info was hard to get, and then hard to get away from over 1980 to 2000. But since 2000 much more has changed. Poor Peter Lynch credited with neologism ‘multibagger’ also had a ‘cocktail theory of stocks’, when primary discussion in the cocktail was stocks and Lynch became the cynosure of the party, that was time to sell, and when the general discussion was anti stocks, that was time to buy.
But today, the game is slightly different with social media (facebook, whatsapp, twitter, viber, instagram, yahoo/google groups and then some more), in fact people are addicted to the mobile devices. Over 25% people are addicted to the phones, as much as cocaine/alcohol, 75% people take phone to bathrooms, 80% people have felt false vibrations, they look at the phone without a reason, average person check their phone 110 times a day and an addict checks 900+ times a day, this addiction causes accidents on the road and also more serious psychological ailments like OCD.
India being unique as always, needs another theory of stocks. I learnt that men spend extra time in toilets for a different reason. In the US, a fresh Goldman Sachs employee intending to clock 100+ hours a week to prove themselves catches a few winks in the toilet, most men in India who have bought The Intelligent Investor or a book on Warren Buffet spend more time place trades on equities, women may spent extra time regardless of the level of stock index, so they get benefit of doubt.
According to the Toilet Theory of Stocks, “If your Indian male workplace colleagues, who are interested in stocks, on an average spend more time in the Toilet then it is time to reduce your exposure to equities, to go slow.”
Interesting business model that started with this company displaying cars on airports, and enticing travelers to participate in a contest. Every week, someone wins a car, I am sure a number of behavioral models apply here.
Now the company also runs contests on Hyderabad airport as well, and has plans to run them on New Delhi International airport.
Over 50% of the revenues are now mobilized by its website, so the business model has morphed for good, thus re-rated the company. ROE in the previous year was 45%, and in the current year it further improved to 75%. The company pays out all earnings as dividends. 10-15 pence per year.
The stock is up 20 times on London Stock Exchange from 20 pence to 400 pence over the previous four years. Currently a nano cap at 37 Million GBP. The growth has been below 20% in revenues so far.
Disclosure: Not invested in companies mentioned. 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.
Just woke up today and recorded something impromptu on the phone, without any preparation, rehearsal or written notes, so may sound a little unprepared. Then thought of sharing with others.
In this post we saw that there were less than 100 companies globally with 22-22-22-22 score (ROE ROCE Revenue PAT) consistently for the previous five years, in the listed space.
Obviously, nobody wants to get rich slow, so ? for the non-lotto non-gambling value investors how should the returns be generated consistently higher than 20% ?
Every market attracts its own series of suckers, first time in a generation.
Here are few examples of excesses:
In the West the gamble is ON on housing, because the price is going up higher than bank deposits for over 20 years. That is what 80% of people who save money do in US, NZ, Australia
See this ad that falls on my route: Home of Home Loans ! Sounds like Funds of Funds ? Sure thing ? Think again 🙂
5% anyone ?
Another Ad show Stella Artois beer having a great Heritage of over 600 year suddenly become a laughing stocks when looked at in the context of compounding. 1000 $ saved by the founders of Stella Artois 600 years back, compounded at 5% CAGR would have become 5171 Trillion USD today. Oops, that’s 16 times more than global financial assets which are less than 300 Trillion USD. So, given that perhaps the founders did not have interest in compounding, and even after 2-3-4-5-6 generations, if perhaps descendants of beer makers chanced upon the formula of compound interest, A = P(1 + r)t, even then they would have taken over the world, or half, or a quarter, or 10% of global assets, financially speaking. Still compounding would have been better than brewing business, you’d agree with even 5% CAGR. Clearly the shareholder returns over the previous 600 years in brewing business must suck ! That must apply to all investing that is several 100 years in duration.
Some things that start in a particular place take on a very unique flavour, and people tend pick up from each other, like the accent of the language, the words spoken etc. Eg: nobody I know of in a Western country has ever used the word ‘crib’ for complaining but I believe its used frequently in India. Some of things that rub off are positive like good cultural habits, and some are plain dangerous.
India is crazy, sometimes everybody wants to become an MBA, then a wave starts, then every body wants to be an Engineer, then make money in lottery, then in stock market, then IT, then who knows biotech. Poor Peter Lynch who coined ‘multibagger’ little did he know that the mania of that word would grip a country diametrically opposite to his home land on the football of earth.
Have a look at ‘multibagger’ on google trends, only India is interested in that term.
If you compare against the other sane term ‘value stocks’ other countries are interested too.
If I were to now hazard a guess, my thinking will be:
Lots of young people in these two countries (India and Philippines) are online, including IT workers in these two countries, online discount brokerages, lots of investing gurus / advisers, newsletters, self-help DIY investing guides are fueling the fire of high PE multiple for the first generation of investors, who are yet to learn an age old lesson.
EDIT: 1$ to 1000$. That translates over 600 years at 5% to 5171 Trillion USD.