Thanks for your detailed reply and suggestions on the reads. I have yet to read Mark’s Market Cycles but I have enjoyed listening to your talks and going through your brilliant presentations.
On global exposure I have a significant part of my personal Portfolio already invested in the global markets precisely for the reasons you shared. Your pointers serve as good affirmations for me.
Thanks for all the replies you have patiently given us here. Much appreciated by the community at VP for sure.
Thanks a lot for taking out time and sharing your thoughts and wisdom so patiently. Very few people make so much of effort. The best part are the numerous books and resources that you have shared which will keep curious minds engaged
Look forward to hear more from you.
Interesting take. This is one aspect of investing which people need to grow into (I presume) as they get more experience, unfortunately this is not given the respect it deserves in most books or even guru speak for that matter. The average novice investor begins with the “buy and hold for 15 years” mindset without appreciating the possibility that he may under perform for 10 of those 15 years and yet end up ahead of the market. I believe this point causes a lot of heartburn to investors since the experience of investing real time is way different from seeing investment results on a chart.
In this context how has your journey been? At what point did you truly believe that “one should not be married to an ideology” and calibrate to the markets rather than being fixated on your initial style?
It’s been great to get your perspective on so many topics
Markets are a great teacher and long term experience in market teaches you a lot. Also that teacher sometimes sends terrific bills and i have paid my dues in learning same. Part of what you must learn is how to handle mistakes and new facts that change the odds. Life, in part, is like a poker game, wherein you have to learn to quit sometimes when holding a much –loved hand.
Truth be told that yours sincerely missed several good opportunities while I was busy doing god knows what…In fact most of my worst mistakes are not publicly visible. This pertains to business I understood well and yet did not have courage to buy in meaningful manner or worst buy none at all. It’s no sin to miss opportunities outside of one’s circle of competence. But I have been responsible for passing on quite a few great opportunities that were served up on platter and which I understood but didn’t end up acting on same. The cost of this lethargy and inertia has been huge. business fail if they don’t adapt, Markets are adaptive so its natural that one most constantly adopt as one evolves. My interview with Safal Niveshek deals with how i evolved from special situation investor to long term oriented investor in more detail. In fact I am now seriously considering investing ion offshore markets as well. This is a constant evolution.
Supply chain decisions are long term multi disciplinary decision by corporate and India may or may not get the FDI. Our legal system is not exactly investment friendly and there are many aspects from Land to Labour, compliance to policy changes and so on so we do not have birthright on win the incremental business opportunity. In past India was going to be textile capital of world, than Diamond capital of the world and we had a very strong case towards same but didn’t happen for variety of reasons. So this is a longer term trend which can happen or may not happen. One has to watch out for more concrete data before acting on same.
Again at certain price points even most beaten down sector can give superb return. Everything is cheap at a certain price point. It boils down to perceived value and last men standing at bottom of recession does better once things normalizes. You cannot live without banks and some banks will emerge stronger and more profitable and so on. Cycles eventually do turn. Please refer to my answer on similar question earlier.
I just stated that to highlight that its easier to figure out which is a better business but once price gets thrown in equation, odds of making money changes dramatically. Risk reward scenario in equity investing is very skewed and unfavorable and has path dependency outcomes. Safe heaven investments with high degree of predictability have low yields and hence high implicit cost of safety embedded and vice versa. I feel commodities as a sector is easiest to understand and track and timing is critical aspect of making superior returns and that is a credible way of creating superior returns but doesn’t mean I am following that path or advocating same to someone . Investing is all about insights and developing same takes lots of hard effort and skill. Its simple but not easy.
I have spoken about sell decision framework in my Interview with Safal Niveshak.
As more and more skillful market participants get, it gets more competitive to generate out sized returns and role of luck and temperament increases much more. longevity of investment horizon, ability to concentrate capital in few ideas, ability to take cash calls etc helps you get a bit ahead of players who are short term focused, diversify too much and in effect end up owning whole market and stay fully invested at all times.
Investing in small and medium sized companies requires far more diligence and scuttle butt on ground. This only can build conviction and then you do kind of reverse DCF mathematics of what is embedded in current valuation. Based on enterprise value which is known to you you try to work out sensitivities around volume growth, price , product mix, asset turn etc and see what will move needle for business and track those parameter. I would suggest you read by Rappaport and Mauboussin to get idea of what i am talking about,
I am not a qualified macro investor but crises of 2008 has taught me that problem in an asset class in some geography can have cascading effect on other asset classes in other geographies due to interconnection of cross border capital flows, leverage and transmission of sentiments and news in real time across the world. Hence i am now more aware of important issues such as debt, price of debt, liquidity conditions as indicated by spreads etc to see the sign of stress in financial system which at times basically indicate confidence of market participants in the system. But remember as an investor one worries top down but invest bottom up. Sell decisions and cash allocations decisions require investors to be mindful of macros given fact that easy liquidity and low interest rates are significant mover of valuations which in turn is biggest driver of returns in this finance dominated economy. So i do monitor aggregate data on corporate profitability, capacity utilization, mean reversion data across time series to have an idea on where we stand etc. I also use the macro data for some sanity check when markets have given very high returns or fallen too much as mean reversion is real at broader economy level.
For evaluating a particular business, i would recommend you read book The Investment Checklist checklist by Michael Shearn
Asset allocation is a function of once opportunity set and what works for me my not work for anyone else as my knowledge base , temperament and return expectations might be materially different from someone else. Investors with different time horizons, stability of capital and temperament are setting prices at margin and what they want out of same assets is likely to be different
Market Polarization taken to extreme leads to a bubble within a sector or an asset class. Also let me ask you a question. Johnson & Johnson is yielding dividend yield of 2.5 % and much higher earning yield. 10 year US gsec is 0.71 % . Will it be rational for a bond buyer to sell the US gsec and buy J&J is it was sure that cash flows/dividend of J&J will continue more or less on same trajectory? But you as an active investor might want higher rerun and might be selling J&J to buy Zoom or Nvidia which in your opinion might be better value? The point i ma trying to highlight that beauty lies in the eyes of beholder and risk/returns expectation of different set of buyers are always going to be different and that what creates market place.
Real estate, Travel etc are not going in to oblivion any time soon and credible companies with cleaner B/S and cash flows to survive this will emerge better and stronger for sure. However one needs an real contrarian mindset to invest in such distressed sector when all u see is negative news flows. Lot of value investing revolves around this. what one does is function of ones own temperament and time horizon. What my work for me may not work for you and vice versa.
I am intrigued by commodities. I am certain Oil will not be so cheap some time down the line. Supply will diminish as marginal players get taken out to meet demand and price will correct.
Corrections always impact relative valuations and in risk off environment correlations tend to be high as section of investor rush to safety. This is recurring phenomena.
Once lock downs ends and we get back new realities will emerge. Thee following was posted in in early Feb and now unfolding as we speak.
Hi @KuntalShah, I am simply amazed by your generosity. You have painstakingly answered all our questions and almost always brought in a new perspective in your answers. Please accept my sincere thanks and gratitude for doing this. This is simply an invaluable source of worldly and actionable wisdom for all investors out here on Valuepickr.
On specific question to the financials, the characteristics that you mentioned for successful and resilient lending business is well known to anybody who has been running the business but only a very few of them are able to build out businesses at scale with such characteristics. It will be great if you can share your insights if there are any common factors that binds such successful lending businesses
What we witnessed over yesterday and today (on this thread) is a masterclass by itself!
In generosity, humility, discipline, attention to detail, and closing the loop!
For a moment if we keep aside the investing acumen/experience sharing from multiple perspectives, we will notice the personal attributes that makes for a a continuous adaptive learning machine and a great investor.
Kuntal Shah! Take a bow! You have bowled us over !!
Two VP deliverables to capture from this superlative Q&A and take forward. Synopsis for
a) Investor Learning value-additions
b) Actionables for Team VP-Kuntal Shah - further exploration
Now, we are NOT done yet. ValuePickr_Q&A with Kuntal Shah_18May2020.pdf (1.8 MB)
Kuntal has immediately gifted us a better-formatted PDF Capture of the Q&A (with all the resource bases covered) for our personal records and sharing with the larger investor community. Please share this Gift as generously as Kuntal has done with his wide-ranging perspectives and active mental models.
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