Notes on value investing

Slow Dance by David L. Weatherford Have you ever watched kids On a merry-go-round? Or listened to the rain Slapping the ground? Ever followed a butterfly’s erratic flight? Or gazed at the sun fading into the night? You better slow down. Don’t dance so fast. Time is short. The music won’t last. Do you run through each day On the fly? When you ask: How are you? Do you hear the reply? When the day is done, Do you lie in your bed With the next hundred chores Running through your head? You better slow down. Don’t dance so fast. Time is short. The music won’t last. Ever told your child, We’ll do it  tomorrow ? And in your haste, Not see his sorrow? Ever lost touch, Let a friendship die Cause you never had time To call and say, “Hi?” You better slow down. Don’t dance so fast. Time is short. The music won’t last. When you run so fast to get somewhere, You miss half the fun of getting there. When you worry and hurry through your day, It’s like an unop...

Why this article? In the random event that some youngster at the beginning of his/her career reads this, I want it to be of some use for him/her. Its also a personal reflection on how I have evolved in my approach to equities in the last one decade. It isn't meant to evaluate my performance or say that my approach is right. But rather to record how each person evolves a unique investing style over time. There are lot of nuances of stock picking - have tried to highlight the key changes in my approach rather than my entire approach. (I tried to jot that down here some months earlier - http://anandhariharan.blogspot.in/2017/10/my-stock-picking-method.html) In the beginning I started out as an equity investor after a casual hallway chat at EY in 2007 thereabouts with a fellow Senior Consultant who at that time used to work in financial services risk advisory. I knew nothing about finance those days though on paper I had a PGDM from what is ranked as one of India's top 10 b-s...

I shared these notes with few close friends today. Just reproducing them here.  1. As a thumb rule, I only look for stocks which are trading at less than 0.5-0.75 times of Revenues and have market cap <1,000 Crores and dig from there on. I learnt this trick while on my last fundraising stint with AH and others. I don't use any standard ratios.    2. I avoid companies which have subsidiaries (unless there is something attractive there). Its a pain to understand companies with too many businesses. I like companies with 'focus' and where I can find a single 'raw material' as primary input.  3. Ideally no mutual fund should hold the stock. No analyst reports, very bad website and almost no news - these are good signs for an investor. 4. Rest of the checks are primarily on corporate governance. I love it when a business is transitioning from Parent to Son/Daughter and they are in ED sort of positions in the company. They should be buying the stock (if...

Even Charlie Munger admits that investing is not easy. But it can be simple if one knows some basics well. I usually have a big pile of books pending a read - a good one in the current pile, which is also my recommended book for 2017, is 'Capital Returns' by David Chancellor. It is a compilation of investor letters by Marathon Capital and I think it is probably one of the 'must read' books for a value investor. I would go to the extent of saying it should be one of the first 10 books you must read as an wannabe investor - it will save you a lot of pain ! The key method put forth by D. Chancellor in this book is called "Capital Cycle Analysis" and he emphasises the value of looking at the 'supply side' in an industry instead of the 'demand side'. A key recommendation of 'capital cycle' investing is to invest into industries from where capital is exiting (i.e., when you see news clips about consolidation/M&A in an industry, sell o...

With the markets at new highs, among IPOs, there are also a handful of buybacks happening. Buybacks pose an interesting challenge for the intelligent investor.  At the basic level, it appears to be attractive for a long term investor. Lesser the number of shares, better the per share metrics should you hold on to them. But 2 interesting points one needs to ponder upon carefully: a. If the buyback price is greater than the 'intrinsic value', the management is committing the Holy Sin of Capital Management which is to buy high & sell low. So think twice when a great IT/FMCG major offers you a buyback at 20% more than current market price - is management paying a high price or a low price for the shares?  A smart management always buys back shares when its share price is languishing and they feel the tide is turning. A bad management buys back shares when its share prices are hitting 52-week highs and the biz environment is not likely to turn for the better.  b....