Great articles to read on the web

Books & Tutorials
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To understand the Buzz —Read this :roll_eyes: :point_down:

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Interesting presentation.

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A great presentation on Disruption

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One of the most amazing stories / speech i have ever heard :point_down: …take time to listen to it :roll_eyes:

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I like it, hence sharing it.
https://indianinvestingconclave.com/recordings/78
Episode 15 by Ashwini Damani

Sub: Forensics in Investing.
In the presentation he discussed how companies cook the books. He takes us to analysis of actual companies, he doesn’t take names of companies but it’s easy for us to assume it.

Am trying to understand more about financial shenanigans - do suggest if you come across such other presentations.

Note: Alpha Series from IIC is offered free of cost however need registration.

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@Deven
Thanks for sharing!
You can watch this presentation: 24th Wealth Creation Study By Raamdeo Agrawal - YouTube
https://www.youtube.com/watch?v=X4m9mYX-E0U&list=PL4yxZDLRngMBn-yXf25eNtxuk4wXvT4We#t=1158s

Also, if you are interested in reading books, then one great book on accounting fraud is Financial Shenanigans by Howard Schilit

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https://indianinvestingconclave.com/recordings/45
Fragility & Optionality in Business Models
Prof Sanjay Bakshi

Turkey fed: On the 1000th day, man cut turkey till then he feeds daily.
Fragility is a sudden down of business with hidden risk.

Types of Fragilities are:

  1. Excessive Debt

  2. Absence of Entry Barrier (ex go pro camera)
    In today’s highly competitive business high margin and high assets turnover is so desirable that competition is must to occur.
    High profit margin is an open jar of honey, it attracts hungry insects.
    Amazon did it beautifully – As per bezos there are 2 kinds of business – those that work to raise prices and those are to lower them.

  3. Disruption
    We have $ 900,000 worth of applications in today’s smart phone which disrupted many businesses like Video conf, GPS etc.

  4. Fragility on dependence
    Customer or vendor’s concentration risk
    He gave an example of symphony. Symphony has higher margin and ROCE due to out-sourced manufacturers. When its margin got higher, competition started pouring.

  5. Fragility from protectionism

  6. Fragility of low margin business
    Example = IBP – pure petrol pump player
    In petrol pumps business margin is low. However Capital returns are very high.
    Consider land as 3 CR + 1 CR of other equipment. They just have 2 days of inventories hence capital return is high.
    (If petrol pump sale 5 lakhs business per day, its 18 cr annual on cap employ of 4 cr.)
    ROCE is margin * Cap returns; even with lower margin its very high.

However with govt policy of not passing the cost to the consumer, the margin becomes negative. Negative margin with high cap turnover is a disaster – hence IBP got shut down and merged with IOC.

  1. From hidden structural risks
    Example of PG&E – electric company from California. Who (instead of insurance) has to pay for forest fire to consumer and ultimately filed bankruptcy

  2. From a rigid cost structure Like airlines (Jet airways)

We are generally more attracted to margin, however we need to take view on longevity, how long this margin will sustain. Hence N year of longevity is equally important as R – margin.

Fragility from multiple risks are multiplies:
Like there is a chance of occurrence of bad event is 10% in a yr. If company has 4 such events than,
0.9 * 4 = 65.61% chance of it won’t occur instead of a single event whose chance was 90% of non occurrence.
If you take 5 yrs instead of 1 yr then the chance of occurrence will be 99.52%.

He insists don’t think of probability instead of think of occurrence. What happens if that occurs?

Finally how to handle fragility

  1. Walk away
  2. Size it appropriately
  3. Value it appropriately (pay less of high occurrence vs pay more for more safety)

Opposite of fragility is optionality: Where you have small errors followed by big wins. If you have got a low downside and big upside (optionality) you go and do it. If you have a big downside and small upside (Fragility) run away.

End…

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http://buffettfaq.com/

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Best video to understand Debt fund. I like it hence sending.
Thanks To youtube, Vivek Bajaj and Kirtan Shah.

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Have a look at this presentation : https://mjkinvestment.com/Portals/0/Financial%20Shenanigans%20pdf.pdf?ver=2021-04-06-185647-550

( I had bookmarked it from somewhere. Please flag it if it already posted here)

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https://indianinvestingconclave.com/recordings/47
By Gordon Dsouza – Private Venture and Investor

A. Competitive advantage:

  1. High price: Search cost (whisper) / Switching cost (HDFC) / Habit (Uber)
  2. Low cost: Proprietary tech (Biocon) / low cost Producer (Shree cement) / Distribution (HUL)
  3. Efficient use of capital: Experience curve (Insurance) scale of econ (Dmart) / Network effect (amazon)
  4. Govt policy: Anti dumping duty (Deepak N)

B. Case study Rupa and Page
Page improved on cash conversion cycle from 113 (2009) to 97 (2018) in Decade
Receivables: 22 from dealer + 100 for Inventory – Minus 25 to Payable = 97

Where as Rupa’s cash conversion decreased from 80 to 145 days
Receivables: 71 from dealer+ 114 for Inventory – Minus 40 to Payable = 145

Capital in Working capital is ignored many times however.
High receivable indicates that sales in pushed and
High payable indicates vendor payment is delayed
Page WC is 552 cr vs rupa 297 cr with fixed assets of 130 for rupa and 254 page
Total Capital is 427 cr for rupa vs 776 cr for page
In decade that’s converted into 1.6 higher sales / 2.7 X EBITA and 7.3 x FCF. Which gives 63 times mkt cap to page vs 2.5x of rupa

C. Probabilistic Thinking
GST implementation will have a hard effect on the unorganised sector.
Narrative is Unorganised sector will shut down and organised will gain Market share

What are probable outcomes?

  1. Narrative is true – organised players gain market share
  2. Parts of the unorganised sector get organised
  3. Status quo
  4. Move to organised will play over a longer time.
    Finally it’s played out of No. 2 and 4 as true as of now.

D. Pricing risk / valuation
E.g. Bajaj Fin – CMP MKT cap that time was 174000.
If I want 15% mkt cap growth in 3yr will be 2.64 L, 20% - 3 L and 25% 3.4 L.
Good method to realize the possibility of that much returns…

E. Portfolio constructions
Portfolio size Rs. 100;
Share A, high conviction – allocated 15% - 5Y returns 15% - its double Rs. 30 (15+15)
Share B, less conviction – allocated 4% - to have Rs. 15 wealth creation – it needs to increase CAGR 37% or 4.8X which has equal amount of chances to go down.

End…

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The A to Z - or rather, W - of investing. Several useful resources, including many in PDF format:

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Just love it…

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https://youtu.be/FiHrWy2jGbA
Fireside chat with Li Lu at CBS.

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Samir Arora, brilliant as usual. Worth listening (first 40 minutes):

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https://drive.google.com/file/d/1vnz9LmSxgcmMtgQ-Xry4wtC3Pal9-TrS/view

Good read on Gold Loan NBFCs

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Beware graphs bearing outperformance

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A very clear EXIT call on all Franklin Funds given at a time when people are hesitant and unsure of what to expect.

The article goes on to list 3 crystal clear reasons why one must exit Franklin Funds.

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