Negativity is flooded in markets for YES… seems YES has only NO’s for all reasons. I understand that ultimately we will find a base / support & things will start improving. The key for long term investors is having an entry closer to the support line. Till now it looked to form a base around 180 for last few weeks / months but now 150 is being discussed on multiple forums.
Making entry in staggered manner from current levels looks best wayout… wish to have views from the forum.
Naturally it will seem that RK’s allegiance will be more for the other lending company (ART or whatever the name is) than it is for the bank where he is a promoter (YB).
Why is he a promoter in YB in this case?
Disc: Invested and feeling cheated by RK.
Vaibhav and others,
Please allow me to be a little bit harsh but my intention is to do some good. If you feel offended, members can flag my post for deletion.
Stock market is a place where even for 1% arbitrage opportunity people make so many risky trades. There are even arbitrage funds! The price discovery happens almost instantly in liquid stocks and even in illiquid stocks by weekly close all the available information related to a particular stock AND any macro environment related information will be discounted in the market for all the stocks liquid and otherwise.
After an event happens:
So, when something is falling 40%-50% and is still below 50% level for more than a month, please understand that there is seriously quite wrong somewhere. There are so many value investors, contra investors coming in and even then the stock is falling, which means we MUST give way and understand that there might be something which we do not know that the market is discounting.
After such a huge price damage, the recovery typically is NOT V shape but a prolonged U or a W. Yes, being a value investor etc. is all good for the saying but for all practical purposes, you are incurring opportunity costs of investing. I have written somewhere, WHEN IN DOUBT, step aside and let the events play out. There will be plenty of time to pick up later. It is better to pick up 20% up rather than wait and lose 30% and then stagnate and incur opportunity cost and lost sleep. @hitesh2710 has point this so many times as well.
There are NO brownie points in investing for being FAITHFUL. Yes, once in a while you may lose some opportunities but so be it. Over the long term if you follow a process strictly, chances of surviving over a long period is more.
Generally speaking, when good stocks fell 25-30% and a bad stock fell 50%, it would do a world of good to make the switch by swallowing the pain with humility unless someone is so good at trading, even then if some is good at trading he/she would not have held a position with a 50% loss, stop loss would have been hit long back!
Before the even happens:
You may say, I’m speaking with the benefit of hindsight, BUT I always found something is wrong somewhere in Yes bank and Piramal. Please do not crucify me for taking Piramal name. It looked as if RK is working hard to show that 30% YoY growth like a clockwork. I was vindicated when market is NOT rewarding the stock with the same valuations as HDFC bank let alone an Indusind bank. So, market as an aggregate even over a period of 10 years is not valuing Yes bank at the same level as top notch financials.
This statement is true in this case: A “value” stock is NOT really “value” most of the times. History is a witness to this statement countless times. I know there are naysayers who say such comments come out when the stock is falling but then I had to write this at some point and it is today and am sure there will be so many cases like this in future.
A business must be simple to understand and the management should not try hard and hard after every quarterly result with FANCY presentations showing CAGR growth, hunky dory statements, above the board statements, holier than thou attitude blaming industry peers while alienating itself from the crisis saying we are better positioned etc. All these were evident in the case of Piramal. I set out to value Piramal so many times and I failed to do so BUT I did NOT want to depend on Piramal’s past track record to do my investment. So I stayed away and add to this every management interaction there are only so many positive views - SO MUCH above the air talks!
Goldman Sachs CEO once said, they are doing God’s work. Oh, for God’s sake, help me with this statement! Managements must show some humility when asked how much they grow and not pom pom.
When the book value itself is in question, I’m NOT sure how anyone can calculate P/BV and say something is undervalued! It is lot better to buy someone whose book is CLEAN at a premium because when bad times come clean book may grow slowly but bad book will de-grow super fast! Inevitably, bad time do come in every business cycle. These days, the cycles seem to be faster as well!
There is a lot of subjectivity involved in investing and that is why is it an art and not every one can be successful. So, please do not invest in something JUST based on NUMBERS.
Quite a long post, but heartfelt and intention is not to hurt anyone but only write my experience, learnings. There might be people who would have invested after analysing all this as well and are aware of the consequences, but that’s a different ball game altogether and to each his own!
Investing in a personal private business aka Art housing finance when you are MD & CEO of a leading private sector banks raised serious doubts about conflict of interest.
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Who can say that leads/customers from Yes bank would not have been passed to Art Housing?
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Are we to take this managements word that business was done at arm’s length? If that what is the need to do similar/lending business in a private personal identity, Yes bank could have done that business.
I think this is some serious integrity issue here.
What you are essentially talking about is Efficienct Market Hypothesis. Below is what Peter Lynch has to say about it -
I also found it difficult to integrate the efficient-market hypothesis (that everything in the stock market is “known” and prices are always “rational”) with the random-walk hypothesis (that the ups and downs of the market are irrational and entirely unpredictable).
What you quoted about @hitesh2710 sir is correct. He also keeps saying that the market swings like a pendulam & goes to extreme driven by fear & greed and not rationals
Thoughts?
As a true investor we should welcome a drop in price and not feel cheated or trapped. Prices for large and well known companies do not drop without a reason. Its not the swing of the pendulum that produces these kind of prices but certain events that causes investors to take a pause and rethink their investment rationale. Yes Bank investors are going through such phase. Large companies are available at low prices only when they are going through some kind of issues.
If you believe market is always right in pricing the stocks, then you should buy an index fund. You should build your own portfolio only if you believe that market can sometimes price stocks incorrectly (in both directions) and that you have a superior insight or a better psychology than the market to profit from market inefficiency. If you judge the quality of the business by the movement of the stock price, you will always be one step behind the market.
Remember, for every seller there is a buyer. Price is determined by the one who is motivated to push the trade. Stock prices turn around exactly when no one expects it. Waiting for a bottom to form is not a bad strategy but sometimes stocks can make false bottoms or stock price can rebound sharply before you realize that it has bottomed out. Pick what suits you.
I have not read Peter lynch books, but I think in today’s time, information is omni present, easily available and spreads like fire. Good news takes time, but bad news travels faster. It was not so a decade or two ago. Now IMO, by end of week, most of the news and information gets priced in and efficiency of the market is way better than before.
As far as pendulum swings are concerned, it will be there as humans will always have greed and fear but now atleast rational information is available at ease, unlike before.
Quote from art of execution
"If a stock price is down after your investment, the market is telling you that you were wrong. If you really do believe you were right to invest in that company, then you were clearly wrong in the timing. The sooner you acknowledge you have made a mistake and take steps to deal with it, the better your odds of achieving a successful outcome.
Ask yourself the key question I now ask all of my investors:
“If I had a blank piece of paper and were looking to invest today, would I buy into that stock given what I now know?”
If your answer to the question above is “No”, or “Maybe, but…” then you should sell.
If you conclude that you would not buy the shares today but find that you cannot push the sell button, be aware that this is because of endowment bias and not a logical investment thesis. Sell."
A price stop is an opportunity to load up on bargains from among your worst performers … if you can’t convince yourself when I’m down 25% I’m a buyer then you’ll never make a decent profit in stocks."
Uncertainty with regards to promoter/managing director was there when you added the stock. Now it depends on the investor temperament. If you feel the company is there to remain for long periods and have a temperament to bear the pain for some period you may hold or even add up.
Regarding the size of art financial, it is very small compared to the market cap of Yes Bank even at these levels. It is just a startup. Also, the promoter raised debt and used that money to subscribe to equity shares of ART financial… This is a practice in India… Read Reliance & Jio… and how jio became profitable in such a short time.
Disc: Invested.
While efficient market hypothesis spoke at length about information symmetry, it fails to acknowledge/address the impact of ‘irrationality’ of investors.
The way i see/understand it: Efficient markets = Information symmetry + Rational Investors
However, at different points in time, investors act/react differently to same/similar inputs and that’s what causes the inefficiancy in markets. Take any random stock, and look at the 52 week high/low. Do you think the range of stock prices is justified by fundamental business changes/news in the last one year? Rarely (maybe 5% of the time) do business dynamics change so quickly (Exercise quoted from Joel Greenblatt).
Investor perception is often driven by recent events (recency bias), and that distorts markets in the short term, IMHO. Also, another side-effect of fast information flows is also an information overload. It becomes harder to figure out whats important and whats not.
Maybe markets are tending towards information symmetry, but investor perceptions and the emotions of greed and fear will always leave room for better-than-average returns.
Discl: Not invested.
Second your point related to comparison with Reliance. In good times, the tactics being used by every small promoter to scale, are cheered by the market. But the same tactics are questioned as if it’s a scam in bad times.
Mukesh Bhai is cheered for his capitalisation of interest cost of Jio’s debt to make the venture look profitable merely after 2 years in the market.
But Rana Kapoor is given a thumbs down for taking a loan to start another business, putting up his diamonds for collateral. This is questioning the basics of entrepreneuralism only.
Don’t have anything against Reliance, just feel entrepreneurship is not a straightforward journey, requires some toughness and street smartness and manuevering through the labyrinth.
Is this the may cause for a 10% drop today? I dont know how moody said it’s lending capabilities are weaker than PSU banks
Yogesh,
Just wanted your thoughts on the crash in the bond markets for YES, just went through the annual report and on page 215, i can see the borrowings outside India under two headings tier 2 debt and other borrowings, the other borrowings is a quite sizeable amount, Would this cause a domino effect and cause an increase in the cost of borrowing including domestic borrowing. Would they go in for a reduction in balance sheet size. What do you think are the implications and with the rider they don’t have a recourse to improve the ratings for a year. I cant believe all these guys were sleeping when the going was good.
Thanks for sharing.
As usual, the regulators will wake up last, it looks like, with the kind of information that is coming out now on various issues.
If the bank heads to liquidity crisis, along with depositors withdrawing money is the Bank looking at a very serious challenge?
Regards
Disc: Invested
Yogesh,
Could you please make a short message regarding what has gone wrong with Yes Bank. It has so many branches, it is well spread over the geography, an excellent banking system going on. Is it a steal at 7 PE?
Yes Bank has borrowings outside India of INR 275 mil out of a total borrowing of INR 749 mil and a total balance sheet size of 3124 mil.
Source Annual report 2017-18
Source Annual report 2017-18
Foreign borrowings are a sizable part of total borrowings but only about 8% of balance sheet size. A debt downgrade will cause borrowing costs to rise but banks in India generally mark their loans in such a way that they can pass on some of the borrowing costs to their borrowers.
There will be a moderation in growth, but I don’t expect the balance sheet size will reduce. cost of deposits are not likely to go up going by the experience of other banks. PSU banks with huge NPAs haven’t seen any increase in their deposit costs. These continue to get deposits at competitive rates.
Promoters are working on settling their disputes and I think they will come to some kind of agreement in the next 2-3 months (may be even before the next board meeting) so that they can agree on a new MD and get RBI approval. Once the new person takes charge we will know if there are any bad loans in the closet. Market may be worried about that.
To me Yes Bank is what Mohnish Pabrai calls high uncertainty low risk case. However, market generally equates uncertainty with risk so it is pricing high risk scenario.