The ART of Valuation

(Abhishek Basumallick) #188

I have held stocks for 10 years or more. Many of them. The main ingredient for holding is conviction in growth, quality of management and quality of business.
Coming to Canfin, I don’t track the company so can’t comment on the specific details. But for Canfin type of company, I (and this would vary from person to person) would have a much smaller stop, maybe 15-20%. Also I did not see any major bounce back after a 33% fall.
My approach is for protecting profits for companies where my conviction is moderate to be held for many years.

(mp bajaj) #189

Specific to Can fin homes. I am new to starting understanding process of investing. Holding Canfin so may be biased. As far as I understand Hsg Fin companies are leading this bull run especially Canfin. Temporary problems are there in housing due to rapid Modi govt reforms. But these reforms will give further boost to Housing sector as a whole in the next few quarters. So number one reason for holding HFC of your conviction is that " this Earning decline is temporary". Second reason is that this Bull run has not ended, it is just taking a pause. Come 18th Dec and this bull run may accelerate again & which Sector will lead? Of-course Housing! This decline in Can fin is for accumulation or entering the stock if not already holding it.
Disclosure- Allocated major part of my PF in Can Fin.


I think as investors one thing we should keep in mind is that there is no one size fits all policy. For me the exits can be due to

a) Growth with High RoCE: Long term compounders, industry tailwinds, the compounding machines. The reason for exit is clearly a deterioration in the industry outlook (like industry headwinds as in pharma), reducing competitive positioning, management’s inability to seize the opportunity.

b) High RoCE with limited growth: These are pure valuation plays for me and a lot of good companies fall into this bracket. For example Mayur, Kitex, Ambika, Accelya etc are all good business with high RoCE and some or other kind of competitive advantage build in but they are not compounding machines. Personally for me these kind of business are good entries at a certain valuation and are an exit at certain higher valuation.

c) Asset plays: Buying a company at a very large discount to its assets and exiting when that discount goes away all the while trusting management to do the right things.

d) New Entrants: If I do find an extremely compelling story I would have to slot that against my current holdings in terms of BQ/MQ, risks and growth and if I see the new entrant to have a significantly better outlook than one of my current holding I would have to exit one of my holdings. There is another style where you trim positions from each of your current holdings, I generally do not follow that.

e) Allocation: If any company’s allocation goes above my comfort zone.

Now coming to what @basumallick said and I think that is an extremely good tool to have. Most of the times when we start looking into a business a smallcap/midcap we do tend to have certain advantages over the market. It could be an information advantage, an analysis advantage or something else. As the story becomes well known the advantage begins to dissipate. It would be unwise for us to fore-judge how market would value the business and it is much better to let it run without worrying about the valuations, at the same time it would be unwise to let the market do the same thing on the downside. Now here too one needs to find different mechanisms/tools depending upon the stock reaction in a secular downtrend, or an event driven movement or a stock specific reason, basically there is no one size fits all.

(suhagpatel) #195

Hello @Donald. I have recently joined this wonderful forum and trying to learn as much as i can. While going through this wonderful thread, found that some of the details are restricted like Ajanta Pharma excel of this post of yours. Is it possible to provide access to these pages?


(suhagpatel) #196

Got the Ajanta excel from subsequent posts on the thread.



pls check

(Ram) #198

Hello Donald. Thanks for creating such a valuable forum where amatures like us can benefit a lot. I am unable to download excel table uploaded by you and it says page not found. Can you please help me, how can I download it to understand ROIIC better.

(Bheeshma Sanghani, PhD) #199

Hi @prakat

Donald has shared his excel sheet on the zenith fibres and thread. If he doesn’t respond you could visit these threads and download his file. It contains all the metrics.


(Ram) #200

Thanks bheeshma. Downloaded Ajanta Pharma and Zenith fibers files. However,it doesn;t match the Ajanta Pharma excel mentioned at comment 96 of this thread. Was thinking why I am unable to download this file.

(Ram) #201

As I went through the thread, I got the excel. Thanks Bheeshma for your help.

(Shan) #202

My approach is to sell when you are convinced you want to short the company.

So this is similar to the Margin of Safety approach we use when we go long. We make sure that we don’t buy based on one or two factors only, we take into account all the factors like history, management, growth and so on including price. So now in reverse you can’t base your sell decision solely on price. You have to be convinced that there will be no growth or negative growth, management can’t help the situation etc. The best short sellers in the world don’t go short based on price. The business model should be unsustainable, that’s what makes the best shorts.

(sreejithmm) #203

Why I am unable to clink on the links? Fr eg: Here Must have investing books.

(LearningToFly) #204

Dear Friends, thank you for all the suggestion and knowledge. i have come across this wonderful site few weeks back and found this amazing.
Can anyone please suggest what is the best source of income statement, balance sheet, and cashflow statement. I usually take it from moneycontrol but the consolidated data is not complete. What do you do in such cases. Moreover, quarterly consolidated data is never available for the last few quarters. How do you handle such issues.

(Adiga) #205


(MHS) #206

@LearningToFly u can also check

(LearningToFly) #207

Thank you for the prompt reply.

(LearningToFly) #208

Thank you. Will take a look.

(ishikaghose) #209

Good morning. May I use an illustration of a stock I own in order to understand better the trailing stop approach - I own 200 shares of Hatsun Agro. Average price 302/share. Two years ago. The highest price I have seen is 970/share. If i calculate 30% down from the high - it works out to 679/share. That is the trailing stop approach price, 679 that I ought to consider selling at - if I decide to sell? Also does the recent LTCG tax make any difference to this approach. Newbie. Trying to improve - please excuse silly questions. Thank you so much

(Abhishek Basumallick) #210

If you decide to use 30% as a trailing stop, then yes, you would sell at 679. Tax would not be a consideration.

(ishikaghose) #211

Thank you very much. If set one’s own percentage is it reasonable to set 15 to 20% rather than 30 % - or is there a calculation I ought to learn about? Sincerely IG