A practitioner's analysis of buying statistically cheap companies

Please watch this lecture from li lu for more clarification.

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What do you think about PFC/REC. Personally I have invested 22% and 8% of my portfolio in PFC/REC respectively. 3% hudco and 3% irfc 5% sjvn. These are the value buys in my portfolio.

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Only checked the first two -

My take- what is the down side protection ( both companies have 3lakh cr plus debt)

What is the return you are expecting ( if you are a small investors then why would you invest in a company that has $5 billion in market cap. I mean for you to actually double your money the company will need to go to $10 billion aka needs to double there profit as this is not undervalued because there is nothing left on balance sheet that can protect you, How many companies in india are doing almost $1 billion in profit ? ( REC earned 9000cr thats like $1.2 billion ) do you have a high probability that the company can go from 9000cr the 18000cr even in next 5-7 years because if it cannot then you cannot double your money in next 5-7 years (thats like 16-19% cagr) which should not be your aim anyways if you are a small investor. Note that 16-19% is literally great but aiming for this would not actually give 16-19% cagr hence you should aim for 20-25% and then your actual return can be 15-17%cagr ( only if you are lucky because the total return for last 200 years after the westernization has been 6.6% hence if you can even get 10-11% for long term you are going to be the richest person on this planet )


What do you mean 3 lakh crore in debt??
Its a finance company, it borrows and it lends. PFC has book value of 66k crore and rec 50k crore.

Downside Protection? Dividend yield… just 9 percent.

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I’m not sure if it is a good idea to invest in companies that give dividend instead of reinvest the same in business that too for a business where money is the raw material. Dividend distribution tax was more tax efficient for an investor than taxing in the hands of the investor. Now for many, it will be on 20% to 40% slab.


Well yeah, ideally a buyback is much much better.
But, just see the dividend is just 30% of profits. 70% is reivested!! And that 30% gives 9% dividend yield!!

With dividends being clubbed with your income, the taxes which one will pay is in the range of 20% and above for majority of the people who are still working and also for few who are retired.
This must be helping Government to a large extent, if one looks at large sums distributed as dividends by PSU(s). First government gets the dividend from the PSU(s) and also the substantial portion as income tax from individuals.
It looks like Dividend investing may not make much meaningful in this context, better to look for growth stories unless one is in 5% tax bracket.
May be, this should be also looked at by financial experts as FD rates are also below the inflation at the moment.


As an individual, investing for dividend yield will be beneficial if there’s a standard deduction like LTCG’s 1 lakh a year. Govt is the major beneficiary of DDT abolition.


Currently, in an overvalued, overheated market, i find deep value in PTC India. But for the governance issue in PFS, the stock should have gone past 120 or 130 mark comfortably. I also like Dilip Buildcon, which is on the recovery path. Mastek has been one of my old favorite stocks. Reliance Infra is the momentum play that has given good returns. All the picks that you mentioned in your post have given fantastic, mind-blowing returns. If you find any such gems in the current market also, please share.


This is really inspiring. There are many lessons. Buy cheap. Buy after thoroughly checking. Keep them. There is no guarantee that the cheap shares will double, they may be reduced dust too.

I really find value in Fertilizer stocks like GNFC, RCF & GSFC. In case of GSFC entire stock is available for free as the value of investments is equal to Macao of 4.6K Cr.

Icing on the cake is growth coming & ripe time for PE expansion coming in near future.