A Few Investors!
CFA India Society’s YouTube channel is one of the most underrated source to widen your knowledge spectrum. I have tried to pick a few episodes and summarize them. I have also added the ideas from the latest interviews of the delegated person from a few episodes.
Howard Marks
Howard Marks of Oaktree Capital Management –CFA charter holder and one of the most renowned
investors. Oaktree Capital Management is an American global asset management
firm specializing in alternative investment strategies. Oaktree emphasizes an
opportunistic, value-oriented, and risk-controlled approach to investments in
distressed debt, corporate debt (including high yield debt and senior loans),
control investing, convertible securities, real estate and listed equities.
Throwing the light upon 2008 GFC, Howard gives his view
about broader markets, bitcoin, central bank bailouts and a lot more. I have
tried to summarize two episodes –The Truth about Investing and Something of
Value.
Buy at any Price?
On Jeremy Seigel’s – Investing in great companies at any
price will eventually outperform broader markets if held for over 25 years.
Marks suggests that Jeremy’s work is more academic than practical as it is very
difficult to buy such companies in real world. Great companies long back are
irrelevant today.
Averages!
The concept of averages is misleading . It is important to
survive on worst of the days. It’s not enough to survive “on average”; you have
to survive on the worst days. Selling out at the bottom – and thus failing to
participate in the subsequent recovery – is the cardinal sin of investing. The
ability to persevere requires consistent adherence to a well-thought-out
approach; control over emotion; and a portfolio built to withstand declines.
The ability to persevere requires consistent adherence to a
well-thought-out approach; control over emotion; and a portfolio built to
withstand declines. Never forget the six-foot tall man who drowned crossing the
stream that was five feet deep on average.
Caution to be kept at
all times –
When investors tend to chase high returns by turning towards
risky bets, or they try to get high return from an overall low return markets –
Its time to turn cautious. History does not repeat but it definitely
rhymes.
Risk identification
and management -
Risk is an inescapable part of investing. You shouldn’t
expect to make money without bearing risk. Any approach, strategy or investment
that promises substantial gain without risk is simply too good to be true.
But you also shouldn’t expect to make money just for bearing
risk. Many people believe riskier investments produce higher returns, and thus
the way to make more money is to take more risk. That can’t be right.
As risk increases,
• the expected return rises,
• the range of possible outcomes becomes wider, and
• the worst outcome worsens and ultimately becomes negative.
This is the way to think about the risk/return relationship.
Controlling risk is just as important as identifying
opportunities for return. For most people a desirable approach strikes a
balance between offense and defense.
“If we avoid the losers, the winners will take care of
themselves.”
Risk has to be dealt with, but not through quantification.
Theory accepts volatility as the indicator of risk, largely because data on
volatility is quantitative and machinable. But people in the real world don’t
worry about volatility or demand a premium return to bear it; what they care
about is the likelihood of losing money. Because that likelihood can’t be
quantified, risk is best handled by experienced experts applying subjective,
qualitative judgment that is superior.
For Superior Results
-
Investing is not about what you buy is what you pay – not
buying good things – but buying things well. Superior performance doesn’t come
from being right, but from being more right than the consensus. You can be
right about something and perform just average if everyone else is right, too.
Or you can be wrong and outperform if everyone else is more wrong.
To be a successful investor, you have to have a philosophy
and process you believe in and can stick to, even under pressure. To be a
disciplined investor, you have to be able to stand by and watch as other people
make money in things you passed on.
Every investment approach – even if skillfully applied –
will run into environments for which it is ill-suited. That means even the best
of investors will have periods of poor performance. Even if you’re correct in
identifying a divergence of popular opinion from eventual reality, it can take
a long time for price to converge with value, and it can require something that
serves as a catalyst. In order to be able to stick with an approach or decision
until it proves out, investors have to be able to weather periods when the
results are embarrassing. This can be very difficult.
Establishing and maintaining an unconventional investment
profile requires acceptance of uncomfortably idiosyncratic portfolios, which
frequently appear downright imprudent in the eyes of conventional wisdom
The market cycle and
technology stocks – He seems quite bullish on the technology stocks on 10 –
20 year time horizon. Stocks are bound to be cyclical but a few technology
stocks who will outperform and will be big winners. Its better to try and
identify such companies and stay invested in them.
Over the last few decades, investors’ timeframes have
shrunk. They’ve become obsessed with quarterly returns. In fact, technology now
enables them to become distracted by returns on a daily basis, and even
minute-by-minute. Thus one way to gain an advantage is by ignoring the “noise”
created by the manic swings of others and focusing on the things that matter in
the long term. It’s essential to act counter-cyclically.
Bull Market Cycle –
Cyclical ups and downs don’t go on forever. But at the
extremes, most investors act as if they will. This is a big part of the reason
for bubbles and crashes. 16 There are three stages to a bull market:
• the first, when a few forward-looking people begin to
believe things will get better,
• the second, when most investors realize improvement is
actually underway, and
• the third, when everyone concludes that things can only
get better forever.
Efficient Market
Hypothesis - While not all markets are efficient – and none are 100%
efficient – the concept of market
efficiency must not be ignored. In more-developed markets, efficiency
reduces the frequency and magnitude of opportunities to out-think the consensus
and identify mispricings or “inefficiencies.”
In the search for market inefficiencies, it helps to get to
a market early, before it becomes understood, popular and respectable. There’s
nothing like playing in an “easy game” – an inefficient asset class – where the
other investors are few in number, ill-informed or biased negatively. That’s
far easier than trying to be the smartest person in a game that everyone
understands and is eager to play.
On Bitcoin – Non
bitcoin investor argue that bitcoin has neither any intrinsic nor any asset
value. It has no sovereign guarantee as well. While some argue that it has
limited supply and huge demand coming up. To put that into perspective – out of
21 million total bitcoins 18.5 million are outstanding which means supply can
increase further by 15% while a huge scope for demand boost (more from third
world with unstable governments)
Inflation – A
mysterious term as Howard calls – Inflation is tough metric to measure as it is
difficult to factor in home prices (rent vs. selling price), behavior of the
price cannot dictate the value you receive.
Modern Monetary
Theory – A country with has control on its currency and print more,
deficits and high debts don’t matter. Its too good to think as these things
will eventually cease and the structure will collapse. It is better to stay
invested in quality companies.
On emotions - Human
emotions conspires to make us do wrong thing at wrong time. It is not easy to
be cautious in the time of euphoria and aggressive during pessimistic times.
There are 2 choices if you want to be unemotional – either you are born so or
teach yourself to be so. Emotional control
is very important and in order to understand it. All problem solving begins
with understanding of the problem.
It isn’t the inability to see the future that cripples most
efforts at investment. More often it’s emotion. Investors swing like a pendulum
– between greed and fear; euphoria and depression; credulousness and
skepticism; and risk tolerance and risk aversion. Usually they swing in the
wrong direction, warming to things after they rise and shunning them after they
fall.
“All we wanted is the money and nerve to invest our money in
last quarter of 2008.”
A few quotes –
Nevertheless, most investors act as if they can see the
future. Either they think they can, or they think they have to pretend they
can. That’s dangerous if it turns out they can’t, as is usually the case.
Nothing is more common than investors who were “right for
the wrong reason” and vice versa.
The price of a security at a given point in time reflects
the consensus of investors regarding its value. The big gains arise when the
consensus turns out to have underestimated reality. To be able to take
advantage of such divergences, you have to think in a way that departs from the
consensus; you have to think different and better. This goal can be described
as “second-level thinking” or “variant perception.”
We never know were we are going, but we should know where we
are as it has implications on where we are going.
“It’s not supposed to be easy. Anyone who finds it easy is
stupid.”
Webinar Link -
https://youtu.be/rn-upW2vX7Y?list=PLDaxKXbhF_Y8mobI1xoz2Ij7a4XKfjttj
https://youtu.be/AIImHJE7K2Y?list=PLDaxKXbhF_Y8mobI1xoz2Ij7a4XKfjttj
Prof Sanjay Bakshi
– The Opposite of a Good Idea.
A value investing legend who runs his blog - https://fundooprofessor.wordpress.com/
in this episode gives various insights and his thoughts about value investing.
From drawing parallelism between yoga aayams and investing, focus vs.
serendipity – how luck plays an important role in life, right from discovery of
vaccines, making of world’s largest vaccine manufacturer, to Jeff Bezos and Max
Ghunter, Rory Sutherland’s Alchemy, their quotes and concepts and how
serendipity has a huge role to play.
Context matters –
Ferrari vs. Toyota, Monster vs. Coca Cola, Music lab experiment, Amazon case
study – to instate the fact that unlike physics in social sciences the opposite
of good idea can be a good idea.
Sanjay’s gives a bunch of similar examples :
Idea Pair # 1: Kelly vs. Ergodicity (To know about Kelly Criteria - https://blogs.cfainstitute.org/investor/2018/06/14/the-kelly-criterion-you-dont-know-the-half-of-it/
)
Idea Pair # 2: Weak Balance Sheets vs. Strong Balance Sheets
Idea Pair # 3: Momentum vs. Mean Reversion
Idea Pair # 4: High Cost Producers vs. Low Cost Producers.
Idea Pair # 5: Microcaps vs. Large caps
Idea Pair # 6: Commodity businesses vs. Moats
Professor
advises to keep yourself open towards learning new things and avoid ridiculing
– “The concept of equanimity can be best learnt by traders, similarly traders
can learn about churn and transaction costs from investors. The only bad idea
is to believe that only what you are doing works.”
When it comes to moats, it makes sense to think in terms of expected returns and not fuzzy intrinsic value. You need to have multiple models to deal with different situations to avoid the “to-a-man-with-a-hammer-everything-looks-like-a-nail” trap.
But as you move towards enduring moats, you move towards predictability and higher quality. In such situations, the need for protection in the form of high asset value or high average past earnings in relation to the asking price goes away. The safety margin comes from buying the business at a valuation that would, in time, prove to be a bargain, even though today it may appear to be expensive to many investors.
Over the years by studying investors like Charlie Munger and Warren Buffett — you can do that for a handful of businesses. And as Mr. Munger and Mr. Buffett like to say you don’t need very many.
Mean Reversion vs. Cyclicity – Mean
Reversion dominates over very long term. The idea of mean reversion is that the
poorly performing businesses would improve their performance over time. The under driving force called entropy governs
the market which states that eventually everything will get self destructed,
sooner or later. A lot of companies relevant today will definitely become
irrelevant later. Periods of fundamental momentum may play out for quite a long time but far more common thing will be
mean reversion.
The first one is to limit its usage to only those businesses which have predictable business models. The second one is to exercise conservatism while predicting future growth rates and profitability. Third, one can side-step the issue about making predictions far into the future and think in terms of expected returns over a decade or so (no more playing around with terminal growth rates). While doing that, when determining value a decade from now, one must not assume a high P/E multiple. And fourth, when facts change, you must change your mind. No matter how sure you feel about your predictions, when you encounter evidence
“Logic requires that people find universal laws, but outside of scientific fields, there are fewer of these than we might expect. And once human psychology has a role to play, it is perfectly possible for behavior to become entirely contradictory.” – Rory Sutherland
“Imagine how much physics would be if electrons had feelings.”
– Richard Feynman
Watch Webinar - https://youtu.be/Zy1h2OeCJlA?list=PLDaxKXbhF_Y8mobI1xoz2Ij7a4XKfjttj
Mr. Sanjoy
Bhattacharya - "The rewards of good behavior: Where theory meets
practice"
Sanjoy Bhattacharyya is one of the leading value investors
in India. He is considered the guru of stock gurus. Currently Mr. Bhattacharyya
is the Managing Partner at Fortuna Capital.
He begins the session with highlighting behavioral finance
and its divorce with reality. He bursts popular market myths and slowly
presents his ideas on behavioral investing, risk management and dealing with uncertainty.
The brain and
investing –
Sanjoy talks about working of brain and provides us with
some of the prominent mental heuristics of investors. Our brains have remained
relatively stagnant over the last 150,000 years. So mental processes that
served us very well are poorly suited to investing. Emotional centers of the
brain designed for quick reaction to for example, avoid attack are shown by
brain scans to be involved in processing information about financial risks,
which requires precise thinking. The brain, which accounts for just 2%-3% of
total body weight but consumes almost 25% of the body's energy, is constantly
searching for ways to go into energy saver mode. Which means that we tend to
rely heavily on borrowed wisdom and cognitive shortcuts which can be profoundly
damaging when making investment decisions.
It has been shown that activating the reward system of the
brain leads to increased risk taking. The brain becomes more risk seeking in
bull markets and more conservative in bear markets so one is neurologically
predisposed to not "buy low and sell high”.
Risk –
Smart investing is essentially about managing risk. The
investor is required to deal with market risk, business risk and behavioral
risk. The crux of behavioral risk is defined by - > Ego, Conservatism
Attention & Emotion. Each point is explained using case studies and
relevant examples.
Evaluate risk in terms of long-term reward rather than
short-term harm. Behavioral investors load up on assets like stocks that are
perceived as more risky than is accurate. Risk taking is more situationally
than personally determined. Typically, it depends on domain and context and is
dynamic.
Behavioral investors avoid fear-inducing situations and
ensure that portfolio management processes are rules-based rather than
discretionary. Speed tends to be the enemy of good decision-making and nudges
us to rely on biased thinking and the status quo.
Behavioral Investing
–
Risk First Investing - It is the task of the behavioral
investor to "exploit error and avoid terror". Bubbles will occur in
all conditions. Being a behavioral investor means being aware of bubbles,
panics, and crashes without becoming paralyzed by that knowledge. This requires
a system for becoming conservative that is rules-based, infrequent and accounts
for both our short-term tendency to be in thrall of stories and the longer-term
tendency of the market to revert to fundamentals.
Rule-based behavioral approaches seek first and foremost to
tilt probability in favor of the investor, which means that the default
behavior for market participants should be patience, calm and inactivity. It
can follow a systematic process for infrequently taking risk off the table when
the market is poised to do its worst.
Luck vs. Skill –
Markets are part luck and part skill. Successful rules are
the secret sauce of consistent success more than the innate gifts of a given
individual.
Relative vs. Absolute skills - Skill demands practice. Luck
demands obedience to a set of rules. Emphasize rules over practice (eg.
"buy cheap"). Hold portfolios that are diverse enough to protect
against bad luck but differentiated enough to benefit from tilting probability
in one's favor in a rule-based manner. Learning to score investments and
losses based on the quality of decisions rather the nature of the outcome is
the key to managing emotions, appropriately measuring performance and living to
fight another day.
To conclude, Mr. Sanjoy Bhattacharya sums up by concluding:
Smarts are no guarantee of being a rational actor since we
lose roughly 13% of our cognitive capacity under stress.
Design and adopt an investment process that is at least
partially robust to behavioral decision-making errors. Doing less gets you
more. Knowing your limitations and building your wealth are parallel pursuits.
Webinar Link -
https://youtu.be/8DDMu9hMzw0?list=PLDaxKXbhF_Y8mobI1xoz2Ij7a4XKfjttj
Know Your Country - Mr. G. Maran (Unifi Capital):
Not to test knowledge of audience but to help in understanding business trends and the so-called 100 bagger opportunities for investors and entrepreneurs pursuing those businesses. The talk also covered some current trends and how to interpret them to identify future winners. A mindboggling session enough to make you fall in love with India, again. A session filled with facts, figures and fascination. Mr. G. Maran is delightful to listen to from the way he presents to theories –Nash Equilibrium, Second and third order thinking. Read the blog post on this session at: https://cfasocietyindia.org/know-your-country-by-mr-g-maran/
Webinar Link - https://youtu.be/OCElrQmsPS8?list=PLDaxKXbhF_Y8mobI1xoz2Ij7a4XKfjttj
Behavioural Biases and Pitfalls: Stories on How Investors Go Astray and How to Overcome Them.
Mr. Morgan Housel
deliver a session on "Behavioral Biases and Pitfalls: Stories on How
Investors Go Astray and How to Overcome Them". One of the best
sessions, a must watch one as Morgan not only gives hard facts but factors the
subjective situations hiding behind harsh facts. Be it investing in gold or
equity, inflation, and luck, how risk taking capacity varies from generation to
generation. To put the core idea on forefront, Morgan starts with quote
“Investing is not about what you know but how you behave.”
As the title suggests, Housel puts up crucial market lessons
and human behavioral traits using different stories from popular news headlines.
From Austrian government’s nuclear energy worries, to cracking open Warren
Buffets outperformance, development of babies’ brains –formation and
destruction of synaptic connections, Hill’s discovery of calculating speed and
failing (to acknowledge the difference
between reality and laboratory), reassurance of “easy money has been made”
articles by experts year after year, to Wright brothers patience and
perseverance. All complex problems – all simple solutions.
Mr. Housel gives some simple parameters, well known quotes
and facts busting well established myths to knit down one of the most important
episode on investing and market psychology. To sum up - Use simple ways to
filter out, know the business you own, read and hold tight, buy with a margin
of safety.
“The great leader, the genius in leadership, is the man who
can do the average thing when everybody else is going crazy.” Housel himself
keep it simple –a portfolio comprising majorly of index funds. All investing is
personal which carries the proponent of subjectivity.
The session is well summarized in the blog https://cfasocietyindia.org/behavioural-biases-and-pitfalls-stories-on-how-investors-go-astray-and-how-to-overcome-them/
Webinar Link - https://youtu.be/L9pk3ecuucs?list=PLDaxKXbhF_Y8mobI1xoz2Ij7a4XKfjttj
Lessons of History –balanced
by knowledge that things regularly happen that have never happened before. Mr.
Durgesh Shah knits together the idea of trust, culture, focus, scalability,
delegation and halo effect using case studies of Indian companies. Presenting
some hard facts about survival, competent managements and multibagger stocks.
Analyzing companies from commodities to two wheelers, sector
specific to cyclicals, destroying the monopoly of BSE in one year, Mr. Durgesh
brings out the uncertainty the market brings along. He gives the breakup of Sensex
from 1984 to 2018 using 5 Phase chart, factoring in black swans, capturing
major rise and fall, and ultimately rising to new all time highs. Further he
moves to explain the burst of few well known names and stock bubbles,
highlighting the importance of valuations and margin of safety while buying.
Webinar Link – https://youtu.be/VODuF0WIkZ4?list=PLDaxKXbhF_Y8mobI1xoz2Ij7a4XKfjttj
Mr. Utpal Sheth - Megatrends.
Mr. Utpal Sheth, CEO,
Rare Enterprises, gives a few insights upon megatrends and shares his
learnings – how to decode such megatrends, and look at the data in more
empirical way. There are sectors that have consistently outperformed broader
indices over longterm due to structural change – Megatrends. Megatrends are structural shifts that are longer term
in nature and have irreversible consequences for the world around us. He names
a few as IT revolution, Urbanization, Demographic evolution, Consumption boom,
Women in the workforce, Financial deepening, Digital transformation,
Unorganized to Organized sector shift, Culling of “Dwarfs” etc. He takes the
metric of top 3 market cap holders among a sector. The IT megatrend is very
well illustrated with data, facts and stories built around specific
companies(TCS and Infosys).
There are other sectors that have consistently reverted to
mean while oscillating around the mean over long-term due to cyclical changes,
whether Global or Domestic. In most sectors, Top 3 Market Cap as % of Sector
Market Cap is high on a sustained basis, and in fact keeps rising inexorably
over long-term. Hence, on an incremental basis, Top 3 Market Cap as % of Sector
Market Cap is even higher reflecting that Leaders create most value across
sectors over many cycles.
Mr. Sheth also throws light upon leadership qualities – both
quantitative and qualitative and knits the case studies and objective points.
For e.g. Market share → Asian Paints, Least cost player → Shree Cement, Share
of Profit pool → Page Industries, Share of Cashflows → Maruti Suzuki,
Leadership Durability → Nestle, Leadership in new Segments → HDFC Bank and
Qualitative attributes like Culture → Titan,
Innovation → Nestle, Execution → TCS, Expanding TAM → Bajaj Finance,
Redefine competition → HUL. Mr. Sheth believes in concentrated kind of
portfolio with less stocks to reflect the convection about the companies they
hold.
Watch the entire episode - https://youtu.be/G1d-42_hZ0E?list=PLDaxKXbhF_Y8mobI1xoz2Ij7a4XKfjttj
Mr. Ashish Kila
Two episodes titled
“Valuation of high quality companies” and “Ranking of Business Models” by Mr.
Ashish Kila gives some basic insights in investing. Mr. Ashish Kila, a Chartered
Accountant and market professional quite
vocal about his approach. He has worked with leading investment banks like
Goldman Sachs & Morgan Stanley in their equity research division and now is
the Director at Perfect Group. Mr. Kila takes up case studies of companies like
Gillette, Maruti Suzuki, Bajaj Finance etc. to show up the subjectivity in
valuations – Reverse DCF thesis. He interacts with students and newbie
investors in from of Q&A session. Do check it out as it may solve a few of
your queries and help you understand valuations in a more particle way.
In the other episode, Ranking of business models, Mr. Kila
gives a 4 pointer guide which reflects his investment philosophy. He provides case
studies and real life situation to bring out the crux out of his objective
points –Cloning, Checklist, Capital Allocation and Checkout. Mr. Kila puts up
two lists – one covering essentials (management to scalability, longevity to
industry structure) and other Desirables (Valuation, Annuity, Switching cost,
Ability to capture dominant market share etc.). More on it in ( https://cfasocietyindia.org/ranking-business-models-by-ashish-kila/
) .Overall a must watch episode which packs up knowledge more practical less
theoretical.
Links –Valuation of High Quality companies - https://youtu.be/to0kO7GQ2oU?list=PLDaxKXbhF_Y8mobI1xoz2Ij7a4XKfjttj
Ranking of Business models - https://youtu.be/vg5H0tpXW88?list=PLDaxKXbhF_Y8mobI1xoz2Ij7a4XKfjttj
Pat Dorsey - Moats 2.0
- Looking Forward, Not Backward
Pat Dorsey, CFA and Founder of Dorsey Asset Management
~$1.8b AUM. Pat is well known for his international best seller book – “The
Little Book that Builds Wealth”. He prefers Concentrated (10-15 positions)
global equity strategy, focused on businesses with economic moats &
reinvestment runways. At present the company has twelve positions, with >40%
of capital in top four. In this episode, he digs into one of the popular
misinterpreted term MOAT and importance of reinvestments.
He provides a detailed presentation on what creates a moat,
how to identify one and why moats matter. The value of reinvestment paradigm
has been showcased by Pat, using data and case studies, objective facets and
subjective interpretations. In the latter part, he elaborates on a few of his
holdings –management, moats and valuation framework. One of the best episodes
and a must watch one as it packs down practical knowledge along with crude
concepts.
At last he gives a simple formula to sum up.
Concentrated Portfolio = Current strength of competitive
advantage + Vector of the MOAT (is that competitive advantage increasing or
decreasing) + Alignment of management +strategic accumulative management +
length of reinvestment runway.
Webinar Link - https://youtu.be/z1bnZZ8-arU?list=PLDaxKXbhF_Y8mobI1xoz2Ij7a4XKfjttj
Jason Zweig, investing
and personal-finance columnist for The Wall Street Journal, wrote a few of the
bestselling books. There is a lot to learn from investigative journalism. In
this episode Jason lays the prerequisites for forensic analysis – Curiosity,
pattern recognition, persistence, skepticism, fairness, toughness. He gives
case studies and share his life experiences to elaborate the points – cost
incentive biases of fund house manager to talking to competitors, how frauds
can be detected with forensic analysis.
Is regression to mean true? The mean does not regress
according to your calendar, it regresses to its own calendar which is known is
known to no one. Mean is not a constant but in state of flux.
Some examples from Indian market - Satyam Computer Services
Ltd. (led to USD 16 MN of regulatory penalties in the U.S.!), Vakrangee, c 2018
(market cap around USD 6 bn peak) United Spirits (USD 5 bn) issues discovered
after Diageo's 2014 acquisition (Netflix series "Bad Boy Billionaires:
India" covers Vijay Mallya and others), Manpasand Beverages Ltd., c 2018, Cox
and Kings, c 2019 (market cap around USD 700 MN peak).
In the latter part of the video – Jason answers a few
questions, moderated by Mr. Ramesh Damani, getting insights from a renowned
author and journalist is delight to watch. Episode link - https://youtu.be/B76GE2oA_R8?list=PLDaxKXbhF_Y8mobI1xoz2Ij7a4XKfjttj
''Creative Accounting' is an absolute curse to a
civilization. One could argue that double-entry bookkeeping was one of
history's great advances. Using accounting for fraud and folly is a disgrace.
In a democracy, it often takes a scandal to trigger reform. –Charlie Munger
What to look for in annual reports? What should be
qualitative and quantitative factors to look for? Which are the best books one
can refer to learn about forensic accounting? If similar questions come to your
mind, this is the episode you need.
Forensic Accounting
by Nitin Bhasin & Vinit Powle of Ambit Capital Pvt. Ltd. Starts from
the scratch to depict the role accountants, analysts and investors play.
Key triggers for changes in accounting quality include
better FCF generation, improved CCC, and other accounting risks. Taking
inspiration from Financial Shenanigans ( BLOG LINK), they explain the
importance of accountings, quantifiable ratios they use, allocation and
selection matrix, backed by data and methodical study of almost 1400 companies.
Moving from quantitative to qualitative parameters like promoter
acting as chairman and executive director, instances of poor attendance of the
board members in the board meetings, long association of Independent directors
(even 1 director > 10 years), promoter is member or chairman of the audit
committee (AC), relatively less experienced (< 3 listed company
directorship) or long associated (> 10 years) independent directors serving
chairmanship of AC or NRC, more than two auditor rotations (in less than 10
years) etc.
In the latter part,
Mr. Nitin Bhasin takes up case studies comprising of FMCG players, auto
ancillaries, logistic companies, popular banks etc.to analyze them with peers
as well as their quantifiable and qualitative frameworks.
Accounting Quality =
Governance + Business representation+ Cycle + Regulatory action + Pilferage
For any forensic accounting student or aspiring fund
manager, this episode provides a base to think and build upon. Episode link - https://youtu.be/oH4DiDAvrSI?list=PLDaxKXbhF_Y8mobI1xoz2Ij7a4XKfjttj
“Commonsense investing”
Mr. Sundaram likes to classify his value investing style
bias as “Commonsense investing”. His
thesis is simple –investment success can be achieved not only by doing the
right things; but also by avoiding the wrong things. He presents the simple
idea on what not to do in the markets by showcasing the IT boom in 2000 or real
estate hype in 2007, median PE of the companies vis a vis the PR they had in
the time of boom. He then substantiates his claim by presenting the next 5 year
returns of such hyped companies vs. the ones ignored during that period.
He puts forward his investment process, allocation criteria
and exit strategies. ITC and Bosch case studies showcases his ideas and way of
thinking quite comprehensively. Some of the pointers are -During the bull
market, not many people focus on the risk in the portfolio. The "high
returns" blinds most people. He advices to just stay away from highly
expensive valuations. You need not worry about precise valuations rather just
have to stay away from highly overvalued stocks.
"You don't have to know a man's exact weight to know
that he is fat" - Benjamin Graham
There is a lot to learn from Mr. Sundaram’s presentation,
what not to do, how to look at businesses, valuation matrices etc. Episode Link
- https://youtu.be/Uc2o79nQ0cI?list=PLDaxKXbhF_Y8mobI1xoz2Ij7a4XKfjttj
Drivers of Disruption
| Michael Mauboussin https://youtu.be/uwFHoHmb3RE?list=PLDaxKXbhF_Y8mobI1xoz2Ij7a4XKfjttj
Author of three books, including More Than You Know:
Finding Financial Wisdom in Unconventional Places, named in the The 100
Best Business Books of All Time by 800-CEO-Read. Michael Mauboussin’s Expectations
Investing: Reading Stock Prices for Better Returns, The Success Equation: Untangling
Skill and Luck in Business, Sports, and Investing, Think Twice: Harnessing
the Power of Counter intuition are some of the other books.
Prof. starts his talk from the Hebbian Process and builds
upon this to link it with stages of innovation in businesses. A very less
talked about topic – importance of intangible assets, its accounting, its
characteristics (using rivalry vs. excludability spectrum, scalability,
sunkenness, spillovers and synergies). He uses case studies, charts and data to
substantiate every point he makes in the presentation.
Answering some of the highly debated topics like value vs.
growth, active vs. passive investing, efficient market hypothesis, role of
central banks and theory of reflexivity. Moderated by Mr. Raamdeo Agrawal, this
is a good watch to learn about lot of less discussed topics. (https://blogs.cfainstitute.org/investor/2016/12/19/soros-fallibility-reflexivity-and-the-importance-of-adapting/#:~:text=For%20example%2C%20if%20investors%20believe,is%20the%20principle%20of%20reflexivity.%E2%80%9D
)
The Ultimate
Compounding Machine - Your Mind | How to Train it
Yen Liow,
managing partner and cofounder at Aravt Group LLC, calls investing as a full contact blood
sport, where you have to train like a professional athlete to survive and yet
alone thrive. From preparing you to be an investor, pros and cons, results and
repercussions, Yen gives up his recipe in a step by step manner. The
path(compounding ratio and math), the goal (to get the things together and let
time play its role), deliberate practice, training and technique, frameworks
and mental models, skills and structural advantages. Every point backed by some
research or data points, Yen has juiced out his learnings in one hour long
presentation. Some major takeaways -
Showcasing Reilly to show how Elements of a great case study,
its evolution from pre IPO to M&A’s and greenfields, managing large number
of SKU’s and capturing local to regional and national markets.
What makes up a great case study :
1) Clear explanation of the industry structure and company
strategy
2) Sufficient data to assess how the company evolved
3) Detail around key decisions points and feedback loops
after the event
4) Contrast to other companies in the industry (helps to
highlight the differences or counter-factuals)
5) Structure the debrief – the management team or
experienced investors/analysts helps a lot
6) Real life applications
It is one of the episode filled with information, with a
very detailed presentation. Apt to pick up the points and assimilate the
information to fix the potholes in your own matrix. Do check it out - https://youtu.be/AeczYyvgBao?list=PLDaxKXbhF_Y8mobI1xoz2Ij7a4XKfjttj
My First Decade as a
Full Time Value Investor: Key Learnings and Mistakes
https://youtu.be/lI4XPIE02zI?list=PLDaxKXbhF_Y8mobI1xoz2Ij7a4XKfjttj
Jatin Khemani, CFA,
present on "My first decade as a full time value investor: Key learnings
and mistakes", at an event organised by CFA Society India, Delhi chapter. He
narrates the crude points and real life case studies to elaborate each point he
makes.
He capsules his mistakes and gives case studies and real
life examples. A few of his mistakes include – Not factoring in the external
environment. Whether the industry as a whole is suffering head or tail winds. Not
doing technical analysis. Algorithm and passive investing generates
inefficiencies, therefore the role of technical analysis comes in. Value stocks
without a catalyst are value traps. Capital is finite and opportunity cost
cannot be ignored. Time based stop loss and its importance. It is important to
realize that the execution of management does not match the expectations and it
is better to look at other opportunities. In small and micro caps, the entry is
easier in bull markets but exit may come at huge impact cost. On cyclicals,
exit should be planned before entry. Valuation – P/S, P/B much better valuation
matrix. For masses – less volatile returns are much better.
There is no substitution for vicarious learning and
experience. Formal education can help you make that foundation but time in
market will eventually make you know what works for you.
https://youtu.be/z3BFF_NeluQ?list=PLDaxKXbhF_Y8mobI1xoz2Ij7a4XKfjttj
In this episode, Mr. Khemani narrates his story from being
average student to starting his own company, going through the ups and downs. Sailing
through different phases of the market, bull run of 2014-17, small and mid caps
being butchered in 2018-19 and covid crash. For every aspiring fund manager or
investor, the insights and impact which Mr. Khemani has is quite commendable.
His introduction, methodology and way of investing followed by candid Q&A
session.
Mr. Samit Vartak
‘Buy and Forget’ vs
‘Active Investment Management’ – A lecture filled with data and facts
clubbed with a well knit thesis to show the valuation vs. perceived returns
debate, much talked about in the market. It gives us some strong antithesis
pointers about the popular coffee can investing paradigm.
A lecture worth to watch for money managers as it involves
some hard excel calculations. Earnings growth, price to earnings and price to
book expansion, expected returns and discount rate variations using case
studies. The importance and the risks which derating and rerating of companies
brings along is highlighted quite well by Samit.
https://youtu.be/wVC-gUYcS8Y?list=PLDaxKXbhF_Y8mobI1xoz2Ij7a4XKfjttj
The CFA Society India’s YouTube channel is filled with wisdom and wits
shared by top fund managers and finance practitioners which serves as a guiding
light and can help learn about complex topics with ease. Do check it out.
