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.
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.
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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.
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.
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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.
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.
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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.
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.
👍6
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.
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.
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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.
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.
When it comes to investing, we often ignore the elephant in the room and keep obssessing over small and insignificant things.
What is this elephant in the room and how it helped me recommend 27 winners in a row in my penny stock service?
Check out my latest YouTube video to find out.
Also, do watch the part where I discuss how to use this knowledge to compare two new age tech companies i.e. Paytm and Zomato...
What is this elephant in the room and how it helped me recommend 27 winners in a row in my penny stock service?
Check out my latest YouTube video to find out.
Also, do watch the part where I discuss how to use this knowledge to compare two new age tech companies i.e. Paytm and Zomato...
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Today's deep correction in IT behemoths like Infosys and TCS, takes me back to a piece I wrote back in February 2022.
Titled 'Is it Time to Move out of Indian Stocks?', my main argument was around the record high valuations most of the sector stocks were trading at.
Titled 'Is it Time to Move out of Indian Stocks?', my main argument was around the record high valuations most of the sector stocks were trading at.
Barring Oracle Financial services, all the other top IT companies were trading at valuations significantly higher than their historical averages.
In some cases, they were as high as 2x or even 3x their historical averages.
Now, some of you would say the higher PE multiples are justified because the growth visibility is much higher now than it was before.
Well, I agree. But is the visibility so much better now that the same stock can command twice or even thrice the PE multiple it commanded barely a few months back?
I don't think so.
Besides, with demand for talent outstripping supply, salaries are on the rise across the board. This can squeeze margins and impact growth.
Thus, perhaps PE multiples may not expand further from here. Earnings growth may also slow down.
If you are someone who's investment horizon is 2-3 years and you want to invest in market beating stocks, there is a high chance most large IT stocks may not help you achieve your goals.
In fact, it may not be a bad idea to exit partially or perhaps even fully and look for sectors where the risk-reward ratio is more favorable.
But if you are a long-term investor and have bought these stocks at the right valuations, then you may keep holding on to them in my view.
Your returns from here on may not be as exciting as in the recent past. You may even underperform the market for a bit.
But since you've entered at an attractive price point and since the long term fundamentals of the sector are still intact, your point to point returns will still be impressive.
In some cases, they were as high as 2x or even 3x their historical averages.
Now, some of you would say the higher PE multiples are justified because the growth visibility is much higher now than it was before.
Well, I agree. But is the visibility so much better now that the same stock can command twice or even thrice the PE multiple it commanded barely a few months back?
I don't think so.
Besides, with demand for talent outstripping supply, salaries are on the rise across the board. This can squeeze margins and impact growth.
Thus, perhaps PE multiples may not expand further from here. Earnings growth may also slow down.
If you are someone who's investment horizon is 2-3 years and you want to invest in market beating stocks, there is a high chance most large IT stocks may not help you achieve your goals.
In fact, it may not be a bad idea to exit partially or perhaps even fully and look for sectors where the risk-reward ratio is more favorable.
But if you are a long-term investor and have bought these stocks at the right valuations, then you may keep holding on to them in my view.
Your returns from here on may not be as exciting as in the recent past. You may even underperform the market for a bit.
But since you've entered at an attractive price point and since the long term fundamentals of the sector are still intact, your point to point returns will still be impressive.
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Is it Time to Move out of Indian IT Stocks? - Profit Hunter by Equitymaster
https://www.equitymaster.com/profit-hunter/detail.asp?date=02/14/2022&story=2&title=Is-it-Time-to-Move-out-of-Indian-IT-Stocks
https://www.equitymaster.com/profit-hunter/detail.asp?date=02/14/2022&story=2&title=Is-it-Time-to-Move-out-of-Indian-IT-Stocks
Equitymaster
Is it Time to Move out of Indian IT Stocks? - Profit Hunter by Equitymaster
Has the period of outperformance of IT stocks come to an end?
Hi, pls don't miss today's Microcap Millionaires report where we are booking 80% profits in a power sector stock.
We have also made a brand new reco from the print media space.
By the way, we are back online almost fully.
The premium section has been restored and you can access the report from the website by logging into your subscription account.
Of course, the email delivery continues as usual and the report has been despatched to your email ids registered with us.
We have also made a brand new reco from the print media space.
By the way, we are back online almost fully.
The premium section has been restored and you can access the report from the website by logging into your subscription account.
Of course, the email delivery continues as usual and the report has been despatched to your email ids registered with us.
👍12
Forwarded from Equitymaster
Dear Valued Member,
www.EquityMaster.com is now LIVE.
It’s been a trying 4 weeks since the dastardly ransomware attack.
But we are happy that we are starting to put this behind us. I know you are too.
Thank you once again for all your patience and support even as we dealt with the situation.
As you read this, the extremely dedicated Equitymaster team continues to work flat out to ensure that your overall experience continues to improve in the days and weeks to come.
This is a complete rebuild effort. So, if you encounter any issues, please do write to us at info@equitymaster.com.
Know that each and every feedback and suggestion will be dealt with promptly.
Go ahead visit www.Equitymaster.com now... and access all our honest and credible research. (Before you access the premium section on Equitymaster, you will need to reset your password - https://www.equitymaster.com/Subscription/ResetPassword.aspx?email= .)
Finally a word on the Portfolio Tracker.
We are laying out plans to rebuild the portfolio tracker. With super strong safety features. We also plan to offer tools to make it easy for you to upload your data into the new Portfolio Tracker seamlessly.
A detailed FAQ on the current status of the Portfolio Tracker is available here...
https://www.equitymaster.com/portfolio/faq.asp
Before I sign off, I would once again like to thank you for all your patience and support.
Warm Regards,
Rahul Goel
CEO, Equitymaster Agora Research Private Limited (Research Analyst)
PS: Do send in all your comments and questions...If you prefer to talk to us, just give us a missed call at +91-9136015013 and one of my colleagues will call you right back.
www.EquityMaster.com is now LIVE.
It’s been a trying 4 weeks since the dastardly ransomware attack.
But we are happy that we are starting to put this behind us. I know you are too.
Thank you once again for all your patience and support even as we dealt with the situation.
As you read this, the extremely dedicated Equitymaster team continues to work flat out to ensure that your overall experience continues to improve in the days and weeks to come.
This is a complete rebuild effort. So, if you encounter any issues, please do write to us at info@equitymaster.com.
Know that each and every feedback and suggestion will be dealt with promptly.
Go ahead visit www.Equitymaster.com now... and access all our honest and credible research. (Before you access the premium section on Equitymaster, you will need to reset your password - https://www.equitymaster.com/Subscription/ResetPassword.aspx?email= .)
Finally a word on the Portfolio Tracker.
We are laying out plans to rebuild the portfolio tracker. With super strong safety features. We also plan to offer tools to make it easy for you to upload your data into the new Portfolio Tracker seamlessly.
A detailed FAQ on the current status of the Portfolio Tracker is available here...
https://www.equitymaster.com/portfolio/faq.asp
Before I sign off, I would once again like to thank you for all your patience and support.
Warm Regards,
Rahul Goel
CEO, Equitymaster Agora Research Private Limited (Research Analyst)
PS: Do send in all your comments and questions...If you prefer to talk to us, just give us a missed call at +91-9136015013 and one of my colleagues will call you right back.
👍7