We have been reading the latest Annual Reports of the companies we are tracking.
In this post, we’re sharing our notes on Annual Reports of the stocks from our watchlist. Please don’t treat this as a buy recommendation. We find these businesses interesting and we may build position (or buy more of those that are already in our portfolio) in them in the future. The purpose of this post is to bring clarity in our understanding of the businesses we are tracking. Putting it up here makes it easier for us to refer them at a future date.
Return on Equity (ROE) is often hailed as the most important metric in judging the efficiency of a business. It is indeed an important metric. Legendary investors around the world have repeatedly highlighted ROE and its importance in investment decisions. One of the world’s most famous investors, Warren Buffett, has time and again expounded on the importance of ROE.
But the matter of fact is that very few new investors have a thorough understanding of ROE and its composition. So, the purpose of this piece of writing is to provide clarity on the concept of ROE and to lay down a practical framework as to how one should use the same to gain insights into the working of a business or an industry.
Simply put, ROE is a measure of profitability that calculates how many rupees of profit a company generates with each rupee of shareholders’ equity.
I was researching a company as a potential investment opportunity in the Indian stock market.
I started reading about the history of the company.
Clicked on a youtube link on its website.
It was a short five-minute video. Very useful.
Then something interesting happened.
On the right side of the youtube page, I was prompted for a video.
It was Yuval Noah Harari. A renowned historian and author.
And also one of my all-time favorites. I was hooked.
I specifically liked this part in the video:
I will address the fake news question, not because it is the easiest to solve, but also because it is the most relevant to what you are doing in Google. And I would say that the current incarnation of the fake news problem has a lot to do with the model of the news and information market. We have constructed a model which basically says, EXCITING NEWS FOR FREE, IN EXCHANGE FOR YOUR ATTENTION.
I was blown away by this last phrase.
In one of our previous posts, we had written about this project of dividing all the letters of Warren Buffett into six parts representing six decades of Buffett’s investment journey. We also wrote about our learnings from the letters of Warren Buffett in the first decade (1957-1966).
This post is on our learnings from his letters in the second decade (1967-1976). For our readers’ convenience, just like the last time, we’ve put together an illustrated version of the letters. Please click here to download it.
Here are the eight big learnings from the second decade of Warren Buffett’s investment journey.
Famous investment columnist and author, Morgan Housel makes a striking point in one of his writings:
The single most important variable for how you’ll do as an investor is how long you can stay invested. I’m always astounded when I think about compound interest and the power that it has for investing. Time is massively powerful.
If I had to simplify it in one sentence, I would say:
“If you can survive for a long time, compound interest will take care of you.”
Or to put it more briefly: “Survive to Thrive”
Please find attached our latest SSIAS Quarterly Newsletter to clients.
In our quarterly newsletter to clients, we not only present our performance but also internalize as to what has worked and what has not. Hence, the whole process of writing actually helps us in improving our investment thesis.
Recently, we sent out our latest letter to clients and we believe that our blog readers will find that letter useful. You can download the letter by clicking here.
If you’d like to read our past letters, you can click here.
“What is the best available source to understand the concept of value investing in stock market?”
If you ask the above question to a room full of top value investors around the world, I believe almost all of them would say “Warren Buffett annual letters to his Limited Partners and Shareholders.” (1957-2018).
Like many stock market enthusiasts, I too read them all.
Made my notes on them.
And referred to them many times.
Over and over again.
One thing which struck me was the evolution of Warren Buffett as an investor in that long period spanning more than six decades.
We, at SSIAS, have taken up this project of dividing all the letters in to six parts representing six decades of Buffett’s investment journey. For our readers convenience, we’ve put together an illustrated version of Buffett’s letters (1957-1966). Please click here to download it.
In this post we aim to find the eight big learnings from the first decade –“Warren Buffett- The Benjamin Graham Investor”
Recently, I wrote a post where we got to know about a few patterns which help us identify emerging moats in the Indian stock market.
Now, we will review Balkrishna Industries and see if it fits into any of the patterns discussed in our previous post. Before proceeding ahead, let’s list down the four patterns to look for in an emerging moat to refresh our memory:
- Fixing Past Misallocation mistakes.
- Intelligent initiatives artificially suppressing the earnings.
- Geographical expansion pulling down the near term earnings.
- Inorganic growth by buying businesses at bargain value and then turning them around.
I am not going to deep-dive into Balkrishna Industries (BKT) here. I wrote a report on BKT in 2014 for Safalniveshak. You may find it here. Recently, the Finception team wrote an awesome post on BKT which I would highly recommend.
Purpose of this post is only limited to finding out whether BKT is following any of the above mentioned patterns or not.
Prof Sanjay Bakshi needs no introduction to the value investment community of India. He has a big fan following across the globe. Prof. Bakshi teaches a very popular course titled Behavioral Finance and Business Valuation to MBA students at Management Development Institute in Delhi, India. He has shared invaluable content on investing in stock market on his blog and youtube channel which can be a guide to anyone who is just starting up his investment career. Recently, I came across a podcast of Prof. Bakshi, which gives away pearls of wisdom, especially for equity investors.
The podcast touches on the following:
- How to factor disruption technologies into your investment thesis
- How to locate an emerging moat for a business
- Why we should evaluate our stock performance using stress adjusted returns
- How to read Warren Buffett’s letters to shareholders
- Ask The Investors: How do I choose the best stock broker?
I would highly recommend you to listen to this episode of The Investor Podcast by Preston Pysh and Stig Brodersen.
This post, however, focuses only on the point of locating an emerging moat for a business. In the subsequent posts in this series, we’ll look at examples of Indian listed companies from this emerging moat lens.
Banks remain an enigma for new and inexperienced investors who are often clueless as to how to go about assessing them for a potential investment in the stock market.
It’s fair to say that banking is one of the toughest industries to understand for new investors.
So we’ve created this report to simplify how banks work. This will definitely help the new investors wrap their head around banking industry. We also cover the history of banking in India and how the landscape has evolved over the years.