That’s my point … Todays investing has to factor in future expectations from the business
German Bank zero return is for 30 years … America banks - 5years and Indian bank decline has still not started …
Financial sector weights are too high for comfort …
China is already indicating what might happen - Pl look at MSCI China weights … Fintech has started eating into financial services … Will write more about it some other time …
That’s primarily because of deutche bank hitting all time lows. It had problems of its own.
In India, wockhardt CFO traded a lot in derivatives and lost big money there. Wockhardt went bankrupt and had to sell its hospitals to fortis.
So derivatives here killed a pharma co in India and german bank in Germany.
Similarly, they can also kill an IT co.
In 2008 meltdown, many companies who had big positions in derivatives suffered irreversible loss. From deutche bank to wockhardt pharma.
In India as well, if we include PSU banks, the market trades at consolidated trailing PE of 24 as on today.
If we exclude PSUs banks (both their mcap and their losses), consolidated trailing PE becomes 20.
Basically if PSU banks just stop showing losses, market PE will reduce drastically.
I did this excercise yesterday by adding up mcap of all cos. above 1000cr. and dividing by their combined profits. There are arnd 750 such companies (above 1000cr mcap).
Another fact is that bottom 650 of these 750 cos. are trading at 2x book value. Top 100 are trading at 3x. All 750 combined trade at 2.7x.
\We need to understand why Deutche bank and many other US/EU financial services which closed down in 2008 did what they did … It was becos of business model risk.
Financial services company can front load profits unlike FMCG / Pharma companies . Plus with huge leverage they can amplify the effect … Today GE is facing problem because of products sold by financial service division in 1990s and 2000s … Derivatives , Leveraged Loans , Insurance ( which is also a derivative rather a option which customer buys from insurance companies to hegde his/her risk )
Derivatives are not primary business of Pharma or IT companies -
Promoter buying derivative or lottery / or gambling is something of management risk and not business model risk …
All said I am not saying you don’t invest in Financial services …
My point is one needs to extra careful as profit margin are getting squeezed becos of tech disruption and increase in competition … That makes case for more business failures in future even of gold standard finance companies as they pursue aggressive path in search of profits …
Totally agree. But, in my view, early adopters of technology in the existing BFSI space will survive in a country like India. ex: Bajaj FInance.
Yes, there will be disruptors like Zerodha in stock broking, but there is enough space for traditional players in Lending, Insurance etc.
Paytm: For example, I was a heavy user till recently. Now, I dont see real value in their cash back whatsoever. Cashback is not a sustainable business model in my view.
Disruption will occur in this order (Based on the risk taking ability of these businesses): Capital Markets, Asset Management, Corporate banking, Retail banking, General Insurance, Life Insurance.
Life Insurance for example is heavily regulated. We see players like Acko in General insurance space but there is a long way to go for big disruption in India. In the long run, Insurance industry will grow at the rate of GDP growth, and many potential disruptors are actually funded by Insurance companies themselves 
Ex: There is B3I (Blockchain for insurance Industry Inititative) in Europe which is funded by a consortium of Insurance companies. Similarly in India a secure data sharing block chain was implemented by a consortium of Insurance cos. So, it is difficult for an outsider to come and disrupt traditional players. Profit margins may come down but slowly.
In case you are planning to invest in commodities - you need to understand cycles … what drives it … Is it driven by supply or demand - each has different impact on Cycle time period –
Then you need to understand if it direct or derivative demand … and hence what will move prices … Read this interesting article … It will clear lot of doubts …
This are hard facts from US … Large caps are beating Mid caps and small caps … why Margins expansion and ability to generate FCF & consistent buybacks
What is last column header “Vol.” and data in that column
I had started a thread along similar lines. Small cap investing is a looser’s game for retail investors.
The last column is Vol = Volatility . I went through your thread it is interesting . The way I look at it is small caps/ mid cap are asset class like Large cap .Some times small cap is so ignored that they give excellent returns . Also since universe is large - opportunities are also more … Like in 2012/2013
so having exposure of 10% - 20% ( say 5/10 stocks with 2% exposure ) to this asset class can be very beneficial . These stocks needs more monitoring and churning than large caps …
Nifty is near record high. Many of the stocks are making 52 week lows. How much more will these fall when the Index hit record lows? Are we in bull or bear market? Remember reading some chartist predicting market touching 8500 during Feb 2020 and bottoming out in some thread. Seems very much plausible.
Investing is difficult . One needs to take call what stocks / sector are in bear phase and what are in bull phase . This market is like 1999 /2000s when tech sector was in bull phase and rest of sectors in bear phase .
Such times gives great opportunities as you can generate cash by selling overvalued sector and at same time enter undervalued sectors …
Great cut out. Who’s interview is this. I remember reading similar thing in late Paragraph Parikhs book.
Druckenmiller interview in Barron’s in 1988
“Money Manager Stan Druckenmiller is still bearish”
When you are planning to be Bull in bear market - Keep watching for MEGA SHIFTS
How Inflation / Deflation @ global level shifting is very important …
The above shift tells us why pure value Ben Graham investing was great till 1980s and why Buffett new style worked after 1990s . Probably Warren Buffet was one of few who saw the mega shift from Inflationary to deflationary ( low inflation ) …
India shift can be different - India was in high inflationary era in 1990s also and to some extend in 2000s because of oil price and fiscal imprudence . Now in last 5 years … we too have moved to low inflation era . If China slow down materialises then this disinflationary era can be longer … Unless we see mega size war - ( Real or Trade ) - this deflationary era will not shift to inflationary era …
Some points for me and my friends who are keen to be bull in bear market …
Feb to May 2019 will be interesting , testing times … It is probably the time to be most active and build long term portfolio . I am reducing my cash levels hope to be 90% in equity by Apr/ May 2019 .
This period might severe bout of volatility and sharp correction in lot of stocks for no reason whatsoever - We should try to use this phase to spot & leverage opportunity presented to us by irrationality …
Only Caution is not to leverage as survival through these times is more important than thinking huge returns .
Do you mind sharing your watchlist business where you want to deploy ? and what is the thought process as how you deploy your cash…like say if your watchlist scrips correct 10 or 20%?
I don’t talk about my stocks and watchlist in public forums directly . You can see my post in various threads to see in what sectors I have interest in … Plus to some extent my investment approach is outlined in Portfolio Analysis - Shailesh
