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.

Looks like the Elephant is finally dancing. I m indeed talking about ITC. In what could be termed as a subdued market at best, ITC emerged as the top performer, edging highe by more than 4%.

I wrote a piece back in Sept 2021 about how the worst could well be behind the hotels to cigarettes conglomerate.

Although the link to the piece may not be active yet due to the ransomware attack, I am reproducing an excerpt below.

Hope you enjoy the piece.

The going really has been tough for a company that once used to be among India's favourite blue chips. The stock has lost about 40% from its highs four years back even as peers like HUL and Nestle have looked in top form.

However, are the woes of the company coming to an end? Has the bottom been finally reached?

I will go out on a limb and say yes.

I have a strong feeling that unless something goes drastically wrong with the fundamentals, the stock may have reached a nadir.

Put differently, the stock may not fall much from the current levels. On the contrary, this could perhaps be the best time in a long time to buy the stock.

Why?

My optimism stems from the low interest rates on offer across a spectrum of asset classes.

Take fixed deposits for example. I recently renewed my FD with a leading private sector bank at an interest rate of just 5% per annum.

Well, this is exactly the dividend yield that ITC is currently trading at.

I know what you are thinking. Comparing ITC with FDs is like comparing chalk with cheese.

But think of it this way...

At current valuations, I am getting a solid blue chip stock that only gives me FD like returns but has the potential to provide both capital appreciation as well as increase in dividend payouts in the future.

Thus, unless the dividends reduce dramatically in the future, the investor is assured of an FD like returns even as he waits for the stock price to regain its upward journey.

Another way of looking at this situation is pitting ITC against a market darling like Pidilite Industries and assuming they're going to shut the stock market for five years starting tomorrow.

Pidilite currently trades at a dividend yield of a paltry 0.4%. Thus, all that the investor will receive by investing in Pidilite at today's valuations will be a return well below 1%.

This is very low in my view and is the result of paying too high a multiple for a stock.

If you pay in excess of 100x multiple for a stock - the current valuation of Pidilite - you are essentially banking on someone else to buy it back from you at a similar multiple or higher.

Of course, Pidilite will grow its EPS at a much faster rate than ITC.

But do you think investors would be willing to continue to value it at 100x when its 5-year average has been 60x and a 10-year average even lower at 40x?

I for one am not willing to take that risk.

ITC investors on the other hand will keep earning their 5% dividend yield even with the stock market closed.

And who knows, if things take a turn for the better, the dividend earnings may keep rising.

This is why I believe ITC may have not only bottomed out now but also has a better risk reward ratio than a lot of these market darlings trading at high PE ratios.

What do you think, der reader? Let me know your thoughts.

Do you think a laggard like ITC has a better risk-reward ratio over the next 3-5 years compared to a market favourite like Pidilite?

I think its advantage ITC.

Should you prefer a high ROCE business or a boring, low ROCE business.

You'd be surprised that under the right conditions, a boring, low ROCE business can prove to be highly rewarding.

In fact, given the low competition in investing in them, these businesses could be your best bet for earning market beating returns.

What are these conditions using which u can earn returns like 545%, 200% and 170% from these boring businesses in 12-18 months flat.

Check out my latest YouTube video for details.