Archive by Author Ketan Gujarathi

Multibagger returns for how long? What process? Is it repeatable?

Thousands of stocks have jumped to unjustifiable levels in last 1-2 years. ‘Experts’ or Social Media buffs come up with 10 new stocks every week or month and take pride in 5-10% price movements. On asking what they see, they confidently answer, “It is a value buy.” Most ideas are not exactly an outcome of a process. All that goes in is 10 minutes of financial statement analysis, that’s it. No management analysis or reading annual reports or history of business/industry. Lately the new fantasy is to track some ‘renowned’ investor and follow him into some small cap company. Everyone seems to believe that this will generate great returns for them. They buy it for a month or so, retweet every news related to recommended stocks and when the stock crashes, they simply claim they exited the stock long back! Classic pump and dump tactic. So much for long term investing? […]

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Category:Learn

High returns won’t make you rich, BIG bets will

We had an interesting email exchange with one of our customers. He raised an interesting question and made us think hard. His question goes like this: Can you suggest business/stocks growing more than 25% CAGR? I want compound my portfolio above 25% CAGR over long term. Edited answer: There is no way to find in advance which stock may yield 25% CAGR. As stock essentially follows earnings growth, we are sceptical whether there would be many businesses growing above 25% CAGR over long periods. In past quite a few business grew at stellar rates as inflation was 10-12% and GDP growth was 8% (Market returns approx ~ GDP growth + inflation). Penetration was low and higher inflation made it easy to pass on the prices, earnings grew faster than volume growth. Currently, inflation levels are at ~5-6% and GDP growth rate is likely to be 5-6% over 5-7 years (Market […]

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Category:Learn

Modi Policy: What has changed; what has remained the same

Indian Prime Minister, Narendra Modi, announced on 8th November 2016 that legal tender character of the notes in denominations of ₹ 500 and ₹ 1000 stands withdrawn. This was one bold step to scrap the parallel economy which was running on black money. Implications of this new policy are very positive for the economy over long term. Over 5-7-10 years, inflation is likely to be reasonable, taxes may moderate and real estate would become more affordable. Talking about businesses, our opinion is the businesses those were run on cash mostly from tax evaders etc will be severely affected. Consumption may slow down over 3-4 quarters. Liquidity problem may affect volume growth as unaccounted currency will vanish and black money parked in Gold and Real Estate will be difficult to liquidate. We see a modest negative impact on consumption of high-value items as entities and individuals with large amounts of undisclosed […]

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Category:Learn

To make wealth from equities, just think like a businessman!

A passive investor (non-executive) imagines himself in different shoes than an entrepreneur. We understand that since the operational part of business is not done by an investor, he considers himself different from an entrepreneur. But thanks to stock market mood swings an investor stands to gain almost equal to or just slightly lower return than what an entrepreneur does. Let us explain. We believe that investor almost always tracks ‘only’ stock price which essentially tells NOTHING. He often discards how the business is doing. We feel that an investor ought to track cash flows of the company from time to time and try to estimate whether it is increasing or decreasing and the levers leading to this change. As an analyst (wearing investor hat), we completely ignore stock price movements (read noise). We check stock prices only from intention of adding more stake or trimming the stake rather than checking what we […]

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Sector diversification is not for retail investor

Retail investors get misguided by reading fund manager interviews or journalists write ups in newspaper. We were stunned when one of our subscribers asked us, are you overweight or underweight IT? Direct equity investors are often wrongly advised by investment management community to diversify into 8-10 sectors just because Index consists of so many sectors. We should first start by answering why Index was formed. Index was formed for Pension fund/insurance companies to gauge how a particular fund manager performs in comparison to broader market. The Index consists of mostly large sectors/companies of the economy depending on how developed the country is. We often get to hear only fund managers in media, who often hold more than 40-50 companies across most of the sectors. A fund manager faces a huge career risk if he misses a rally in a particular sector because cumulative index keeps performing in short term. We have no compulsion to have a particular exposure for […]

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Category:Learn