A) I never hold any large caps. That eliminates all the established blue chip from my portfolio. I am constantly in search for emerging blue chips and not the established ones. That is why I invest in small/midcap companies. I believe that you can get the next Infosys in a small cap only.
B) I hold at most between 3 and 5 companies in my portfolio. Yes only 3 to 5. Once I finish analyzing a company I ask myself one question “Is the company good enough to take 20% of my portfolio. When ever I get an answer as yes the next question is OK what can I replace it with. If I get another yes I would buy that stock. I prefer putting all my money into one company but just for the event risk I have divided it into 3 to 5.
Since I hold concentrated portfolios 3 to 5 companies I forecast a best case scenario with only the target price of 2 to 4 companies assuming that one will go bust and get me a zero value in the defined time span. If still the overall result looks exciting I would invest taking the mathematical premise that errors will cancel out each other (I do not know which one will under deliver and by how much).Robert Hagstorm the author of a book on Warren Buffet did a study where he found that concentrated portfolios give out better returns
I have lost many 30% to 100% returns by missing on opportunities because those companies did not fit my style of investing. But I have no regret because the ones I hold have more or less made up for that.
It takes me hardly one hour to analyze a company but making up my mind (the second part of B above) takes a few days or a even a few weeks at times. This is so because I believe in concentration.
C) This is how I like to zero down on a company.
1) I look at the management first. The management is the most important and lest talked about aspect of a company.
2) I like to know what business the company is into and then look at whether it is scalable. I prefer new sectors since the growth is highest there. I avoid cyclical because I cannot predict the peaks and troughs.
3) I then look at the market cap. If it is below Rs 1000 crores I think we could pay a higher PE to that company
4) I would then look at the RoE to see if the company is using its capital efficiently. RoCE is a better concept though because you could hike the RoE by using debt but not the RoCE
5) I would then compare the PE with the growth and the RoE. If there is a big difference between RoE and growth then the company does not merit investments. This is so because for a company to grow at higher rates of growth compared to its RoE it would have to dilute capital. That hurts
6) Dividend, book value is something that I look but do not base any of my decisions upon. I think that they tell you what the company has done and not what it will do.
D) Once a stock is bought and the price falls without any change in fundamentals and if I have the required cash I will buy at each fall.
Now I do not stop at step 1 of phase C above. I do look at steps 2,3,4 and 5 of phase C above but there is a difference in priority. That is all.
So it is just a matter of prioritizing the tools of analysis. No analysis is complete without putting all tools at work. In none of my reports will you find the valuation parameter missing because irrespective of the strategy you use the final objective is to make the stock price a slave of its earning. The question is which one are you more comfortable using when compared to the others i.e. prioritizing the tools.
Sunday, January 27, 2008
India v/s China
The rapid growth of the Indian and Chinese economies have transformed the two countries in recent years. But this prosperity has also brought other problems.
Heavy investment has turned Beijing into a modern city
I think it was in 2003, that the world suddenly woke up to China .
I am not sure what caused it to happen, what particular event or news story. I just remembered the phone in the BBC's Beijing Bureau started ringing and it has not stopped since.
Well now it is happening again and this time it is not China , it is India .
Every time you turn on the television or pick up a magazine, it is no longer the rise of China , it is now the rise of China and India .
The desire to make comparisons is understandable. Both have more than a billion people. Both are growing at 10% a year.
There are, I suspect, many who are hoping that India , with its freedom and democracy, will win this new race to become the next economic super power. I am not so sure.
I have spent the last eight years living in Beijing , and only four days in Delhi , so comparisons are difficult.
But the few days I recently spent in India made me look at China in a new light.
Over 15 million people live in Delhi
Delhi is an overwhelming experience. It is as if all of humanity has been squeezed into one city.
The streets groan under the weight of people. The air is filled with deafening noise and sumptuous smells.
Switch on the television and it is the same.
Between channels blasting out voluptuous Bollywood love stories and pop videos, an endless stream of news channels dissect the latest political scandals, and debauched lifestyles of the rich and famous.
Coming from China it is an almost shocking experience.
But after the initial delight at being in an open society, I started to notice other things.
The hotel was expensive and bad. In my room I searched for a high speed internet connection, a standard feature in any hotel in China . There was not one.
Then with the night-time temperature still well above 30C (86F) the power went out.
I lay for hours soaked in sweat trying, and failing, to get back to sleep and wishing I was back in Beijing where the lights never go out.
But getting back would not be easy.
Passenger queues
I looked at my plane ticket. Departure time 0315. Surely that could not be right.
I called the front desk. "That's correct sir," he said, "the airport is too small so many flights from Delhi leave in the middle of the night."
He was not joking.
My taxi struggled along the Jaipur road towards the airport.
The two-lane road was clogged by an endless convoy of lorries. Finally I arrived at Indira Gandhi International airport. Despite the hour it was teeming with people.
The queues snaked around the airport and back to where they had started.
Foreign tourists stared in bewilderment. Locals with the resigned look of those used to waiting.
"Is it always like this?" I asked a man in the queue ahead of me.
"Pretty much," he sighed.
I was finally shepherded aboard the flight to Shanghai .
Next to me sat a friendly looking Indian man in shorts and running shoes.
"Is this your first trip to China ?" he asked me.
"No," I replied, "I live there."
"Really," he said, his interest piqued, "what should I expect?"
"I think," I said, "you should expect to be surprised."
Jaw dropping
Six hours later, our plane taxied to a halt in front of the soaring glass and steel of Shanghai's Pudong International Airport
As we emerged into the cool silence of the ultra-modern terminal, my new companion's jaw slid towards his belly button.
"I was not expecting this," he said, his eyes wide in wonder. "Oh no, I definitely was not expecting this".
I also found myself looking at China afresh.
Later that day as I drove home from Beijing airport along the smooth six-lane highway I could not help feeling a sense of relief at being back in a country where things work.
And it was not just the airports and roads.
Driving through a village on the edge of Beijing I was struck by how well everyone was dressed.
In Delhi , I had been shocked to see thousands of people sleeping rough on the streets every night, nothing but the few rags they slept in to call their own. Even deep in China 's countryside that is not something you will see.
In Delhi I had been told of the wonders of India 's new economy, of the tens of thousands of bright young graduates churning out the world's latest computer software.
I thought of China 's new economy, of the tens of millions of rural migrants who slave away in factories, making everything from plimsolls to plasma televisions.
And of the same rural migrants, heading home to their villages at Chinese New Year festival loaded down with gifts, their pockets stuffed full of cash.
China is not a free society, and it has immense problems. But its successes should not be underestimated.
They are ones that India , even with its open and democratic society, is still far from matching.
Source
BBC
Heavy investment has turned Beijing into a modern city
I think it was in 2003, that the world suddenly woke up to China .
I am not sure what caused it to happen, what particular event or news story. I just remembered the phone in the BBC's Beijing Bureau started ringing and it has not stopped since.
Well now it is happening again and this time it is not China , it is India .
Every time you turn on the television or pick up a magazine, it is no longer the rise of China , it is now the rise of China and India .
The desire to make comparisons is understandable. Both have more than a billion people. Both are growing at 10% a year.
There are, I suspect, many who are hoping that India , with its freedom and democracy, will win this new race to become the next economic super power. I am not so sure.
I have spent the last eight years living in Beijing , and only four days in Delhi , so comparisons are difficult.
But the few days I recently spent in India made me look at China in a new light.
Over 15 million people live in Delhi
Delhi is an overwhelming experience. It is as if all of humanity has been squeezed into one city.
The streets groan under the weight of people. The air is filled with deafening noise and sumptuous smells.
Switch on the television and it is the same.
Between channels blasting out voluptuous Bollywood love stories and pop videos, an endless stream of news channels dissect the latest political scandals, and debauched lifestyles of the rich and famous.
Coming from China it is an almost shocking experience.
But after the initial delight at being in an open society, I started to notice other things.
The hotel was expensive and bad. In my room I searched for a high speed internet connection, a standard feature in any hotel in China . There was not one.
Then with the night-time temperature still well above 30C (86F) the power went out.
I lay for hours soaked in sweat trying, and failing, to get back to sleep and wishing I was back in Beijing where the lights never go out.
But getting back would not be easy.
Passenger queues
I looked at my plane ticket. Departure time 0315. Surely that could not be right.
I called the front desk. "That's correct sir," he said, "the airport is too small so many flights from Delhi leave in the middle of the night."
He was not joking.
My taxi struggled along the Jaipur road towards the airport.
The two-lane road was clogged by an endless convoy of lorries. Finally I arrived at Indira Gandhi International airport. Despite the hour it was teeming with people.
The queues snaked around the airport and back to where they had started.
Foreign tourists stared in bewilderment. Locals with the resigned look of those used to waiting.
"Is it always like this?" I asked a man in the queue ahead of me.
"Pretty much," he sighed.
I was finally shepherded aboard the flight to Shanghai .
Next to me sat a friendly looking Indian man in shorts and running shoes.
"Is this your first trip to China ?" he asked me.
"No," I replied, "I live there."
"Really," he said, his interest piqued, "what should I expect?"
"I think," I said, "you should expect to be surprised."
Jaw dropping
Six hours later, our plane taxied to a halt in front of the soaring glass and steel of Shanghai's Pudong International Airport
As we emerged into the cool silence of the ultra-modern terminal, my new companion's jaw slid towards his belly button.
"I was not expecting this," he said, his eyes wide in wonder. "Oh no, I definitely was not expecting this".
I also found myself looking at China afresh.
Later that day as I drove home from Beijing airport along the smooth six-lane highway I could not help feeling a sense of relief at being back in a country where things work.
And it was not just the airports and roads.
Driving through a village on the edge of Beijing I was struck by how well everyone was dressed.
In Delhi , I had been shocked to see thousands of people sleeping rough on the streets every night, nothing but the few rags they slept in to call their own. Even deep in China 's countryside that is not something you will see.
In Delhi I had been told of the wonders of India 's new economy, of the tens of thousands of bright young graduates churning out the world's latest computer software.
I thought of China 's new economy, of the tens of millions of rural migrants who slave away in factories, making everything from plimsolls to plasma televisions.
And of the same rural migrants, heading home to their villages at Chinese New Year festival loaded down with gifts, their pockets stuffed full of cash.
China is not a free society, and it has immense problems. But its successes should not be underestimated.
They are ones that India , even with its open and democratic society, is still far from matching.
Source
BBC
Lessons to learn
Just wanted to get your views on lessons learned from the brutal crash of Jan 08.
Here's what I learned
1. Take profits off the tables regularly
2. Keep at least 30% of cash in hand
3. Set your goals for entry and exit and stay very disciplined and true to your entry and exit goals.
4. Avoid buying at or close to 52 week high
5. Always use stop loss
6. Patience, discipline and a mid to long term view of the market.
7. Stay invested and not give up hope. Remember India is a growth story.
8. Dont fall in love with your scripps - reserve it for the ones you truly love
9. Analysts and brokers are as wrong as you are. Rely on your own self and draw conclusions from what your gut/expereience tells you
Kindly add your list/bullet points for the benefit of community - just writing down your thoughts helps to solidify the lessons in ones own mind too.
Happy Trading
Here's what I learned
1. Take profits off the tables regularly
2. Keep at least 30% of cash in hand
3. Set your goals for entry and exit and stay very disciplined and true to your entry and exit goals.
4. Avoid buying at or close to 52 week high
5. Always use stop loss
6. Patience, discipline and a mid to long term view of the market.
7. Stay invested and not give up hope. Remember India is a growth story.
8. Dont fall in love with your scripps - reserve it for the ones you truly love
9. Analysts and brokers are as wrong as you are. Rely on your own self and draw conclusions from what your gut/expereience tells you
Kindly add your list/bullet points for the benefit of community - just writing down your thoughts helps to solidify the lessons in ones own mind too.
Happy Trading
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