Investing secrets -Part2

Secret #3: Scan thousands of stocks looking for screaming bargains

ONLY A HANDFUL of outsiders have been permitted to enter the inner sanctum of the Berkshire Hathaway offices in Kiewit Plaza, Omaha. When Chris Stavrou, the founder of the New York asset management firm, Stavrou Partners, visited the offices he reported seeing hundreds of file drawers full of reports on thousands of companies.

Two things stand out. Firstly, Buffett said that the reports were mainly annual and quarterly reports. In other words, material that is available to everyone. Secondly, he declares that he does not use a computer. Not even a calculator.

He is able to do without these standard aids since, as many people have attested, he has a prodigious memory. There are numerous examples of him being able to recall obscure facts about the companies that he has investigated, and their competitors, many years later. It seems that he has read, and memorized, a huge amount of the material in the filing cabinets.

This means that, when he is looking for quality investments satisfying his stringent criteria, he can scan through his own memory and couple the results with current prices. In the end, he is not looking for investments that are, with a little luck, likely to be slightly better than average. He wants them to be great investments by a large margin. “If (the investment) doesn’t scream at you,” he once said, “it’s too close.”

Few people have a memory to match Buffett’s. Even fewer have the resources to collect and index tens of thousands of documents on thousands of companies.

Secret #4: Calculate how well management is using the money they have

HOME BUYERS UNDERSTAND about equity. It is the value of the home less the amount owed to the bank. The same is true of a business. Its equity is the total assets minus all the liabilities. You can think of this as the money locked up in the business. It is a measure of how much money management has to run the business.

Another measure of the money available to management is the capital of the business. This is its equity plus the long-term debt of the company.

Clearly the success of any business is going to depend on how well management uses its equity and its capital. This is commonly measured by two ratios called return on equity and return on capital. Putting it simply, these are defined as the earnings of the company divided by equity and by capital. Their abbreviations are ROE and ROC.

Many companies consistently lose money year after year. So they do not even have an ROE or ROC. Others have very low values for these ratios. In other words, management is struggling to make a profitable use of what it has. Clearly, these are not the sort of companies that we should think of as quality investments. If management is only making a few percent on the money that it has, then over time this is all you can expect to make if you purchase shares in the company. After all, money can’t come from nowhere.

Every year, Warren Buffett writes in the annual report of Berkshire Hathaway that he is eager to hear about businesses that, amongst other things, are earning  “good returns on equity while employing little or no debt.” This means that ROE and ROC are essentially the same.

It makes sense. If you want a healthy return on any shares that you purchase, at the very least you need to select companies with management that is making a healthy return on the money that they have.

Secret #5: Stay away from “glitter” stocks

THERE ARE MANY thousands of stocks to choose from.Faced with these massive numbers and the associated deluge of information, investors get drawn to what I call glitter stocks. These are stocks that have some attention grabbing activity such as high trading volume, extreme movements in the price whether up or down, or when the stocks are in the news.

Even with the best of intentions, it is hard to look at these stocks in a clear and objective manner compared to the remaining stocks. Warren Buffett was so aware of this that he moved from New York back to his home town, Omaha, Nebraska. Regarding the benefits of living in Omaha, he said, “I think it’s a saner existence here. I used to feel, when I worked back in New York, that there were more stimuli just hitting me all the time… It may lead to crazy behavior after a while.” He ended by stating that it is much easier to think in Omaha.

A research study by Brad Barber and Terrence Odean of the University of California demonstrates very clearly the penalty to be paid by getting drawn into glitter stocks.

They found that, on average, individual investors tended to invest in glitter stocks more than professionals. Secondly, they found that by doing this they underperformed the market by anything from around 2.8 percent to 7.8 percent per annum.

Buffett has long understood this. For example, back in 1985 he said, “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”

Investing secrets -Part1

Most Admire Warren Buffett, But Few Try To Copy His Results.

Warren Buffett has been talking about his methods for decades — but few even make the attempt to understand what he is doing. “I have seen no trend toward value investing in the 35 years I’ve practised it,” Buffett declared some years back in the Chicago Tribune. “There seems to be some perverse human characteristic that likes to make easy things difficult.”

Most investors and fund managers are still caught in the impossible trap of trying to make quick money in the stock market. Preferably overnight.

Secret #1: Invest in quality businesses, not stock symbols

FOR MOST PEOPLE, investing in a stock is little more than watching the trail left by the stock symbol as its price wanders along some drunken path.

They know that the symbol is associated with a company while not being too sure what is expected of this company to ensure that its share price will rise. It is a case of let’s sit back and hope for the best.

Then there are others who deliberately do not want to know anything about the activities of the company. They want to study the “pure” movement of the stock price with the belief that they can use this information to make forecasts about the future movements of the price. Warren Buffett refers to this as trying to play bridge without looking at the cards.

It just makes no sense to ignore the fact that the stock symbol is attached to a company. And it makes no sense not to apply sound business principles to analyze these companies. The more we know about the company, then the more confident we can be about the price of the stock. Not on a day to day basis, but over time.

“When I buy a stock,” Warren Buffett said, “I think of it in terms of buying a whole company, just as if I were buying a store down the street.” If you were buying a store you would want to know all about it. What were its products? How consistent are the sales? Do they keep trying new products or do their products stay fairly constant? What competitors does the store have and what distinguishes it from them? What would be the most worrying thing about owning such a store?

This leads to the idea of looking for companies that have a strong and durable economic moat. Just as castles have moats to protect them from invaders, so companies can have economic moats to protect them from challenges of competitors and changes in consumer preferences. The moat can be made up of attributes such as brand name, geographical position or patents and licenses.

All these principles about purchasing businesses are equally applicable to purchasing shares. It becomes one of the most enjoyable parts of investing to look into the “business” aspects of any company that you are considering adding to your portfolio.

Secret #2: Don’t invest for ten minutes if you’re not prepared to invest for ten years

WHEN WE LOOK at the share price of a company we usually see a wildly fluctuating graph with mighty hills and plunging chasms.

For example, on the right is the graph of the daily closing prices of a company over ten years. It would be a brave person who could look at this graph and say what was going to happen in the next 24 hours, let alone the next 5 to 10 years. Yet this is a typical graph of the prices of a listed company.

But what about this graph? Because it is growing so consistently we would have a lot more confidence in making forecasts of what was going to take place in the future.

This graph is of the earnings per share of a company. If you were buying a company, this is just what you would want — a company whose earnings and sales go up like clockwork by 15 or 20 percent or more each year. It is no different when you invest in companies via the stock market.

Clearly it is an advantage to be able to find companies with such steady and strong growth in earnings.

When we locate such companies, we are well on the way to finding quality investments. Warren Buffett said a few years back, “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”

We must put together a portfolio of companies whose aggregate earnings march upwards over the years, and so will the portfolio’s market value.

In other words, as investors, we focus on the medium to long term business characteristics of companies. It is these that drive the share price.

Focusing on the short-term aspects of a company including both business and price fluctuations is foolish as Buffett has said. “Most of our large stock positions are going to be held for many years, and the scorecard on our investment decisions will be provided by business results over that period, not by prices on any given day.”

The exciting thing about value long-term investing is that time and time again,you 

outperform the market in the short term as well as in the long-term. If you own shares in a portfolio of great companies with sales and earnings moving upwards that you bought at sensible prices, then it often doesn’t take long to show up in the share price.

Only one stock is enough to create wealth.We have MANY!!

Here is the performance report of stocks that has been recommended by us:

• We Recommended ***a** Software on 3rd Oct,2016 at 151 Rs.It has given returns of 40% in just 3 months.
• Eicher motors bought at 4200 Rs and sold at 20100 Rs resulting in gains of 478% in 2 years.
• Can fin homes recommended at 380 rs and still holding at 1660 rs.
•  F**T** R** has doubled in 1.2 years.
•  Another software company was sold with gains of more than 200%.
•  A cooler making company has given hefty gains in last 5 years.
•  Our December 2016 recommendation is up 20% till now(in less than 2 weeks).
•  Mayur unicotter had risen 15 times while cera sanitaryware has risen 18 times and still a buy!!

To get such ideas , please drop a mail to: ankurjainraj@gmail.com

Manappuram Finance - Cheap and best stock to have

 FUTURE WITH GOLD, AND BEYOND GOLD

Having reached the pinnacles of the gold loans business, it was time to re-invent as a multi faceted top-notch NBFC. Over the last two years, they took a bold decision to recompose business that would de-risk concentration from gold loan book and give new growth drivers to build upon. Manappuram decided to diversify business and add new asset classes that were complementary to their mainstay gold loans business. Today, Manappuram Finance is re-constituted to engage in four key business segments – Gold Loans, Microfinance, Housing Loans and Commercial Vehicle (CV) Loans.

Having established presence in these new areas in FY2015, they spent FY2016 focusing on developing business ecosystems, building teams with domain specific experience and setting up the right marketing channels and product configurations. Today, they are systems-ready to grow each of the businesses aggressively, without compromising on asset quality. In the field of Microfinance, they have already made a robust entry through subsidiary Asirvad Microfinance, which has grown extremely well in FY2016, with assets under management more than trebling.

Confidence comes from the depth of geographical reach, a top-notch product portfolio, best-in-class technology, rapidly expanding distribution network, motivated workforce and a highly capable management team. They can leverage brand equity and in-depth understanding of semi-urban and rural markets, to build further on proven successes.

MD & CEO’s letter to Shareholders

With the stable regulatory regime, and with gold prices holding firm, gold loan NBFCs are poised for healthy growth.

Going forward, Aadhar and Jan Dhan will hasten the shift of business in rural areas from the unorganised to the organised sector. Banks and NBFCs stand to benefit.

In percentage terms, new businesses now contribute ~12 percent of total AUM. Importantly, based on these trends, they  are well on track to having new businesses contribute 25 percent of total AUM by FY2018.

In February 2015, they acquired Asirvad Microfinance Pvt. Ltd. with AUM a little short of Rs.300 crore. Today, just a year after it became subsidiary, the company’s AUM has tripled to Rs.1,000 crore.

Commercial vehicle loans and mortgage based finance (housing loans and loans against property) have contributed about Rs. 300 crore to the total business as compared to about Rs. 45 crore in the preceding fiscal year.

PERFORMANCE OF THE COMPANY: 

Manappuram Finance has reported outstanding results for the fiscal year 2015-16. Consolidated net profit increased by 30.2 percent to Rs.353.36 crore in March 31, 2016, as compared to Rs 271.31 crore in FY 2014-15. Total Income from

Operations also reported a growth of 18.8 per cent to Rs 2,360.23 crore, as compared to Rs.1,986.42 crore during same period last year. The number of live gold loan customers surged to 19.32 lacs at the close of FY 2015-16, against 17.47 lacs the year before. Total gold holdings increased to 59.61 tonnes during FY2015-16 as compared to 53.13 tonnes a year ago.

 It is a fact worth noting that the quantum of gold they hold as security has increased consistently over each quarter, for the last two years, and this indicates the depth of recovery in the market.

Branch Distribution: 15% North, 6% East, 10% West, 69% South.

Capital Adequacy Ratio in FY16 stood at 24.0 %, far ahead of statutory Capital requirements, giving ample capacity to grow loan book size in the foreseeable future.

Key Financial Indicators: Manappuram’s Gross NPA’s stood at 1.0% and its Net NPA’s was a low 0.7% in FY16. The Total Income from Operations, Net Interest Income and PAT in FY16 were ` 23,602 mn, ` 14,128 mn & ` 3,534 mn respectively. The Company produced an ROA of 3.0% in FY16, with an ROE of 12.8% for the same period.

As a company that always tagged its gold loans as “Make Life Easy”, they have now gone a step furher – by making loans even more simpler with Online Gold Loans. They now hope to extend the concept even further by launching a co-branded debit card – one that will allow the customer to withdraw the loan amount from an ATM anywhere across India.

Their aim is to become the next big disruptor in the financial technology space, transforming conventional perceptions about gold loans. They wish to radically alter the day-to-day processes of gold loans.

NBFC’s grew better than banks in FY2016, as loan growth remained lacklustre while NPL (nonperforming loan) formation and credit costs continued to rise.

In the financial year FY2016, NBFC’s with core focus on the Gold Loan segment have seen healthy volume growth and loan book growth.

The splendid growth achieved by microfinance companies in recent years have been supported by key positive developments that have taken place in the system including regulatory actions taken by the RBI.

Manappuram Finance Limited has an evolving and robust risk management model of proven effectiveness, aligned with regulatory standards and international best practices, and proportional to the scale and complexity of its activities.

With economic growth is expected to sustain at ~7.5% as per IMF, the outlook for FY2017 is positive. This growth rate would make India the fastest growing major economy in 2017, placing India as an outlier within the global economic landscape. 

Why most investors are mostly wrong most of the time?

• Very well read bright people who pay close attention to the market often make pretty bad investing decisions. There is usually one simple reason for this: They inadvertently get sucked into the consensus view.

• Group think can happen no matter how careful and studied your methods are. Many folks see investing as a discipline, art or science, which sounds good, but their methods morph into the conventional wisdom- usually dangerous in investing. All follow the rules dictating the same result.

• Many doctors, lawyers and engineers are prone to this. Not because there is anything wrong with them as people. It isn’t their fault! But their professional training leads them there. In their professional lives, they used rule-based methodology, and there it works but in market it doesn’t. They expect market to be linear and rational, just like the systems they build and work with daily.

• Rule based investors usually use similar logic and reach similar conclusions. They use the same patterns, the same if then assumptions. They end up expecting similar things, and it morphs into the consensus view point. It usually appears very logical! But markets often defy logic, as we’ll soon see. Theory and principles can be useful if you layer on the independent thought. But many turn theory to dogma, textbooks to rule books. We think that whatever the literature says is good or bad for stocks must be true, always and everywhere. E.g Low P/E stocks are cheap.

• Markets price in the consensus pretty quickly and do something else. That “Something else” is what the true contrarian wants to figure out. Some investors use old saws and rules of thumb as a guide – the “Playbook”. Here, too, the approach might seem fine. The playbook is supposedly full of time –tested wisdom! If it didn’t work, it wouldn’t be in the playbook! But more you base decisions on the maxims, proverbs, and things everyone just knows, the less likely you are to think independently- and less likely to have the true contrarian views.

• The approaches based on widely known information and common interpretations of that information, no matter how intuitive and logical, they’re what “everyone” does. The true contrarian moves beyond consensus views and conventional wisdom. Life is way more exciting there, in the wide open air.

“If most believe something will happen in markets, the contrarian simply believes something else will. Note I didn’t say the opposite happens. Just something different”

New stock idea

Dear Investor,

We are recommending new stock idea that has the potential to rise 10 times in next 5 years!!..Here are the reasons:

1) Huge market opportunity to grow.

2) Company is very small as compared to market size.

3) Lower valuations in comparison to peers.

4) Honest and visionary management.

5) Healthy dividend payout ratio.

6) Relies on domestic economy. (and hence immune from international events and global growth)

Company is already showing profit growth in excess of 50% which is not yet captured in price.

Don't miss this opportunity.Stock is still relatively cheap and will not remain so for long.Go and grab small chunk and make your portfolio grow!!

To get this stock idea via subscription please drop a mail to : ankurjainraj@gmail.com

Thanks.

This Stock has made 80% in 9 months

Dear Reader,

We recommended "Alkem Labs" around 1020 Rs and now it is currently trading at 1820 Rs which translates into gains of more than 80% in 9 months.

Alkem is India's fifth largest pharma company in terms of domestic sales, having 5 brands in top 50 in the Indian pharma market such as Clavam, Taxim, Taxim O, Pan, Pan D, Alkem Laboratories makes branded generics, generics, APIs and nutraceuticals for domestic and 55 international markets, with latter accounting for one-fourth of revenues. Internationally, US is a key market, accounting for 19% of total revenues.

Company is focused on the acute therapeutic segments of anti-infectives, gastro intestinals, pain and analgesics, vitamins, minerals, nutrients, with a portfolio of over 700 brands. It has a strong market share of over 11% in anti-infectives, being consistently ranked number one in that segment, which also happens to be the largest therapeutic area in Indian pharma market. In other large segments of gastro intestinals and pain/analgesics, company ranks number three. 

Having 16 manufacturing facilities (14 at 5 locations in India and 2 in US), its domestic distribution reach is very strong comprising field force of 5,745 medical representatives (as of 31-10-15), with 7 in 10 domestic prescribers prescribing company's drugs. Having spent 4.5% of FY15 revenue on R&D, company has 2 R&D centers each in India and US and employs 480 scientists.

During FY15, consolidated EBITDA (excluding other income) grew 19% YoY to Rs. 487 crore, as revenue from operations jumped 21% YoY to Rs. 3,789 crore, clocking EBITDA margin of 12.9%. Net profit, at Rs. 463 crore, was higher by 6% YoY in FY15, leading to an EPS of Rs. 38.7. Since the company enjoys many tax breaks/holidays for its manufacturing facilities and R&D investments, effective tax rates is low at 10.5% for FY15, and will continue to be in low teens for the next couple of years.

Financial performance during first half of FY16 was very strong, with revenue from operations rising 36% YoY to Rs. 2,570 crore and EBITDA margin strengthening to 17.8%, on EBITDA of Rs. 460 crore. Net profit for H1FY16 stood at Rs. 431 crore, translating into an EPS of Rs. 36.1, on equity of Rs. 23.91 crore, of face value Rs. 2 each. Thus, H1FY16 has nearly achieved results of the whole of FY15.

As of 30-9-15, net worth of this closely-held company stands at Rs. 3,400 crore, while gross debt is at Rs. 1,115 crore. Excluding cash and equivalents of Rs. 749 crore, net debt is only Rs. 366 crore, which is very low. Current promoter stake of 70.87% will shrink to 66.23% post IPO, whereas 17 individual investors owning 29.13% stake currently, will part sell, reducing their combined holding to 23.02%, post listing.

At the upper end of the price band of Rs. 1,050 per share, company's market cap will be Rs. 12,550 crore and enterprise value Rs. 12,900 crore. Based on annualized H1FY16 EBITDA of approximately Rs. 925 crore, EV/EBITDA multiple stands at 14 times, for the current year. On revenue run-rate of over Rs. 5,000 crore, EV/Sales multiple is 2.5, whereas the PE multiple is 15 times, on expected EPS of about Rs. 68 for FY16. This appears attractive, given the company's presence in high growth markets of India and US, portfolio of strong brands coupled with distribution strengths.