1. Buy SOE (State Owned Enterprises) Banks: The Central Bank is likely to start raising rates in January 2010. Rising rates favor Indian banks as they run a maturity mismatch on their balance sheets (liabilities have a longer maturity). Thus NIMs will rise; coupled with acceleration in loan growth (which trails IIP growth), this will help earnings. The stocks of SOE banks trade at better valuations than their private sector counterparts and SOE banks will also be helped by a declining fiscal deficit, which will likely cap long bond yields.
2. Avoid Technology: Tightening by the Central Bank will put upward pressure on the rupee with negative consequences for technology stocks. Tech stocks have done particularly well over the past six months and also suffer on a relative basis in an accelerating domestic growth environment. Tech stocks correlate negatively with INR.
3. Buy Energy: Energy, especially Reliance Industries, has delivered its worst relative performance ever on a trailing-six-months basis. The sector correlates positively with crude oil, short-term yields (read: local inflation) and industrial production. Thus it provides a hedge against a spike up in crude oil prices.
4. Buy Industrials: Acceleration in industrial growth will help close the output gap faster than what is possibly in the price right now. This will help a new private capex cycle to start in 2010 and further boost performance of industrials.
5. Shift Bias From Rural to Urban Plays: No doubt rural growth remains very strong, helped by rising food prices and government spending. Yet at the margin, urban growth will close the gap vs. rural growth as industrial activity picks up. Two-wheeler and large cap staple stocks tend to correlate negatively with industrial growth and should be avoided in 2010. In contrast, media and niche mid-cap staples may still perform well.
6. Buy Mid-caps: The broader market is likely to generate faster earnings growth of around 25% in 2010, trades at better valuations than the narrow market, and accordingly could outperform the narrow market.
7. Stock Picking Could be in Vogue in 2010, Market to be Driven by Earnings: A high market effect, high sector correlation and middling micro factors such as valuation, fundamental and return dispersion sets us up for a better stock picking environment in 2010. Most of the market returns in 2009 have come from a PE re-rating, and as the key driver of returns shifts to earnings in 2010, so will the key driver of stock prices from macro to idiosyncratic stock related factors.
Monday, December 28, 2009
Wednesday, September 30, 2009
Jim Rogers : QnA
Q: Which places are you looking for investments?
A: The only place where I bought shares in the past year or so has been China. I have got Sri Lanka on my mind. One of the things that I have learnt is that if you get to a country after a long and bitter war, you usually will find that things are very cheap, you will find a lack of capital, there is low morale, and everything is despondent, and there are usually great opportunities. So, Sri Lanka is on my list as a place where that sort of thing is happening, but there are not many, not these days.
Q: How do you size up a country? What are you looking for?
A: Two things. I am looking for them to be cheap, for whatever reason: War is a good reason. Cheap and change, where there is some kind of positive change taking place. Sri Lanka is cheap, because it has had a 30-year war and if I am right there is positive change because the war is over now. So, there is going to be peace and so the country can spend a lot of its time, energy and money on pursuing peaceful pursuits.
Q: The way your method works is. You look at the dustbins; you look where people are bearish because that is where you find the bargains?
A: Frequently, I do try to find things that are cheap. Normally if something is cheap, it is because it is in the dustbin; people are not looking at it. If everybody is looking at something or if everybody is investing in something, you know as well as I do, it is not cheap.
Q: More certainty equals less profit?
A: Exactly.
Q: A good lesson in investing is learning the laws of supply and demand. Can you explain that to us?
A: It is very simple. I came to the conclusion at the end of the ‘90s that the commodities had been in a bear market for about 20 years because there had been excess supply in the ‘70s, people found oil and a lot of things happened, huge inventories of food buildup. But then by the end of the ‘90s, I came to the conclusion that nobody built a drilling rig for 20 years and nobody had been discovering oil, farming had been a terrible business, farmers were going bankrupt all over the world. So, I realised that is going to mean there is less supply.
I had driven around the world a couple of times as you know, and I could see that demand was booming. I mean Asia was exploding. The difference in Asia in 1998 and in 1978 was very dramatic. So, I could see that demand was going up for 20 years, and supply going down and that had to mean that the bear market in commodities was going to come to an end. So, I started buying commodities for the first time in the last 15-20 years at that time.
Q: That works every time, the law of supply and demand. No dictator, no monetary authority has ever been able to change that?
A: They all try. Not just dictators, democracies try. I mean the Indian government, the American government. They all try to abolish the laws of supply and demand, think that they are smarter than anybody else. Periodically, governments put price controls on to food. Recently, the Filipinos put price controls on rice. Now if you were a farmer, you are not going to go into the field over 12 hours a day in the hot sun to raise rice if the government says you can only sell it for 2 pesos. You are just not going to do it.
Q: So the black market price is a good indicator of government policies?
A: Yes. You will need to find that there is a black market price with a very high premium or you’ll find that there is no supply at any price depending on how draconian the government is. If they execute you for selling something on the black market, there is usually nothing at any price. The government’s can sit there and yell all day long. Evil capitalists or evil speculators. Listen, you set the price too low, nobody is going to produce and you will have nothing.
Q: Whenever you hear the word new era or this time it is different, what are the lessons that you learn and are you seeing anywhere that people are talking?
A: Anybody who has read anything to do with financial history knows that every time there is a new era or that it is different this time, or that there is a new economy, those are signals. You hear a bell ring; you know that something is wrong. Some of the most dangerous words are, it is different this time, because it is not different this time. The laws of supply and demand, the laws of greed and fear, the laws of economics just don’t change.
Q: But markets can remain irrational for long periods of time?
A: Oh yes. It was Keynes who said that, “The market can stay irrational longer than you can stay solvent”. I would sell something short, only to see it go higher and higher. I’ve learned the difficult way. Some of the things right now, right now everybody seems to be convinced that government bonds are going to go through the roof and that government bonds are a safe investment. Everybody seems to be convinced that there is deflation in the world. Long-term government bonds are yielding nothing.
Q: The perceived safety?
A: They perceive safety and they perceive – you don’t have to worry about inflation, deflation is here. So, you can buy long-term government bonds. In my view that is one of the next great bubbles, which is developing. I am not short bonds at the moment. I have them but I cover. That is a huge bubble. Apparently if you look at the market, most people don’t think inflation is coming – if government bond yields are any indication – nobody thinks that inflation would ever come back. So, I am afraid, I think that that is probably the next bubble developing.
Q: Let’s talk about something that you have been bullish on, the dustbin of history: Airline stocks?
A: Yes, I have been, they are not doing much good right now. I think I see that the supply demand – I mean nobody has been building airplanes. All the airlines have lost huge amounts of money over the past nine years now. It is a terrible place to be. Many of them went bankrupt. Normally, when I see a lot of companies in an industry going bankrupt, it is a good sign that we are near a bottom, which is what initially attracted me to the airlines this time around. So, I have been buying international airline stocks. Most of them are down from where I bought them, fortunately not down a whole lot.
I am still convinced because I don’t see anybody building a lot of planes. I don’t think we are all going to take boats to London again, or New York. I think we are probably going to continue to fly.
Q: It is almost an irreplaceable business?
A: It seems to me. We also know that throughout history many people who have managed airlines haven’t done a horrible job of managing airlines, which again means that if you don’t have enough seats eventually we’re probably all going to fly on planes and eventually they are going to make money. So, I am convinced this is one of the places that will come out of this, if we have to come out of this in a good way.
Q: Economics and markets are two different things. Can you explain that?
A: Yes. Let’s look at China. The Chinese economy has boomed for quite some time. But between 2001 and 2005, the Chinese stock market went down every year for four years in a row, even though the economy was going through the roof. So, just because an economy is strong doesn’t mean you can have a good stock market, and just because an economy is weak – they don’t necessarily go together. In the long-term of course there is some correlation. But don’t think that good news means good stock market.
Q: Philosophy and history are important subjects to learn? Why is it important in investing?
A: In my view, yes. Philosophy teaches you how to think. It teaches you to be sceptical. It teaches you to think. Like if you hear something from somebody it makes you stop and think. Now, could that possibly be true? Merrill Lynch says it, Morgan Stanley says it then it must be true. I don’t know if it was the philosophy that I studied or what but I have learnt that when you hear all that kind of stuff, when everybody is thinking the same way, somebody is probably not thinking and so you better do your scepticism. History teaches you that the world is always changing. Pick any decade, 15 or 20 years later the world is dramatically different.
Q: There are lessons that you interrelate to the market with this, in terms of Asian or the American century?
A: Again, whatever you see now is not going to be true if somebody comes to you and says that this company is a great growth stock and in 15 years they are going to own the world. Rarely has that been the case. Remember the projections that were made about dotcom companies, only 10 years ago. Well if those projections had been true, the whole world would be one big dotcom. Dotcom has come a long way but it not one big dotcom world.
Q: The best advice that you said in the book that you could give anyone was learn Mandarin. Why?
A: If I am right in the 21st century then China is going to be the great country of the 21st century. The 19th century was the century of the UK. The 20th century was the century of the US. The 21st century is going to be the century of China. In my view, China is the one that is going to dominate this century and Mandarin is going to be the most important language.
Q: What would be the best piece of investment advice that you ever got?
A: Buy low and sell high. No, the real one is do your homework. Do not listen to what other people tell you.
Q: Attention to detail?
A: Be very attentive to detail. Cover all the bases; most people don’t cover the bases. If you read an annual report for a company on Wall Street, you would have done more than 98% of the people on Wall Street. If you just do simple things like reading the annual report, you’re way ahead of everybody else, but that does not mean you are going to be successful. I promise you. But if you’ve learnt to cover all the bases, if you cover attention to detail, and you are sceptical, chances are that you’ll be a successful investor.
Q: You also said stock traders should learn how to drive tractors? That is where the money is, the next decade?
A: What I said was, the last 30 years has been an era in the developed world where finance has been the centre. The ‘80s, ‘90s and this decade, people in Wall Street, the City of London, once you had all the money and the influence. We’ve had many periods like that in history but we have also had many periods in history when it is the people who produce real things, whether it is miners or farmers or whatever, where they have been the centre. In my view, we are in a historic shift now away from the financial centres to the people who produce real goods.
Farming has been one of the worst professions, the worst jobs for the past 30 years. I am telling you that in my view, farming is going to be one of the great professions in the next 30 years. All these people who were stockbrokers should turn in their degrees and go down and learn how to drive a tractor. They will be a lot better off. Atleast they will be working for rich farmers if nothing else and if they are smart they will become the rich farmer themselves.
A: The only place where I bought shares in the past year or so has been China. I have got Sri Lanka on my mind. One of the things that I have learnt is that if you get to a country after a long and bitter war, you usually will find that things are very cheap, you will find a lack of capital, there is low morale, and everything is despondent, and there are usually great opportunities. So, Sri Lanka is on my list as a place where that sort of thing is happening, but there are not many, not these days.
Q: How do you size up a country? What are you looking for?
A: Two things. I am looking for them to be cheap, for whatever reason: War is a good reason. Cheap and change, where there is some kind of positive change taking place. Sri Lanka is cheap, because it has had a 30-year war and if I am right there is positive change because the war is over now. So, there is going to be peace and so the country can spend a lot of its time, energy and money on pursuing peaceful pursuits.
Q: The way your method works is. You look at the dustbins; you look where people are bearish because that is where you find the bargains?
A: Frequently, I do try to find things that are cheap. Normally if something is cheap, it is because it is in the dustbin; people are not looking at it. If everybody is looking at something or if everybody is investing in something, you know as well as I do, it is not cheap.
Q: More certainty equals less profit?
A: Exactly.
Q: A good lesson in investing is learning the laws of supply and demand. Can you explain that to us?
A: It is very simple. I came to the conclusion at the end of the ‘90s that the commodities had been in a bear market for about 20 years because there had been excess supply in the ‘70s, people found oil and a lot of things happened, huge inventories of food buildup. But then by the end of the ‘90s, I came to the conclusion that nobody built a drilling rig for 20 years and nobody had been discovering oil, farming had been a terrible business, farmers were going bankrupt all over the world. So, I realised that is going to mean there is less supply.
I had driven around the world a couple of times as you know, and I could see that demand was booming. I mean Asia was exploding. The difference in Asia in 1998 and in 1978 was very dramatic. So, I could see that demand was going up for 20 years, and supply going down and that had to mean that the bear market in commodities was going to come to an end. So, I started buying commodities for the first time in the last 15-20 years at that time.
Q: That works every time, the law of supply and demand. No dictator, no monetary authority has ever been able to change that?
A: They all try. Not just dictators, democracies try. I mean the Indian government, the American government. They all try to abolish the laws of supply and demand, think that they are smarter than anybody else. Periodically, governments put price controls on to food. Recently, the Filipinos put price controls on rice. Now if you were a farmer, you are not going to go into the field over 12 hours a day in the hot sun to raise rice if the government says you can only sell it for 2 pesos. You are just not going to do it.
Q: So the black market price is a good indicator of government policies?
A: Yes. You will need to find that there is a black market price with a very high premium or you’ll find that there is no supply at any price depending on how draconian the government is. If they execute you for selling something on the black market, there is usually nothing at any price. The government’s can sit there and yell all day long. Evil capitalists or evil speculators. Listen, you set the price too low, nobody is going to produce and you will have nothing.
Q: Whenever you hear the word new era or this time it is different, what are the lessons that you learn and are you seeing anywhere that people are talking?
A: Anybody who has read anything to do with financial history knows that every time there is a new era or that it is different this time, or that there is a new economy, those are signals. You hear a bell ring; you know that something is wrong. Some of the most dangerous words are, it is different this time, because it is not different this time. The laws of supply and demand, the laws of greed and fear, the laws of economics just don’t change.
Q: But markets can remain irrational for long periods of time?
A: Oh yes. It was Keynes who said that, “The market can stay irrational longer than you can stay solvent”. I would sell something short, only to see it go higher and higher. I’ve learned the difficult way. Some of the things right now, right now everybody seems to be convinced that government bonds are going to go through the roof and that government bonds are a safe investment. Everybody seems to be convinced that there is deflation in the world. Long-term government bonds are yielding nothing.
Q: The perceived safety?
A: They perceive safety and they perceive – you don’t have to worry about inflation, deflation is here. So, you can buy long-term government bonds. In my view that is one of the next great bubbles, which is developing. I am not short bonds at the moment. I have them but I cover. That is a huge bubble. Apparently if you look at the market, most people don’t think inflation is coming – if government bond yields are any indication – nobody thinks that inflation would ever come back. So, I am afraid, I think that that is probably the next bubble developing.
Q: Let’s talk about something that you have been bullish on, the dustbin of history: Airline stocks?
A: Yes, I have been, they are not doing much good right now. I think I see that the supply demand – I mean nobody has been building airplanes. All the airlines have lost huge amounts of money over the past nine years now. It is a terrible place to be. Many of them went bankrupt. Normally, when I see a lot of companies in an industry going bankrupt, it is a good sign that we are near a bottom, which is what initially attracted me to the airlines this time around. So, I have been buying international airline stocks. Most of them are down from where I bought them, fortunately not down a whole lot.
I am still convinced because I don’t see anybody building a lot of planes. I don’t think we are all going to take boats to London again, or New York. I think we are probably going to continue to fly.
Q: It is almost an irreplaceable business?
A: It seems to me. We also know that throughout history many people who have managed airlines haven’t done a horrible job of managing airlines, which again means that if you don’t have enough seats eventually we’re probably all going to fly on planes and eventually they are going to make money. So, I am convinced this is one of the places that will come out of this, if we have to come out of this in a good way.
Q: Economics and markets are two different things. Can you explain that?
A: Yes. Let’s look at China. The Chinese economy has boomed for quite some time. But between 2001 and 2005, the Chinese stock market went down every year for four years in a row, even though the economy was going through the roof. So, just because an economy is strong doesn’t mean you can have a good stock market, and just because an economy is weak – they don’t necessarily go together. In the long-term of course there is some correlation. But don’t think that good news means good stock market.
Q: Philosophy and history are important subjects to learn? Why is it important in investing?
A: In my view, yes. Philosophy teaches you how to think. It teaches you to be sceptical. It teaches you to think. Like if you hear something from somebody it makes you stop and think. Now, could that possibly be true? Merrill Lynch says it, Morgan Stanley says it then it must be true. I don’t know if it was the philosophy that I studied or what but I have learnt that when you hear all that kind of stuff, when everybody is thinking the same way, somebody is probably not thinking and so you better do your scepticism. History teaches you that the world is always changing. Pick any decade, 15 or 20 years later the world is dramatically different.
Q: There are lessons that you interrelate to the market with this, in terms of Asian or the American century?
A: Again, whatever you see now is not going to be true if somebody comes to you and says that this company is a great growth stock and in 15 years they are going to own the world. Rarely has that been the case. Remember the projections that were made about dotcom companies, only 10 years ago. Well if those projections had been true, the whole world would be one big dotcom. Dotcom has come a long way but it not one big dotcom world.
Q: The best advice that you said in the book that you could give anyone was learn Mandarin. Why?
A: If I am right in the 21st century then China is going to be the great country of the 21st century. The 19th century was the century of the UK. The 20th century was the century of the US. The 21st century is going to be the century of China. In my view, China is the one that is going to dominate this century and Mandarin is going to be the most important language.
Q: What would be the best piece of investment advice that you ever got?
A: Buy low and sell high. No, the real one is do your homework. Do not listen to what other people tell you.
Q: Attention to detail?
A: Be very attentive to detail. Cover all the bases; most people don’t cover the bases. If you read an annual report for a company on Wall Street, you would have done more than 98% of the people on Wall Street. If you just do simple things like reading the annual report, you’re way ahead of everybody else, but that does not mean you are going to be successful. I promise you. But if you’ve learnt to cover all the bases, if you cover attention to detail, and you are sceptical, chances are that you’ll be a successful investor.
Q: You also said stock traders should learn how to drive tractors? That is where the money is, the next decade?
A: What I said was, the last 30 years has been an era in the developed world where finance has been the centre. The ‘80s, ‘90s and this decade, people in Wall Street, the City of London, once you had all the money and the influence. We’ve had many periods like that in history but we have also had many periods in history when it is the people who produce real things, whether it is miners or farmers or whatever, where they have been the centre. In my view, we are in a historic shift now away from the financial centres to the people who produce real goods.
Farming has been one of the worst professions, the worst jobs for the past 30 years. I am telling you that in my view, farming is going to be one of the great professions in the next 30 years. All these people who were stockbrokers should turn in their degrees and go down and learn how to drive a tractor. They will be a lot better off. Atleast they will be working for rich farmers if nothing else and if they are smart they will become the rich farmer themselves.
Reading Between Lines
These are taken from old interviews of Jim Rogers and Marc Faber. Its not editd very well. If read well it will enligten factors to consider when betting on the economy or narrowing down to stocks.
On the commodity bull run
If you go back in history, there you will see that the shortest bull market in commodities, that I found lasted 15 years, the longest bull market lasted 23 years. So, this bull market will last until sometime between 2014-2022. Thus commodities have got a long way to go, as far as I am concerned, because the supply and demand is seriously out of balance.
Opening up its commodity markets to foreigners would benefit the economy of a country like India because if you have a lot of commodities, which are unique to India, where people could make a lot of money and I am sure some people in India will make a fortune in the new commodities market, as they develop in India.
On crude price and where it's headed
If you go back in history, there you will see that the shortest bull market in commodities, that I found lasted 15 years, the longest bull market lasted 23 years. So, this bull market will last until sometime between 2014-2022. Thus commodities have got a long way to go, as far as I am concerned, because the supply and demand is seriously out of balance.
Opening up its commodity markets to foreigners would benefit the economy of a country like India because if you have a lot of commodities, which are unique to India, where people could make a lot of money and I am sure some people in India will make a fortune in the new commodities market, as they develop in India.
On crude price and where it's headed
There will be setbacks along the way, I mean, if Taiwan and China go to war, the prices of everything will drop for a while. If any major financial institution goes bankrupt, everything will go down. But nobody has found any oil for many years unless somebody finds a huge oilfield in Tokyo or in Mumbai or in Berlin, the price of oil is going to stay high and go much higher.
There has been no major oil discovery anywhere in the world for over 35 years. Oilfields are in decline and are depleting. There has been only one lead mine opened in the world, in over 25 years. The last lead smelter built in the US was in 1969, you weren’t even born then! So there has been no productive capacity added in most commodities for many years. So supply is going down, demand is growing. You know that's what’s happening in India, in China, all over Asia and all over the world.
The great oilfields of the world, Alaska for instance, is in decline. The Mexican oilfields are in decline. The UK, remember the North sea, it’s been a huge oil province, but the UK, which has been exporting oil for 25 years, would be importing oil within the decade. The platforms in the North Sea are closing down. Somebody has got to find a lot of oil very quickly or the prices are going to go a lot higher.
Marc Faber - "International liquidity has been tightening and global growth is slowing down. So maybe, we are not going to see prices of oil going up right away. I think the price of copper will rather come down than go up in the next six months or so. Having said that, I still maintain that in the long run, oil is a very desirable commodity to own because the demand in Asia is rising rapidly, at a time that the supplies can’t be increased meaningfully."
A premium can be built into the price of oil in the two scenarios (a) Say if the Chinese accumulate inventories or (b) If either the US or Israel will go and bomb Iran, then obviously oil would spark up and therefore I would be very reluctant to short oil.
On gold's glittering prospects
Marc Faber - We had that period of dollar strength and now in the last 2-3 days, the euro has strengthened again a little bit against the dollar. I suppose that if there is further dollar strengths, then gold prices could also ease somewhat. However, if I compare price of gold to say oil, then gold is very inexpensive. We can measure how many barrels it takes you to buy one ounce of gold - that ratio now is at a very low level. So in principle, I would almost be more tempted to buy gold than oil at the present time.
But price of gold would not rise in the following case, "Mr Greenspan has recently been tightening money supply growth in the US. He is increasing it at the slowest rate in 10 years. The international liquidity as expressed by foreign official dollar reserves, has been kind of, contracting. Therefore, this is not particularly good for gold right now. We have to ask yourself at what stage Mr Greenspan will ease again. He'll do it when he feels that the economy is weakening and since I believe that the economy is weakening, I see renewed easing sometime in the next couple of months and at that time, the dollar could tumble in my view, not so much against the euro as against gold and the other Asian currencies."
Roger's take on steel and iron ore
Steel is a manufacturing product. If it has excess manufacturing capacity, you can have a problem in the steel industry. The commodity is iron ore. I am more bullish on iron ore than I am on steel. Many steel mills have been put up in the last few years in China and in India, so I am not as optimistic about steel as I am about the underlying commodity, which is iron ore. Iron ore is in more of a short supply than steel.
There is over-capacity in the steel sector. The Chinese are still bringing in new steel mills onstream, and when you have new capacity continuing to come onstream, that is going to cause problems. Fortunately for the steel people, demand continues to grow, so the correction could go on for a while. I think I'm going to make more money in other investments than in steel.
On the global picture
Historically when commodities have been doing well, financial market have not, stock markets and bond markets have not doing well either. But if you own the oil, if you are in Canada or in Texas or in a place that owns the oil, you do extremely well. Other people may not do so well. In the 1970s, economies around the world were suffering. The price of oil went up ten times. It hurt some countries but still, we had a wonderful bull market in commodities and that’s what’s happening again. Thus commodities make new highs, the financial markets may not do the same.
On the whole, Rogers feels that stocks and commodities are both unlikely to see a buoyant market at the same time. He explained, "If you find the right stocks or the right companies, sure you make a fortune in the next 15 years but for the most part, that’s not going to happen. It’s happened many times, it happened in the 30s, it happened in the turn of the last century, it happened in the 70s, stocks just don’t do well when commodities do well.
Friday, August 21, 2009
Samir Arora ‘s Investing Strategies
1. The main parameter to look at is the P/E. Investors may also look at the Profit/Profit Before Tax to neutralize the effect of taxes.
2. Investors should also focus on Return on Equity(RoE) but analyzing a company on the basis of DCF is an utter waste of time. Arora contends that DCF cannot be looked at for more then one or two sectors. This is because you really have no idea about what will happen to a company beyond three years.
3. Buy good businesses. In a bad business, the value that a good management can add is very low. An ordinary management in a good business often keeps its momentum. But fraudulent managements should always be avoided
4. For a normal steady business you can never rely on the EV/EBITDA.
5. A tax-saving company is perhaps the worst company in India because it lets taxes determine its strategy
6. There are several instances where Samir Arora used his veto to get directors changed in private companies just to help them get a higher P/E.
7. In many cases, money has not been made by buying the best managements but the managements that want to become the best.
8. High P/E do not come because of high earnings or because that company is in a good industry. 9. It is earned over a period of time
10. If one learns how to invest in India, he can invest almost any where in the world. Investing in India teaches the analyst how to identify managements that are cheating their share holders. One also understand why two stocks in the same sector don't get the same rating.
11. Arora started buying HDFC Bank after it got listed in 1995. At that time the stock traded at Rs30. It remained a dog till 1998. Suddenly it flared and went up to Rs250.It stayed there for a while and then started its course to Rs 700. Arora liked such stocks and kept buying them because as long as the company’s earnings kept growing at 30% and the stock remained stagnant it would become cheap and ripe for another rise.
12. He also bought 5% of Satyam in 1995. The stock did not move much for two years. But once software was in demand Satyam did not stop.
13. The most difficult thing is selling a stock when its valuations become too high. Arora advises investors to sell on company disappointments rather than on valuations.
14. Churning high PE stocks for low PE stocks within the same sector is never a good decision. Post the tech bubble while Infosys and Wipro fell 60%, virtually every small stock fell 90-95%. Technology stocks like Infosys and Wipro had the highest P/E in January 2000 and had fallen the least by November 2001.
2. Investors should also focus on Return on Equity(RoE) but analyzing a company on the basis of DCF is an utter waste of time. Arora contends that DCF cannot be looked at for more then one or two sectors. This is because you really have no idea about what will happen to a company beyond three years.
3. Buy good businesses. In a bad business, the value that a good management can add is very low. An ordinary management in a good business often keeps its momentum. But fraudulent managements should always be avoided
4. For a normal steady business you can never rely on the EV/EBITDA.
5. A tax-saving company is perhaps the worst company in India because it lets taxes determine its strategy
6. There are several instances where Samir Arora used his veto to get directors changed in private companies just to help them get a higher P/E.
7. In many cases, money has not been made by buying the best managements but the managements that want to become the best.
8. High P/E do not come because of high earnings or because that company is in a good industry. 9. It is earned over a period of time
10. If one learns how to invest in India, he can invest almost any where in the world. Investing in India teaches the analyst how to identify managements that are cheating their share holders. One also understand why two stocks in the same sector don't get the same rating.
11. Arora started buying HDFC Bank after it got listed in 1995. At that time the stock traded at Rs30. It remained a dog till 1998. Suddenly it flared and went up to Rs250.It stayed there for a while and then started its course to Rs 700. Arora liked such stocks and kept buying them because as long as the company’s earnings kept growing at 30% and the stock remained stagnant it would become cheap and ripe for another rise.
12. He also bought 5% of Satyam in 1995. The stock did not move much for two years. But once software was in demand Satyam did not stop.
13. The most difficult thing is selling a stock when its valuations become too high. Arora advises investors to sell on company disappointments rather than on valuations.
14. Churning high PE stocks for low PE stocks within the same sector is never a good decision. Post the tech bubble while Infosys and Wipro fell 60%, virtually every small stock fell 90-95%. Technology stocks like Infosys and Wipro had the highest P/E in January 2000 and had fallen the least by November 2001.
- Thanks To Neelu Kedia For Sharing This Article.
Thursday, March 5, 2009
Top 10 Finance Quotations
The one tool that most fund managers and investment advisors use, to make a point, is quote a person of authority. Most Indians view such maxims as words of wisdom and not mere clichés. Indeed, most are witty, wise and cerebral. Classics really. Just thought I would compile my personal favourites (have excluded some classics that have become chestnuts now).
10. The Taxpayer - that's someone who works for the federal government, but doesn't have to take a civil service examination.
-Ronald Reagan
9. Markets can remain irrational longer than you can remain solvent.
-John Meynard Keynes
8. Men do not desire to be rich, only to be richer than other men.
-John Stuart Mill
7. Under Capitalism, man exploits man. Under Communism, it's just the opposite.
-JK Galbraith
6. There's no reason to be the richest man in the cemetery. You can't do any business from there.
-‘Colonel' Sanders
5. To turn $ 100 to $ 110 is work. To turn $ 100 million to $ 110 million is inevitable.
-Edgar Bronfman
4. Never borrow money from an optimist. He is capable of thinking that you might give it back to him.
-Jules Berry
3. If you owe the bank $ 100 that's your problem. If you owe the bank $ 100 million, that's the bank's problem.
-J.P.Getty
2. October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, March, June, December, August and February.
-Mark Twain
1. In God we trust. All others pay cash.
10. The Taxpayer - that's someone who works for the federal government, but doesn't have to take a civil service examination.
-Ronald Reagan
9. Markets can remain irrational longer than you can remain solvent.
-John Meynard Keynes
8. Men do not desire to be rich, only to be richer than other men.
-John Stuart Mill
7. Under Capitalism, man exploits man. Under Communism, it's just the opposite.
-JK Galbraith
6. There's no reason to be the richest man in the cemetery. You can't do any business from there.
-‘Colonel' Sanders
5. To turn $ 100 to $ 110 is work. To turn $ 100 million to $ 110 million is inevitable.
-Edgar Bronfman
4. Never borrow money from an optimist. He is capable of thinking that you might give it back to him.
-Jules Berry
3. If you owe the bank $ 100 that's your problem. If you owe the bank $ 100 million, that's the bank's problem.
-J.P.Getty
2. October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, March, June, December, August and February.
-Mark Twain
1. In God we trust. All others pay cash.
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