Dear Donald,
You have posted very imp post today. Somebody wise had said that easily identifiable pattern seldom repeat. However my view is that if we pay proper attention and are prepared, then we can benefit a lot from recognizing those patterns and then benefiting from them.
Best Wishes,
JM
I guess eliminating companies you do not want to invest in is half the work. I’m not really sure if elementary models can be used to identify successful investment opportunities. Investment is a complex art with a variety of factors which necessitates a detail oriented approach which I’m not sure an elementary model can capture adequately.
If the purpose of such models is just to filter the universe then I would think historical financials and industry dynamics should be a priority. I also think meeting the management in person and getting a sense of the intangible qualities like perseverance, determination, ambitiousness, street smartness are also quite important. Lastly, doing the textbook stuff like moat etc. must not be ignored as they ended up in textbooks because of their importance.
Hi Donald,
These days I am reading “Five rules of successful stock investing” by Pat Dorsey. Man, this has to be one of the best investment book ever written. We can use the points written at the book as the basic template for creating a spreadsheet on the quality of a stock. We need to modify it suitably to match indian situation like share pledging, and other such peculiarity of indian stock market.
This will be a huge sheet for sure, as there will be some 30-40 parameters. These data can be a good pattern finding tool for existing and new stocks.
The problem with it will be that there will be few subjective things, which we need to quantify (say in the scale 1-10).
Subbu, Subbu,
I think I amperenniallyfailing to communicate the moot point:). So here goes another attempt.
I admire your detail oriented approach, and learnt quite a few things from your posts. However I always fail to get it across most folks - that in this post )- we are talking of beyond textbook patterns! simple things **that in addition to the good things that we know should be there -**make for extra conviction - the “feel” factors.
As you said, our screening process at ValuePickr takes a lot of care in eliminating mistakes - avoid what looks bad on the BS or Cashflows. thats the Science or numerical part of the crunching. But that’s only 30% of the job according to me. The balance 70% is the ART part.
Mayur Uniquoter’s metrics were there for all to see plainly in 2009; but for 1.5 years I could not convince most analysts/fund managers/seniors - they simply failed to read more into the performances. And I hazard a guess, its because of the ART part, not being able to see the complete picture, or rather a more complete picture, than just numbers. I kept saying people don’t understand Mayur fully!
The ART part, I think (I may be wrong here and I am struggling to get a grip on this) lies in our ability to identify essential patterns that are there in addition to the must-haves (the science part) that are simple and elementary, but I guess must have a profound impact overall. Another good example (according to me) of folks not understanding the story more completely is Astral Poly Technik. They understand some …but not completely…most folks worry about the competition for Astral…whereas I can’t see any competition…these guys are actually only competing against themselves…no one in sight! But then I can’t convince most folks!
This thread is thus an attempt to capture those loose, but extremely important “feel” factors that gifted, almost pre-scient investors like Hitesh possess! The key to greater sustained success lies there:)
This attempt therefore is to first document all these “feel” factors, so we can ALSO include all these factors into the Capital Allocation framework - in addition to the must-haves, fundamentals! The Capital Allocation framework (as it currently stands) is actually too detail-oriented and will scare off most guys I think. So after I am done from my side, I am going to hand over the stuff to folks like Dhwanil to simplify things so that it becomes hopefully, usable by all:)
-Donald
Dear Janak,
Thanks for the reassurance from your experience.
Please post a few of the important repeating patterns that you use/have used - with company/situation examples - so we can document the same for everyone’s benefit!
Thanks
Donald
Hi Subash,
Absolutely correct about the Pat Dorsey’s book. Am also currently reading it and already working on a excel sheet for most basic number crunching part. Will love to co-work with you on this. Do drop me mail, you have my mail id already, i think.
Nopes,
I don’t have your email id. Please mail me your excel sheet at subash_dot_nayak_at_ gmail dot com. I will be more than happy co-work with you on creating excel sheet.
Regards,
-Subash
Donald
Perseverance is an imp factor for decision making in investing according to me . However how the company has used the time spend or the experience gained inutilizingthe next bigopportunity is also of great concern .
If the management is dynamic and is ready to change as per the business requirements and is emotionally not attached ( attachment can be to a particular kind of business , product ) and takes quick and smart decision and makes a big move every time asizableopportunityoccurs or catches on the first big wave( ref: charlies mental models ) , then i would be tempted to invest in such company .
However if it is visible that over a period of time the management does survive time wise and has a vast knowledge and experience base ,but somehow is attached to some particular kind of business or belief system ( may be parental business…first product the company launched or self defined ego issues ) and has failed toseize theopportunity of scaling up things . Then such kind of perseverance needs to be cautiously avoided . it would over a period of time prove very costly .
An ex. i rem of the above mentioned stuff : HSIL vs CERA
HSIL is more than a 40 year old company in the sanitaryware market and had all the the factors of seizing theopportunity of massively growing sanitaryware market in india ,…however small companies like CERA has taken over itefficiency over a considerable period of time . The promoters have been reluctant in hiving off their non productive business division of glass ( which is more of commodity business) for years and the same business continues to be drain the roe and ronw for the company .
Such perseverance in showing reluctance to businessinefficiency needs to be avoided . The price and the chart patterns over a large period of time frame of both CERA as well HSIL bring out the same story . ( 10 year and max time frame charts avb on moneycontrol)
regards
ranvir dehal
Dear Subash & Raj,
Wonderful to see the co-working ethos. Please go ahead and create something useful.
Please do a complete job. This is not a small task. Once done let me know, will share what we had created in 2009.
There may be new learnings to incorporate. If really goos, we may open that for circulation among ValuePickr members.
-Donald
Dear Ranvir,
Thanks for your thoughts and comments.
Actually “Perseverance” is only one trait/pattern we highlighted. As you might have seen from the latest exercise we are trying to document as many such traits/patterns in Company/Management/ethos/working styles, that we think may have been a factor in the exemplary success recorded by these companies.
Appreciate if you can take the time to jot down few of these from among your successful investments.
-Donald
Getting data from sites and manually entering data is a such a painful and boring job, I decided to use python (you see being an IT guy sometime helps in stock market !!!) to grab data from multiple sites as webpage, save them in the disk, parse the same (the challenging part), and than create a excel sheet with the required data. Should be easily 1000+ line python code base when it complete. Currently at 1/10th of it.
Will let everyone know when I have started getting data from my script.
I don’t have your email id. Please mail me your excel sheet at subash_dot_nayak_at_ gmail dot com. I will be more than happy co-work with you on creating excel sheet.
2 comments
a) Make sure you use Consolidated data when available
b) There is a lot of virtue in poring through back issues of Annual Reports and entering the data yourself. You learn the interlinkages between P&L and BS and Cash Flow statements. You read the notes to Accounts. You see for yourself how the company has evolved its reporting standards, are they following up on announcements made by them in earlier years.
There is always the tendency to take shortcuts. I suspect reading Balance Sheets well will not come from the web-drawn numbers; it needs the long hours of poring through ARs of large number of companies before some patterns emerge.
And the beauty is, then you don’t need the spreadsheets much:). Its all in your head.
Hi Donald,
The idea is primarily to 1> rank stocks based on quantitative data, 2> find out if any pattern present by looking at the winners, 3> Once you find a new stock, to find out where it stands amongst the crowd. I am planing to use quant parameters of Pat Dorsey’s book.
I know that these numbers won’t substitute for reading of ARs (I confess that I haven’t read a single AR from bot to bottom, need to instill the practice). But what this tool can give you is a snapshot of parameters of a stock, for help one decide whether to investigate any stock further or not.
Regards,
-Subash
2 comments
a) Make sure you use Consolidated data when available
b) There is a lot of virtue in poring through back issues of Annual Reports and entering the data yourself. You learn the interlinkages between P&L and BS and Cash Flow statements. You read the notes to Accounts. You see for yourself how the company has evolved its reporting standards, are they following up on announcements made by them in earlier years.
There is always the tendency to take shortcuts. I suspect reading Balance Sheets well will not come from the web-drawn numbers; it needs the long hours of poring through ARs of large number of companies before some patterns emerge.
And the beauty is, then you don’t need the spreadsheets much
. Its all in your head.
Hi Donald,
Quick things which we observed for two of our cos - Guj Reclaim & Poly Medicure:
Patterns for GRP:
Good consistent growth of 25-30% with ROCE of 30%+
Consistently growing liberal dividend
It a “green” i.e… environmentally positive business and hence great future.
The co had low working capital requirement and hence BS was very nice
The promoters seemed honest and very well qualified - MD, ex IITian & son had work ex from Boston Consulting. On meeting this held out really well and the promoters seems hard working, honest and hands on the business
for Poly Medicure:
I think we should also include Poly Medicure for success pattern:
The co was growing at about 30% and was in an interesting field of medical disposables which has a great future
The management was young and looked honest and quite capable. Interestingly they had appointed Mr D R Mehta on the board and he is a very honest person with a great vision
The product had entry barriers in terms of patent, product designs etc and usually doctors won’t use a new name very soon.
Co had shared its vision/plans of scaling up
Comments in bold inline:)
Why all the trouble? Haven’t you used Ayush/Pratyush’s lovely baby Screener.in - you can do all the screening/ranking you want there. If I am correct, they also let you export the spreadsheet with all the data you want.
The data acquistion/extraction challenge is solved by Screener.in, I thought!
And if there are new ratios/calculations you need - they let you configure that also; They have also updated with Consolidated figures where available, if I remember correctly.
Your time will be more well spent helping this baby develop more refinements with your feedback to Pratyush. Ask Rudra all about it. I think he is a Power User there.
And you can concentrate only on creating the PAT Dorsey spreadsheet.
Exactly what I suspected. No wonder, cos I was exactly like that in 2005. Only after 2007 I reluctantly started reading ARs. And then I came to know how many ARs the really serious pros like Ayush, Hitesh, Mr D, Mr J devour - end to end - they are likely to tell you the quality of a company from the feel they get from the AR!!
How’'s that?
Regards,
-Subash
Hi Ayush,
Thanks for your pointers on characteristics/patterns that attracted you to GRP and Poly Medicure.
I agree Poly Medicure has to be there prominently in the list. Thanks for including it.
And what you shared on the characteristics there is revealing. Executing on their big vision & plans - in a field with big entry barriers - you are so right - Doctors will usually go with the known established names - as testified by Dr Hitesh - for his Dermatology brands:).
-Donald
Hi Donald,
I am in communication with Pratyush for the same. If it solves my purpose, I am a game for it; why spend time on what is readily available.
Regarding reading ARs, I agree reading AR is a must. The issue with me that I am just started reading book on investing 1-2 months back (after a year of investing). So I have a dozen+ good must read book to read, and than there are piles of Berkshire Hathway’s ARs to read. Seems a full year+ reading material for me. Will try to read ARs of few of my core protfolio company end-to-end.
Btw, I am ready with Pat Dorsey stock analysis template, but with no data.
This is the data for which I started playing with python.
Hi Subash,
Talk with Rudra. If I remember correctly even he was a skeptic on screener.in capabilities. And became a convert, and transformed to a Power user. He keeps adding things he needs at screener.in itself.
Re: Reading List
a) PAT Dorsey ko Guru bana lo - if you want to analyse stocks yourself in-depth
b) America - is an excellent categorised collection of BH Annual letters. Even Buffet has recommended that. You will do a far better job from digesting that slim book - than reading the whole shebang!
c) Read the One up on Wall Street Book
d) Read the Copeland Valuation Book
Bas aur padne ki jyada jaroorat nahi hai - if you can digest and internalise these 3-4 books, especially the last mentioned, you will be ahead of 60% folks in the market. Saath me AR reading is a must…then you can be ahead of 80% of folks in the market.
A senior sent me a quote just today by Dorsey:
Pat Dorsey: Beahvorial Edge
But the reality is that, simply acting a little bit more rationally than everybody else, having that behavioral advantage, I think is a far more achievable source of alpha than actually out-thinking everybody else, because thereâs a lot of money, a lot of computing power, even a lot of shady tipsters being thrown at trying to get more information than the other guy. But if you just kind of sit back and say, can I just behave a little bit more rationally? I would say thatâs pretty achievable given how irrational the market can be.
Hi Subash,
As mentioned by Donald, we can readily leverage the capabilities of screener.in without re-inventing the wheel again.
Please concentrate your efforts, in co-ordination with Pratyush, to arrive at a model analysis template as per Pat Dorsey framework. I am also currently reading it and may be help you guys at some point, if required.
After reading One Up…I prepared a basic template, which is kind of a dashboard for my portfolio stocks. However, one need to automate the whole data crunching and computation process to free up our time for reading good books and ARs
attached: Quick Analysis template (Lynch)
Peter_Lynch_Dashboard.xlsx (35.8 KB)
Hi All,
Another pattern which we can try to see is what is the kind of management the company is building? although in our space promoters will be the key guys, but forward looking companies will hire professionals for specific jobs.
And if we find few people leaving large companies and joining our undiscovered stories that can be an indicator of good things to come. A good place to see this is just search for the name of the company which you track on naukri.com or linkedin and one can see the openings for which they are advertising.
Regards,
Saurabh
PS- Recent example, Suprajit advertising in yesterdays ET for a person to head their acquisition division.
