Great articles to read on the web

This success comes when there is passion and vision to move towards your goals.

While many around us would complain about inflation, shortfall of retirement fund, no pension in private sector, and many other such things at one hand but would spend money on depreciating assets like cars, luxurious and splurge; there are few who work towards building stock portfolio, study business in depth and discover hidden gems and invest in them.

We are quite lucky to have such value investors like Donald around us from whom we can learn a lot.

So well put.

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Hi

An article by Professor Bakshi

http://www.ecoti.in/NuDklZ

Regards

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The situation of Graphite producers in China

Cities are wooing Amazon for their 2nd HQ

China is looking to upset the current petrodollar system by introducing a gold-backed “petroyuan” oil futures contract. And since China is the largest importer of oil globally, this shift away from the petrodollar could be bad news for the US but it could be great news for gold owners

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To listen and understand; to question and disagree; to treat no proposition as sacred and no objection as impious; to be willing to entertain unpopular ideas and cultivate the habits of an open mind.

Is this the beginning of the end for booze companies?

https://www.forbes.com/sites/julesschroeder/2017/09/26/generation-sober-10-reasons-why-millennials-are-opting-out-of-booze-to-socialize/#21dc71bb6cf1

Master Speak 2017 (Bill Nygren - the chief investment officer @ Harris Associates, oversees about $27 billion)

Valuation: More and more of the opportunities in the market are going to involve more complex type of valuation work. Value is no longer just low P/E. There has to be something else tied to it that will be harder for a computer to figure out. An investor who tries to cut short the valuation approach by just focusing on P/E is sure to miss significant pieces of value.

Pricing power: It is hard to come up with companies that have pricing power today because so much of the opportunity, and venture capital money, is in finding a way to get a product directly from the producer to the consumer.The pricing power is probably with those companies that are earning almost no money because they are massively growing scale to become the dominant player and only then worry about monetising. Today, pricing power is in a different place than it was 20 years ago.

Companies that maximise per share value, no matter if that means they don’t grow or even if they shrink, will be great bets.

EPS growth: If we’re only in a 2% inflation environment and we only have 2% growth, it means that companies are retaining too much of their income to support a 4% nominal growth rate. They will then be able to use cash to purchase other companies or purchase their own stocks. So we see earnings per share (EPS) growth significantly exceeding net income growth. When you adjust to that, our expectations for EPS growth and dividends are not that much different from what it has been for the past decade.

The last thing we want is it [the management] trying to reinvest in an industry that isn’t going to grow.

Alphabet: When a company like Alphabet invests for growth, it is done through their income statement, which depresses its current earnings. When someone new looks at Alphabet and they see it trading at 35x earnings, they would say that it’s almost twice the market multiple and does not obviously look like value. If you look deeper, you may find they are losing $5 a share per year on some bets they are making. But when you consider what the Google search engine is worth, it’s not generating just the amount of reported earnings; it’s generating $5 a share more. These are VC-like investments made in the company that, if made through a VC firm, would be showing up on the balance sheet as an investment and not going through their income statement.

Mistakes: Not getting over the hump to make the investment in companies that went up by multiples of the price.

Evolution as a value investor: The definition of value always has had to be somewhat fluid to be more advanced than what other people are doing e.g. this company does not look cheap on a P/E basis but if you think about the following adjustments, it would be cheap.

Source: https://www.outlookbusiness.com/amp/specials/masterspeak_2017/companies-that-maximise-per-share-value-even-if-they-dont-grow-will-be-great-bets-3783

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Disclaimer: This document is a research study with pure academic orientation

There is this research paper which is getting popular with the investing fraternity lately.
Titled "Do Stocks Outperform Treasury Bills?"
Authored by
Hendrik Bessembinder
Department of Finance
W.P. Carey School of Business
Arizona State University
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447

Key extracts:

Hendrik argues that; “Slightly more than four out of every seven common stocks that
have appeared in the CRSP database since 1926 have lifetime buy-and-hold returns, inclusive of
reinvested dividends, less than those on one-month Treasuries. When stated in terms of lifetime
dollar wealth creation, the entire gain in the U.S. stock market since 1926 is attributable to the
best-performing four percent of listed companies. The results of his simulations help explain why active
strategies, which tend to be poorly diversified, most often underperform market averages”

Further he says:

  1. Individual common stocks tend to have rather short lives. The median time that a stock is
    listed on the CRSP database between 1926 and 2016 is seven and a half years
  • By running bootstrap simulations he says, "I find that the single stock strategy underperformed the
    value-weighted market in ninety six percent of the simulations, and underperformed the equalweighed market in ninety nine percent of the simulations. The single-stock strategy outperformed the one-month Treasury bill over the 1926 to 2016 period in only twenty seven percent of the simulations. Hence, The fact that the overall stock market generates long term returns sufficiently large to be referred to as a puzzle, while the majority of individual stocks fail to even match Treasury bills, can be attributed to the fact that the cross-sectional distribution of stock returns is positively. Simply put, very large positive returns to a few stocks offset the modest or negative returns to more typical stocks.

  • He has assumed that 25,300 companies that issued stocks appearing in the CRSP common stock database since 1926 are collectively responsible for lifetime shareholder wealth creation of nearly $35 trillion dollars, measured as of December 2016. However, the ninety top-performing companies, slightly more than one third of one percent of the total, collectively account for over half of the wealth creation. The 1,092 top-performing companies, slightly more than four percent of the total, account for all of the wealth creation. That is, the other ninety six percent of companies whose common stock has appeared on CRSP collectively generated lifetime returns that match the one-month Treasury bill.

  • For those who are inclined to focus on the mean and variance of portfolio returns, the
    results presented here reinforce the importance of portfolio diversification. Not only does
    diversification reduce the variance of portfolio returns, but non-diversified stock portfolios are
    subject to the risk that they will fail to include the relatively few stocks that, ex post, generate
    large cumulative returns.

  • The large majority of the 25,967 individual CRSP common stocks considered in this study exit the database at some point before the sample ends at December 31, 2016. CRSP provides a delisting code for each common stock. Based on these delisting codes, Hendrik assigned each common stock to one of three categories, 1) Still Trading, 2) Merged, Exchanged, or Liquidated and 3) Delisted by Exchange. Not surprisingly, the 4,138 stocks in the “Still Trading” group most often generated favorable outcomes. The mean lifetime return for these stocks is 106,000%, and a majority of these stocks deliver lifetime buy-and-hold returns that exceed zero (64.1%) and that exceed the buy-and-hold return on one-month Treasury Bills (60.1%) over the same periods. 12,560 stocks that delisted due to Merger, Exchange, or Liquidation. In some dimensions these stocks outperformed stocks in the “Still Trading” group, reflecting that a departure from the database as a result of being acquired is typically a value-enhancing event. Specifically, 73.8% of stocks in the Merger, Exchange, or Liquidation group delivered positive lifetime buy-and-hold returns, and 63.0% outperformed one-month Treasury bills over their lifetimes. A total of 9,187 stocks were delisted by their trading exchange. The median lifetime buy-and-hold return for these stocks was -91.95%. Only 9.8% of these stocks generated a positive lifetime buy-and-hold return, and only 6.8% outperformed one-month Treasury Bills.

  • He classified his findings on several attributes like levered/unlevered firms, size of firm, random selections, Multi-period return models, etc and detailed his findings which can be a good read for those who have academic orientation in stock research.

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Samit Vartak and Kuntal Shah I believe are one of the smartest investors out there from SageOne. I have been always curious to know their bets but they have never been public about any of their investments. I think they have a bet on PI Ind though. Samit in the interview talks about some themes. If anyone can decode them, that will be helpful :slight_smile: .

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How the term “Demographic dividend” is being misused and what it really means

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One of those “list articles” on what the author has learnt from Stan Druckenmiller. Some of the points are really important.

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Google, Twitter and Facebook workers who helped make technology so addictive are disconnecting themselves from the internet.

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A good primer on Indian Steel industry
https://www.alphainvesco.com/blog/steel-industry-in-india/

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Nice article on investment mistakes - http://altaisadvisors.com/blog/2017/10/20/some-mistakes/

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Thanks you all for sharing so many wonderful articles.

I think it would be helpful for people to check out some articles on mergers and demergers at www.mnacritique.mergersindia.com

It has free as well as paid content but older articles are free to read.

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Consumption stocks not the best bet : Kenneth Andrade

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Strongly recommend to go through the following videos. This is a 3-part series ( and I believe a 4th part is on its way ) that Bloomberg did with Raamdeo Agrawal recently on the pillars of investing ( Focus, Compounding, Quality and they are now planning to do one on Price).

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