tag:blogger.com,1999:blog-61372931258470154742024-03-19T08:17:48.784+05:30inquestor.blogspot.inUnknownnoreply@blogger.comBlogger7125tag:blogger.com,1999:blog-6137293125847015474.post-56454628075105577452013-10-19T17:44:00.000+05:302013-10-19T17:44:04.313+05:30Lottery Tickets = Small Caps<div dir="ltr" style="text-align: left;" trbidi="on">
Lottery tickets are easily available, cheap and offer a great potential ROI. And yet, no rational investor would think of them as a great investment.<br />
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Why then, does the hunt for the potential multi-bagger small cap seem to catch our investment fancy? No one seems to be immune from them - see <a href="http://inquestor.blogspot.in/2012/03/investment-idea-cravatex.html" target="_blank">Cravatex</a> for a classic example.<br />
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These lotteries are enticing because they create a false impression of value for money and obscure the obscenely low probabilities. Anecdotal stories of people winning the lottery captures our imagination, and drives the pursuit of the next great small-cap multi bagger.</div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-6137293125847015474.post-49821032086024148702013-10-19T16:54:00.000+05:302013-10-19T17:06:30.104+05:30Investment Idea: Sintex - Will it Tank?<div dir="ltr" style="text-align: left;" trbidi="on">
In September 2013 (a month ago) <a href="http://www.sintex.in/" target="_blank">Sintex </a>was selling at a market value less than 2 times its annual earnings. If we were to assume that their business would remain stagnant and would continue to deliver their current earnings in perpetuity, that would be akin to a FD that returned 50%.<br />
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Here is an 80 year old company, an established brand with a global footprint, and yet it is being valued for bankruptcy.</div>
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Such are the ways of the nutty <a href="http://en.wikipedia.org/wiki/Mr._Market" target="_blank">Mr. Market</a>. For the rational value investor, the question here is not whether to buy, but how much to buy.<br />
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Sometimes, we are so busy looking for the Buffet, that we miss the <a href="http://en.wikipedia.org/wiki/Benjamin_Graham" target="_blank">Graham</a>. </div>
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Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-6137293125847015474.post-33500654359336496002012-03-22T17:26:00.000+05:302012-03-22T17:27:31.882+05:30See's - Sweet Returns<div style="text-align: justify; "><a href="http://www.sees.com/">See's</a><span> is a chain of candy stores owned by Berkshire. </span><span>I run a startup in the food business, and every time I see See's numbers, I</span><span> find it incredible that a non-tech company could have these kind of returns.</span></div><div style="text-align: justify; "><i><blockquote><div><span>See's in 1972,</span></div><div><span>Sales= $30mn/16mn pounds of candy at a PBT of $5 million</span></div><div><span>Capital Employed = $8 million</span></div><div><span><br /></span></div><div><span>In 2007 :</span></div><div><span>Sales= $383mn/31mn pounds of candy at a PBT of $82 mn</span></div><div><span>Capital Employed = $40 mn</span></div><div style="font-style: normal; "></div></blockquote><div style="font-style: normal; "><i>That's a pre-tax return on capital of over 200% in 2007 from selling bleddy candies!<b> </b>How is this happening? Are their auditors on a sugar high?</i></div></i></div><div><div style="text-align: justify; "><br /></div><div style="text-align: justify; "><span>And to top it off, their growth figures look SO BORING. For 35 years, they annually have grown sales volume by 2% and sales value by 8%.</span></div><div style="text-align: justify; "><span><br /></span></div><div style="text-align: justify; ">Turns out, extraordinary business results can be achieved from a combination of subtle pricing power and muted reinvestment in the business. All See's did was increase their price of candy by about 6% every year while having to spend very little on equipment, working capital and the like.</div><div style="text-align: justify; "><br /></div><div style="text-align: justify; ">I just can't wrap my head around the fact that something that sounds so simple is so hard to achieve.</div></div>Unknownnoreply@blogger.com2tag:blogger.com,1999:blog-6137293125847015474.post-40200328560652351652012-03-11T15:38:00.016+05:302012-03-13T10:52:27.466+05:30A little less government, please?<div style="font-style: normal; "><span><i></i></span></div><blockquote style="font-style: normal; "><div style="text-align: justify;"><span><span><i>'My idea of a perfect government is one guy who sits in a small room at a desk, and the only thing he's allowed to decide is who to nuke.' </i></span><span style="font-family: Georgia, serif; text-align: right; ">Ron Swanson, on Parks & Recreation</span></span></div><div></div></blockquote><div style="font-style: normal; text-align: justify; "><span style="font-family: Georgia, serif; text-align: right; ">Okay, maybe I'll allow you a few regulatory bodies to keep everything in check, but I've always liked the general idea of less government.</span></div><div style="font-style: normal; text-align: justify; "><span style="font-family: Georgia, serif; text-align: right; "><br /></span></div><div style="font-style: normal; text-align: justify; "><span style="font-family: Georgia, serif; text-align: right; "></span><span style="font-family: Georgia, serif; text-align: right; ">So, though I don't really have an opinion on their politics, I was happy to hear a quasi-Chief Minister say <a href="http://www.ndtv.com/article/assembly-polls/full-transcript-your-call-with-sukhbir-singh-badal-167218">this</a>, rather than the usual spiel on roti, kapda, makan, bijli, sadak and pani.</span></div><div style="font-style: normal; "><span style="font-family: Georgia, serif; text-align: right; "></span></div><blockquote><div style="text-align: justify; "><span style="font-family: Georgia, serif; text-align: right; "><span><i>'Eliminate the cause of corruption: interaction. Corruption happens when there's an interaction between public man and the government departments and officers. The minute you reduce or eliminate the interaction there will be no corruption.'</i></span></span></div><div></div></blockquote><div style="font-style: normal; text-align: justify; "><span style="font-family: Georgia, serif; text-align: right; ">Twenty one years since the so-called end of the license raj, it still takes a dozen or more licenses to run a business in India. And behind every piece of paper lurks an excuse for extortion by agents of the state.</span></div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-6137293125847015474.post-72172031541831795732012-03-11T09:20:00.011+05:302012-03-11T13:50:30.765+05:30Monkey Business: Tasty Bite<span><div style="text-align: justify;">Every once in a while, a company comes up on my radar that looks and smells delicious. <a href="http://www.tastybite.com/">Tasty Bite</a> was one such. They make ready-to-eat Indian food for the US market, are the largest player in their niche and are the preferred private label supplier to many large supermarket chains. Sounds yummy, right?</div><div><div style="text-align: justify;"><br /></div></div><div style="text-align: justify;">WRONG! If ever a picture was worth a thousand words, heres one...they are down 60% in the past two years!</div><div><img src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhPXSj5mtrFAFlfyIWys4cvhyphenhyphenhyphenhyphenRHqIJ7MypnpnLk1BRkoL3V6Puhkz3pN2UHJ5DBpYTDEtUMEgpOxfuTfFLR3ID3Frgl6g30TY9enWq-VAjzQviBoP22EKRPlw-g9Ko44vVoeJ6uRixUwq/s400/Tasty+Bite+-+Two+Year+Returns.jpg" border="0" alt="" id="BLOGGER_PHOTO_ID_5718483190087773122" style="text-align: left;display: block; margin-top: 0px; margin-right: auto; margin-bottom: 10px; margin-left: auto; cursor: pointer; width: 400px; height: 127px; " /></div><div style="text-align: justify;"><i>Whats the catch? </i><span style="font-size: 100%; ">Well, they seem to have a marketing entity which is held by the company promoters. The publicly listed company makes the product and sells it at a slender margin to the privately-owned marketing entity which presumably pockets a bulk of the profit. This is just a sample from the bag of Great Indian Promoter tricks that convert shareholder profits to private wealth, but more on that in future posts.</span></div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">Luckily, I was able to figure this out before I'd swallowed too much - I burnt my fingers but not the kitchen :)</div></span>Unknownnoreply@blogger.com3tag:blogger.com,1999:blog-6137293125847015474.post-17537746927672169032012-03-11T09:09:00.010+05:302012-03-11T11:45:26.062+05:30A Beautiful Business: Aravind Eye Care<div style="text-align: justify;"><span>Aravind Eye Care has been well profiled <a href="http://www.forbes.com/global/2010/0315/companies-india-madurai-blindness-nam-familys-vision.html">elsewhere</a>. They use low-cost labor, high utilization of equipment and an in-house supply chain to completely CRUSH the cost of a cataract operation - they are profitable and yet 60% of their 300,000 yearly surgeries are free!</span></div><div style="text-align: justify;"><span style="font-size: 100%; "><br /></span></div><div style="text-align: justify;"><span style="font-size: 100%; ">There is this idea of a beautiful business that I'd love to build and/or invest in. A beautiful business creates value for its customers, employees, shareholders and society by providing a product/service of quality. Its quality gives it pricing power, high returns on equity and an ability to grow on internal accruals.</span></div><div style="text-align: justify;"><span><br /></span></div><div style="text-align: justify;"><span>Aravind Eye Care certainly shows that beautiful businesses can exist in India, provided you have the vision for it.</span></div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-6137293125847015474.post-50912301410086593012012-03-11T08:17:00.009+05:302012-03-11T10:55:16.548+05:30Investment Idea: Cravatex<div style="text-align: justify; "><span>In a market where every Johnny-come-lately is being valued at a few hundred crores, Cravatex's investment proposition is compelling. Uptil recently, an investor in Cravatex could buy the entire business of Fila India (and Proline Fitness Equipment) for just around a 100 crore. Profiled <a href="http://multibaggersindia.blogspot.in/2010/11/cravatex-is-and-will-be-multibagger.html">here</a> and <a href="http://www.valuepickr.com/forum/untested-worth-a-look/975521539">here</a>.</span></div><div style="text-align: justify; "><span><br /></span></div><div style="text-align: justify; "><span>Cravatex acquired the rights to distribute Fila only recently, and their distribution / marketing of Fila in India is yet to really kick in. As a comparison, even Relaxo Chappals are valued at 2.5 times Cravatex!</span></div><div style="text-align: justify; "><span><br /></span></div><div style="text-align: justify; "><span><span>The key unknown is the quality of management - there i</span><span>s no reason to discredit them, they have done a good job with building Proline as a private business, but the question of whether they are kosher when it comes to creating shareholder value is still open.</span></span></div><div style="text-align: justify; "><span><br /></span></div><div style="text-align: justify; "><span>The stock is up 50% in the last month - however, time will tell if the shoe fits for the long run.</span></div><div><span><br /></span></div><div><span><a href="http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1331435850367&chddm=8563&chls=IntervalBasedLine&q=BOM:509472&"><img src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhv3NnNntSr6KuSIuXsJGM12IMhcc77ss0U3JmtB2xfxo-4fGGRcxWfjpbgzf3S9RTz-UCv2pAV54hz7axlInrlv7zXO9jAtfDAiG_64PqFQWJpO3VZWDq34v1piI33C8KHN5WhMVe8nH0g/s400/Cravatex+-+1+month+returns.jpg" border="0" alt="" id="BLOGGER_PHOTO_ID_5718470432187598578" style="cursor: pointer; width: 400px; height: 218px; " /></a></span></div>Unknownnoreply@blogger.com1