As you are aware, Equitymaster.com is a victim of a ransomware attack.

We will not let this come between you and the credible and honest opinions we publish for you.

The entire Equitymaster team is all here, and publishing daily as usual.

Just that you will receive our content and research updates over email till we sort out things.

Thank you for your patience.

Hi, even as we work round the clock to get our website up and running, how about an interesting investment case study.

This case study concerns Warren Buffett's recent purchase of 18.1 m shares of Occidental Petroleum Corp, the US oil giant.

Buffett's Berkshire Hathaway now owns close to 15% stake in the company and currently ranks as it's 8th biggest stock holding. Interestingly, Buffett also owns stake worth US$ 6 bn in Chevron, another oil giant.

Clearly, Buffett energy bets are perplexing. Especially against the backdrop of a world that will be powered by green energy. Does Buffett not believe in the concept of reducing carbon emissions or are we missing something?

Luckily for us, Buffett was asked the very same question at last years's Berkshire AGM. Here's what he had said.

"I would say that people that are on the extremes of both sides are a little nuts. I would hate to have all hydrocarbons banned in three years, or you wouldn’t want a world that, it wouldn’t work. And on the other hand, what’s happening will be adapted to, over time, just as we’ve adapted them to all kinds of things."

That's a perfectly rational reply in my view, something you've come to expect from a legend like Buffett.

Buffett argues that you can't have a hydrocarbon free world in three years. Likewise, green energy can't become the dominant source in a few years. The transition will take time.

Thus, if investors are going ga-ga over green energy stocks and assigning them crazy multiples, you should stay away from such stocks.

Similarly, if investors are becoming negative about energy stocks and dumping them to levels where they become attractive valuations wise, you can consider investing in them.

This is exactly what seems to have happened to Occidental Petroleum. Thus, Buffett saw an opportunity and snapped up the company's shares.

The way stocks like ONGC and Oil India have moved over the past few months, looks like Buffett's mantra would have worked in India as well.

Hi, I am back as promised, and I will continue to bring interesting observations through this channel till we get our websites back on track.


Loved the following quote from famous author Robert Greene posted in his Twitter account.  

“Learn to use the knowledge of the past and you will look like a genius, even when you are really just a clever borrower.” 

I reason I liked it because it can save you from big losses in the stock market.  

Let me explain how.  

Will you invest in a company that has made a cumulative loss of almost Rs 2,000 crores over the last five years, with not a single profit-making year? 

Hmmm…may be depends on the valuations you might say.  

Well, what if the stock is available at a price to sales multiple of a whopping 40x?  

A loss-making stock with an absurd valuation? You’d reject it outright, wouldn’t you? 

Let’s take another example.  

This is another loss-making stock, racking up cumulative losses of more than Rs 4 thousand crores and once again, not a single profitable year in the last four years.  

The valuations? Yet again, a whopping price to sales ratio in the region of 30x.  

Now, what if I tell you only a few months back, investors were falling head over heels in order to make an investment in these stocks. Sounds unbelievable, isn’t it? 

However, it is true. These financials are of none other than Paytm and Zomato. The stocks that have destroyed enormous wealth for shareholders over the past few weeks with no respite in sight.  

The reason investors fell for them is because they forgot the important lesson I have highlighted at the top of this post.  

All they had to do to look like a genius is learn to use the knowledge of the past. These companies had a woeful past and a cursory look at the financials would have sufficed to know this.  

Yes, there will be some companies where the knowledge of the past may not work, But it will be more an exception rather than the rule.  

And you can’t construct a portfolio using exceptions.  

So, make it a rule that you will not invest in companies that have a big loss-making history even if it is being offered at attractive valuations and promises a very bright future.  

It will save you from a lot of trouble in the stock market.  

Almost always use the knowledge of the past. Trust me, you’ll look like a genius even when you are really just doing the most obvious thing an investor needs to do.  

Hi, came across this tweet today morning:

Did you know?

Coca-cola's (NYSE: KO) stock price increased from USD 2.4 in Jul'88 to USD 43 in Jul'98 (18x)

However, in the last 22 years, the stock price has moved up only 40% to USD 60

Learning - Almost none of the stocks are to be held forever

Is it the right learning?

Lets find out.

July 88, the US benchmark index S&P 500 was around 270 levels.
Right now, it is at 4543.
This translates into a gain of 16.8x

How has Coke done during the same period?
July 88, the share price was around Rs 2.7.
Right now it is 61.5.
This translates into a gain of 22.8x

So, on a price performance basis, Coke has outperforned the benchmark index.
Plus, don't forget the dividends and buybacks that Coke must have done during this period. The smart investor that Buffett is, he must have certainly put dividends received from Coke to good use.

Thus, Coke has proven to be a tremendous buy for Warren Buffett.

My learning is there are stocks that can be held on for a very, very long time provided you have the smarts that Buffett and Munger have in identifying them and the discipline of a monk to not just wait for the right price but also to hold them through thick and thin.

Hi, checkout my colleague Richa Agarwal's latest Youtube video on Optionality- Finding the Next Infoedge. Optionality is generated from an investment which has the potential to give huge returns, but the quantum of it cannot be ascertained. One can arrive at a fair value only over a period of time. Not to mention that such investments come with their fair share of risks. While there is the risk of entire investment amounting to nothing, when done right, optionality can lead to disproportionate pay offs. To know more about the opportunities, watch the video here.
Also, don’t forget to subscribe to our Youtube channel for more such updates.

Loved these visuals. A great way to kick start your day!!

The Tata group may have multiplied their investment in the stock 233 times since 2002.

Just as individual investors are keen to get invested in high potential startups…so are large corporates.

Turns out that some very well run bluechips have already taken the next step of finding startups.

They look for companies that suit the megatrends they wish to ride. And have been buying stakes in them.

Also, there is no denying that these large corporates can do far better due diligence of the startups especially from the technology and R&D perspective than we as individual investors can.

So how do you look for such companies? Watch this video to find out… https://www.youtube.com/watch?v=zwx00yTuMNk

Hi, the Exponential Profits report for this month is now out.

It has been mailed to your email ids registered with us.

Please check your mailboxes for accessing the same.

The key highlights include a SELL recommendation on an existing open position, locking in gains of more than 120% and this month's brand new recommendation.

Here’s a note on the latest status of the ransomeware attack on Equitymaster - https://www.equitymaster.com/

We have also posted a detailed FAQ on the status of our Portfolio Tracker. Please access here - https://www.equitymaster.com/portfolio/faq.asp

The big-bang corporate news of the day is the merger between HDFC and HDFC Bank.

Even as my colleague and our in-house banking expert Tanushree Banerjee takes an in-depth look at the deal, here’s my broad quantitative view on it.

You see, over the last 10 years, HDFC Bank Ltd has traded at a premium of 55% to the market cap of HDFC Ltd.

This is in perfect sync with the swap ratio decided by the management of both the companies. HDFC Bank Ltd will have to dilute 55% of its equity in order to merge HDFC with itself. Thus, the deal seems to be value neutral if one considers the market prices for the last 10 years.

However, over the last 3 and 5 years, the gap between the two has widened.

Mr Market has given an 80% premium to HDFC Bank over HDFC Ltd on an average.

If one considers this premium of 80% then HDFC Ltd shareholders should have gotten only 36 shares of HDFC Bank versus the 42 that they will get for their 25 shares on account of the merger.

This difference of 16% could also be because of the increased synergies between the two companies post the merger and the management wanted to reward HDFC Ltd shareholders in advance for it.

So, is the deal value accretive to HDFC Bank shareholders? Will the benefits of merging HDFC Ltd with itself be significantly higher than the slightly greater dilution it has agreed to?

I do think so. Let’s see what my colleague Tanushree has to say about this. Watch out for her note in your mailbox later today.

Hi, do not miss out on this month's edition of Double Income scheduled to hit your mailboxes later today. We are booking close to 90% profits in an energy stock that we recommended over a year back.

We are also making a brand new reco on one of the most capital efficient auto companies in the country where we believe the risk reward has turned in favour of the investors.

So do keep an eye out for a mail in this regard.

Hi, a viewer of my recent youtube video on Asian Paints commented the following.....

Stock market is always about speculation. When you recommend a target price for your stock, be it value investing in some low PE stock with great potentials (??) or buying Asian paints at high PE, you are speculating. Ultimately, it's the better of the two speculators who will go laughing all the way to his bank.

Do you agree? Well, I don't.

If it was entirely about speculation then luck would have been the dominant factor in determining success and not skill.

But we know from experience that some really skillful people do end up doing quite well in the stock market over the long term.

So, yes, there is some element of luck in investing and there is some speculation also. But a sound process where you invest in stocks based on their valuation and not their popularity does prove to be rewarding eventually.

By the way, if you havent checked out the video yet, here's the link

Li Lu is a well-known Superinvestor who has achieved a compounded annual return of about 30% since 1998.

He is also known for managing the money of his good friend Charlie Munger.

Today, he turns 56 years old, and on this occasion, here is some of his timeless wisdom

1. Why Value Investing Works

The market isn’t created for value investors.

It is built in a way that increases the urge to speculate.

That’s why businesses are so often misprized in the short term.

Value investors can benefit from this circumstance.

2. Understand Who You Are

You’ll be more interested in some industries/topics than in others.

And in investing, you can choose in what industries you’ll look for opportunities.

Investors should use this advantage and be sure about their circle of competence.

3. Be a Journalist

Being an investor is a lot like being a research journalist.

You have to dig into the company on a level that journalists do when they research their stories.

You also need to clearly articulate your thesis and research and bring it to paper.

4. Find the Truth

A journalist also has to find the truth before he publishes a story.

Same goes for an investor. It could be fatal if he makes a decision before he knows “the truth” about a company.

Thus, he has to avoid all sorts of biases and misleading influences.

5. Commitment Bias

One of these biases is the commitment bias.

To avoid this one, Li Lu rarely agrees to public appearances.

The more you talk about investments, the more you talk yourself into them.

The perceived knowledge about a company increases for no reason.

6. ROIC

Just as Charlie Munger, Li Lu emphasizes the importance of ROIC as a metric for superior performance and competitive advantages.

The longer your holding period, the more your return will equal the ROIC of the underlying company.

7. Volatility

As explained before, stock prices are a lot more volatile than the business behind that stock.

Investors, therefore, should pay attention to slow, long-term changes in the business instead of stock prices.

8. Self Defense

To Li Lu, the Margin of Safety is a concept of self-defense.

Even if the company is more valuable than the market gives it credit for, the management could destroy this advantage.

This possibility is something investors have to look out for.

9. Uninvestable

Some industries are impossible to value.

Li Lu gives the example of restaurants.

Even if the business is great, there are little to no durable advantages.

Investors shouldn’t try the impossible and just focus on what can be valued.