I was searching for some information and I stumbled on an old article in Mint talking about how PI Industries went from under 1 Rupee stock to some 600+ in 13 years, there was no additional content for me to learn from this article. Found some old data to validate Mint’s point of view. In early 2003 the stock price was actually 0.54. Based on reading old articles I found, biggest breakthrough for the stock came from partnership with a major MNC, I think BASF. From there on, I guess the management acted diligent and companies performance improved. How did the story build up and wanted views on how would one identify these kind of opportunities. Thanks in advance for the responses.
The story is almost identical to many successful companies
Take for instance Vinati or Aarti Industries
I think it first starts with an honest management
The sector doesn’t really play an important role however at times if it’s in trend the company share prices get extra boost
Without the first ingredient the company is a house of cards. The right question probably is how to read financials to find good management
In his book good to great, Jim Collins searched a lot of companies to find what made a successful company great, one of the ingredients like for Hewlett Packard was good management. Hewlett Packard for instance didn’t even know what products they will be making. Their first focus was to get the right people on board. Jim Colins compares the company to a bus. In case of HP they didn’t know where the bus is supposed to go, even before that decision they took the right people to be on their bus
This is the same thing by another author called Flexis Denis, who successfully built one of the largest magazine called “the week” before selling it to a publication house
Getting the right people or the right management is is paramount importance and after that you need to let time do it’s work
Both are very difficult to do, first find a company on this path and second to stick with them for 10-15 years
Probably the best is to have 2 accounts, one should be buy and forget and second to do trading on monthly/yearly cycles
I have a question here! How one can find the right people to be onboarded without knowing what the company will do and what they are going to make, in products even? I may be wrong or naive, but I do really want to know. How company defines the vision when one doesn’t know what is their strength.
I beg to differ here with you. It is always easy to cherrypick some successful enterprises and propagate your own theory around them. The thing is the integrity and ingenuity of promoters are paramount but many enterprises like kodak, BlackBerry, yahoo with honest and competent management is in sundry and companies like reliance and adani with a history of bad corporate governance becomes invincible.
One of the most reliable indicator that a company is moving towards a massive turnaround is to look out for long term range breakouts. There are couple of reasons for that for that. When a company turns around and fundamentals change, the insiders get a real view of the situation and India has very scant insider trading enforcement. So, even before the change of fundamentals being reflected in balance sheet or P&L, the stock starts moving. So it would be prudent to use a screener to look for price breakouts.
Just one thing to remember is that : price breakout is a necessary but not sufficient condition for fundamental change. It is a stochastic model, not a deterministic one. So one needs to have nimble fingers to get out of trades that does not work their way.
Just my two cents.
Thanks for educating me, will read both books you suggested
This is a good thread. Would be more meaningful and better if contributers can share their own personal examples rather than theoretical concepts. That way the practical learning of good investors in Indian market can help…how they identified a good company early and how did they ride it…
Kodak and Blackberry were successful businesses
No business lives on forever, absolutely no one
HP no longer has the skill set that once made it great, Steve jobs commented on this once and was worried what would eventually happen with Apple after he was gone
Xerox invented many of the things we use today in computers but couldn’t capitalise on any of them
However the discussion is not into buying already great companies
It’s into buying smaller companies that have potential to be great.
Once they are great it’s difficult to remain there.
If history is any guide, likes of Apple, Amazon, Microsoft will see their eventual slide and demise
Vision is not everything. Can you tell me what Microsoft’s vision was when Bill Gates met IBM to sell Ms-DOS? I don’t think he has one or it was not articulated
For HP, by no products I don’t mean they were considering between chemical or IT business
They were all technology background and they decided to start a business without knowing what they will sell but they would not have been able to sell phosphoric acid if someone would have asked them to.
Anyway my point is that management quality is of paramount importance
Some dishonest businesses might also do well but doesn’t mean every dishonest business will do well
But honest, capable and highly qualified management is something all good businessmen know the value of. They will go to length to get a capable person for the job as they can leverage them much further
I have known instances of just one person making a difference to a business
However it’s difficult to know if the company will have that
I think as investors if we find a management that utilises cash properly we have to assume the management is capable and honest
Buffet also considers spare cash utilisation as one of the key things
Figuring out the where on the S - curve of the market penetration is the company can be a helpful signal.
interesting article on the same
Thanks. I am sharing the s-curve URL with my friends
Interesting thread but I have a question. There are 2 important things that need to be kept in mind while investing i.e. Quality of management & quality of their books. Latter can still be assessed but it is very difficult to find out if the mgmt is capable & honest and this all can only be said in hindsight.
Request the members to share their inputs on this, about what approach should be taken to assess if the mgmt is capable & honest.
Would management intentions not change with time? Am sure PI Industries was running in loss (2000,01,02,03,04,04,05 etc. annual reports not found on company’s web site) and their intention would have been to sell the company at breakeven and get out of business, am making this statement based on human psychology (guessing). Quality of management when the company is not doing well should not be a criteria for investments. Again, my guess is, investment should be made on data and facts. One fact is, the stock price movement, stock price went from Rs 0.54 in early 2003 to 19+ by early 2004. In my opinion, fundamentals must have improved in 2003 for the stock price to go up.
As Steve Jobs said, we can connect dots only backwards and not forward.
Any thoughts appreciated.