Actionables 2.0: Perennial Favourites

I will not go into the valuation debate, people on this forum are probably more qualified about it. I am simply putting forward these observations:

  • A FMCG company having grown its earnings by 10% over the last decade is quoting at 77 P/E on decadal high margins (HUL)
  • Another FMCG company having grown its earnings by 28% over the last decade is quoting at 26 P/E on decadal high margins (GCPL)
  • An exchange in a duopoly regulated business trading at a slight premium to its cash on books (BSE)

All these three cannot be right, we can make our own bets.

About shree cements, I am fond of cyclical investing but I haven’t studied cement cycles. Plus, I never said Shree cement is a 2-bhk flat in Mumbai.

What I am trying to say is over extremely long periods of time (>25 years), we make money equivalent to growth in book value of a company i.e. market sentiment indicators (like P/E, P/B) become meaningless. However, there are really few people who will stay in a company for > 25 years and even fewer companies which will hang around for 25 years, so valuations do make a difference. That’s why I said investing is not about identifying great assets, but about identifying mispriced assets. And mispricing is something we only know in hindsight. We all have opinions and we express it in the market. My opinion is here, in case you are interested.

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