I am reading “Value Investing and Behaviour Finance” by Parag Parikh and found chapter on Commodity Investing very interesting and relevant. Points which I like to highlight:
The Paradox: Conventional thinking does not hold true
When one is looking at returns to be made from investing in a commodity stock, the conventional wisdom of investing on sound financial parameters does not hold true.
Efficient and low cost producers are least benefited during upcycle and high-cost producers and heavy debt companies will be able to give higher returns to investors. Reasons for this are:
• Low-Base Effect
• Debt reduction and decline in interest burden
• Re-rating
• Lower taxes because of the loss in down cycles.
Author has tested above principle with share price comparison of Steel and Cement companies during 2003 to 2006 cycles
I would suggest to read this book especially chapter on Commodity Investing
What is so great about GPIL Jiten. If you can elaborate please as u must know about it thoroughly since it is the largest exposure for u in the metal space.
@jitenp are you tracking Beekay Steel? Just reported a 200% jump in profits on 25% jump in sales. Trying to figure out how long will this cycle last. Company is a manufacturer of Sections, Bright Bars, Structurals, TMT Bars, Coil Springs etc.
Ashapura minechem , One of the Promotor sold 10% and Porinju’s equity intel baught 5%. Quite confusing signal. Really no idea for business tailwind, upcycle, seeking help from the VPmembers
Disclosure : Not invested
yes. that’s a short term negative for them (reflected in stock prices). And, as I mentioned it’s a contra play. Will add to these over time, when I see cycle turn around.
Thank you Jiten, Can you spell your rationale for investment in Ashapura minchem, Why do you think they will do better in future barring one off loss due to contingent liability.Just to increase my understanding about the stock and learn from you.