H2 CY24 - The Shipping Man coco is back

This was the first real bull market in our life. 
2007, we were toddlers. 2018, unconscious. It takes time to experience and imbibe, when to leave the full blown party. 

The mistakes made in past cycles were not of buying. Buying was diligent, slow, thoughtful, at opportune times. Selling is mistake which most of us made - even seasoned guys.

The Shipping Man 

Currently the scene played in Banks is very interesting. This is very different from what played in 2021-2024. 

Same company can be played in different themes. Understanding the game which one is playing is important. The game may look same to outsider, but has many nuances.

This year, randomly, few large banks vacated the retail asset growth. AND randomly, small banks got hit in unsecured book. AND Coincidently, they got a space to grow their secured retail book. This should be interesting case to look back few years down the line. 

As shipping tycoon Coco says in The Shipping Man – “When you want to cry, really u should buy!"

 

H2 CY23 - Peak & Insecurities

This is how markets operate every time. 

Zero, Zero, Zero, and then 3x. And at peak, usually brain gets high, and doesnt want to sell. One of sayings in market is - bech ke pachtao, rakh ke nahi! 

Same happens when markets are falling down, and brain gets gripped by fear, and doesnt wants to buy! Read "Your money and your brain" - by Jason Zweig

--

G says KCP - Knowledge builds conviction, conviction builds patience. 

A health coach or doctor can give only gyan (and some band-aid). Patient needs to modify ones lifestyle oneself. Until the patient reads, explores and experiments, to build his own conviction, he wont learn - and will always be in confusion/conflict - looking for one or another doctor or baba. Doctor unfortunately cannot give health. 

Fund managers, however, may create wealth for patients. But till patient reads, explores and experiments to build conviction, he wont understand or ENJOY THE JOURNEY. And just looking at wealth number grow on screen is meaningless insatiable screen p0rn - without utility.   

Unfortunately, fund managers (with their own insecurities) are only inflaming the insecurities of patients, by JUST talking about end product - wealth. A patient, who is sick at 10L, would never be healthy at 10c, till root is addressed. Its not an asset issue - its mindset issue.

15% on 1 is 15L - beyond that life is for learning, exploring, joyful light work, joyful engagements, beauty, leisure.... Compounding, but blissfully detached

--   

Images/videos are already deep fake. What if trust in Reserve Banks' currency is broken. What if, money/wealth may somehow perish in this format. 

The only WAY OUT - is to LEARN INWARDS, and fill in the voids / insecurities.    

 

H1 CY23 - Circling the Wagons

Pabrai gave this magmun opus talk, summarizing Buffett's last 70yrs.

Link 

In nutshell, most of Buffett's returns are coming from 11 companies and 1 person (Ajit). 

And selection / future performance was a random event. It cant be predicted, just guessed with conservative assessment, folded hands, being in the market for long and random luck.

Graham also got his lion's share from GEICO investment.

Same, with Nick Sleep - most from amazon investment. 

One company, held very very long, and hopefully successful, changes the course of returns. 

--The End --

H2 CY22 - Psychology of Money

This year is washout for most funds. 

Continuing my analysis from 2015, this is eight year, making 8-y returns "dim" for most of funds - grounding the "expectations" of most people. Dancing, singing, seminars, giving lectures doesnt mean surety of returns, or entitlement of returns. Most return, even for Buffett, despite all dancing/singing/circus, appears to have come from ONE MAJOR DEICISON IN LAST 20YEARS  - buying Apple, in plenty, sometime in 2017!!  

Return OF capital, is becoming more important than Return ON capital, with OpenAI and Boston Dynamics stunts - looks like many many people r sleepwalking into losing livelihood.  

Psychology of Money

Psychology of Money is most powerful book to be read/ to be shared with kids - more important than Graham. Money requires less of rocket science, more of Self-management. 

People exhibit rocket science intelligence - aka common biases like - 

1) "I should make x returns" - This ET article, link, did good analysis for last 4 decades, busting expectation myths.   

2) "I think Ashwariya is better than my current girl" - the fantasy bias.

3) "I want my current girl, with face of Ashwariya, body of Angelina and ... " - u get the point, fantasy bias#2

4) "लगता है मेरी गाड़ी slow है, बाकि सब गाड़ी  तेज़ हैं "  - the instagram bias - everyone's  life looks beautiful on Instagram. Fish sees the bait, never the hook. 

5) "You should drive like this" - pillion rider fantasy - no understanding of nuances.

6) Ignoring/not researching shenanigans of fund management - not knowing, what one doesn't know- Ostridge in the sand bias.

7) "Property gave X% since 1950" - as if its going to repeat in next 70yrs, without understanding credit cycles or micro-markets - Repeatability bias + Regency bias

.. and many more. 

Morgan Housel ends the book, with examples of his decision making - how he kept is investments simple, in index funds + zero debt + operated on low expectations.  And how his dad quit medicine with frugal lifestyle and low expectations. 

Most important thing is leading relaxed life, with relaxed people with self-knowledge, with whom one can enjoy the life. 

Less of dance/singing/intelligence of cartoon managers .. More of mathematical laws of COMPOUNDING + FRUGALITY and good psychology. And tons of gratitude 🙏

H1 CY22 - Invested with Gratitude. And some data for disenchantment

🙏

We invest in companies which are inexpensive and compounding AND available cheap for a reason. Under unknown circumstances, and huge mortality of businesses /  economy, I accept the returns, with gratitude - not with entitlement.  

Aim is to compound - some periods r fast, some r slow. Being alive for long is more important, than playing recklessly.

Currently, Im holding somethings where the probability of success is high - however, Im uncertain of monetary system or lockdowns or whatever is happening around... So diversify away from the system. And unalign the mind from dependence of money.  

Data for disenchantment

Some very interesting data emerged out of analysis of past 5-7yrs -  

 - For 2016-2020, 5y period, almost all funds came down to zero return due to covid selloff in march2020. 

 - Very few were able to raise money in 2020-2021 

 - Mkts recovered in 20-22, overall giving very modest returns for (5+2)year period, assuming no additional capital in downturn. 

 - Most of superior IRR came from buying 20cents things in covid downturn period. 

 - Unsurprisingly, retail panicked in covid, and sold off at wrong time. 

 - And as a matter of caution, many FMs also exited, surprisingly. 

Understanding these numbers need some deep analysis, for which I used following - 

- PMS Fund returns are NOT= individual returns. Fund IRR majorly depends on ability to do marketing during downturns - with new capital, buying dollar for 20cents, massively spikes up IRR. Retail, who added during downturns, made good returns.  

- Fund House IRR data is easy to find. However inflows/outflows r difficult to find, and very different for different Fund Houses.  Hence comparing 2 funds, without taking fund flows into account, is totally incorrect exercise.

- How funds are merged/closing their schemes also needs to be taken into account.

- Context of period needs to be taken into account - markets rising from 2013 bottom or 2020 bottom will show excellent returns. But 2015 or 2016 onwards, numbers will change drastically. Sometimes, 4y or 7y is better way to look into things, but marketing decides narration. 

This entire comparison workout is IMPOSSIBLE exercise  - and anything else is INCORRECT way to think. 

Wrong analysis, wrong periods, wrong narratives r used to justify the marketing. Too much greedy narratives r floating all over in IT-salaries / crypto / startups / funds /real estate - and without good data analysis / insights, this is all a marketing mirage. 

IMO, best option is to sit with the FM and educate oneself. 

-- The END -- 

H2 CY21 - Follow The Process

The process is simple - 

• Frugality
• Buy 50c to dollar
• Compounding
• Patience
• Play the long game
• Many bets over 50yr, load when conditions permit
• Survive
• Follow rules irrespective of fads

--

The cos r doing well and allocation is excellent.  

--  

THE END

HI CY21 - Tsunami

Notes to myself

• Its not easy. It looks simple to talk about 2 stocks, but the work needed to filter AND hold is not easy process. 
• Most people are not fit to be in markets, which is good for us, those who want to be in market. Most want FD returns - we want non linear returns. If we want 5x, we need to train our minds to bear 1/5x also - and take decisions when 1/5 comes! Without discipline + training + validating the thesis, it wont happen!
• 2-4 best ideas in PF are enough! If 1 goes kaput, other 2-3 will ensure adequate returns. 
• And its not a finance game. Its a psychological war. 
• Decisions become difficult to make at every successive price point. 
• ROE x Reinvestment opportunity within business (aka headroom for growth) x compounding timeframe is only truth which works. 
• When Tsunami is coming, dont stand dreaming with a cup.
• Follow the known money making mentors - not unknown advertisers!

Updates

The 2-horse cart is working on full horse power. Somethings have got preponed, somethings delayed naturally. But overall results are joyful. Allocations are perfect. 

Returns are joyful chiefly due to timely decision to buy NewCos which we were studying for last 4yrs + preponement of govt policy + some global lucky events + *courage* to invest more capital when there was blood. 

Rice updates - it did very well in last 2-3yrs despite what ticker tape shows-  

• There was a crash in crop prices by 8-10rs in last 2 seasons, which is equivalent to 500c-600c shortfall in profits 
• India's most important trading partner, Iran is out of market as its debarred from buying
• Onslaught of cases after cases (2 battles won, 1 left) - Insignificant useless noise IMO. 
• The way they performed in q4, when one director was imprisoned is commendable. They sowed the seeds for the next yr very very well.
• In between, Crona and employee/logistical issues

Its facing troubles just like ALIBABA where biz is excellent/growing/moat increasing, but company is facing resistance from someone unnamed. They r doers, and winners. Underlying compounding is working well. Under such circumstances, mgmt has done very well and is entitled to my appreciation. (This is not to say that we wont sell off or change allocation when right time/opportunity appears)

Reading Nick Sleep and Thomas Phelps, sitting on lazyboy armchair is AC room or watching Munger buy struggling ALIBABA is orgasmic - but operating with same mindset, when decision making needs to be executed in portfolio,  is something else!

--

Hopefully, tsunami is coming in all assets. More later.   

--

Etc

I got to know about divorce of a friend. Being along with a tantrum throwing old-toddler doesn't yield anything in the end. So cut off ALL obnoxious people early - stay with peaceful, easy, light, happy go getters, believers, who produce and share generously and live harmoniously. This is more important that making money in the end!

--The End -- 

H2 CY20 - Status Quo

 Status Quo - Cos doing well. Nothing much to add. 

-- The End -- 

H1 CY20

Foodcos are doing bumper in the worst environment when everything was stalled. Some are compounding in nature, some are event based themes. (A article written sometime back, for curious minds - link)
Holdco was converted, as discount between holdco and underlying asset filled up + financial institutions face another major risk now - anarchy.  

General
Most of industries are in bad shape, RE is dead (and hopefully black money buried should sink - if not by value, by time-value), banks r disingenuous and deceptive in numbers (a small blip has wiped out profits and assets for over smart bankers), and their main customer base - middle class doesn't/wont have jobs or purchasing power and industry doesn't need capital with over capacity and shrinking volumes. Market valuations are disconnected from the ground.  

Whether investors will be hit by inflation, or deflation or currency debasement or nationalization of assets or anarchy, is unknown - the situation is precarious. And many equity or debt assets may be useless. 

The only thing which may somewhat work is some compounding equity, some Gold or alt-currencies, and some agricultural land for self-use. 

--The End -- 

H2 CY19 - Water Water Everywhere, Not a Drop to Drink!

Businesses cant do well when the house is on fire. It is stupid to have a million dollar in bank, when kids/girls are not safe.

--
Holdings are doing well despite present ongoing scenario - they are the basic ESSENTIALS, and should glide through well - but businesses cant grow in environment of social unrest. Recession proof FMCG is facing major heat now and should be visible in this quarter.

I dont find opportunities in this market*. Buying at 60c and selling at 90c is not the game I wish to play. And dollar-compounding businesses are either less or are expensive. Most businesses are either facing

• Demand destruction 
• Balance sheet destruction, esp the loved banks and tiger-riding NBFC cowboys, 
• Size of debt on balance sheet is not remunerative to take a bet, 
• Business returns are not great
• Businesses facing bureaucratic onslaught (Against the on-going narratives - the costs of doing biz has gone up).

--
I am fearful of the ongoing environment, and not sanguine about future of many industries, chiefly due to tech change or trade wars. And so is felt by private investors and businessmen. As I mentioned in my last note, follow the money - follow the people who have made money - who r not rent seekers or tv boys - follow the people who r investing their capital, who sink and swim with their personal capital, who have skin in the game. Rest all talk is cheap.

--
* Good work exists when less is done, and for oneself! Found that Quarantino talks about making only 10 movies in his lifetime - just like Buffett's punchcard. Will follow this, unless something worth doing comes on the table. 

-- The End

H1 CY19 - The bars are empty!

Credits - https://travel.jumia.com/

Recently, Rakesh Jhunjhunwala succinctly described the mood of the current economy when he said - Nifty is touching all time high, but all the pubs are empty! 

Mass plant shutdowns (in auto sector), auto dealers shutting down their shops, FMCG slowdown, pharma facing adulteration issues, NBFCs rockstars asking for "first 10% loss should be borne by the Govt" - its gloomy. The govt, seems to be interested in raising taxes upwards. The industry concalls do not give any idea why this degrowth is happening or when the things will rebound. 

In this gloom and doom, I think food sector is the only oasis. Q4Fy19 results also points out that only the food segments did well - when even FMCG was getting butchered. 

Overall, blood-on-streets season continues, THINK and do whatever best u can!

--
Last year, around september, when NBFC crises began to emerge, many people had multiple issues with MFI/SFBs. Common narrative was - ".. but what if xyz happens". Thats the nature of narrative. Most of narrators dont have skin in the game - and wont ever have, as they are not trained for decision making in stressful times. And its not their own money - so, safety aka no-volatility-of-stock-prices is desired.  During such times, the best thing for a person knowledgeable about a industry, is to buy more and more. Same happened in Sugar sector last year, when there was zero visibility - and now suddenly the story seems to have become tad optimistic.

As a rough guide, 

• I have learnt that PRIVATE INVESTORS (putting their own money to work AND having no other commercial product to sell to investors) act and think like smart businessmen. 
• They put in their own money behind their opinions. (Just let this thought sink in, as there is no other bigger accolade than this!)
• They are not answerable to anyone, except themselves. This looks mundane, but relieving your brainpower by NOT answering to everyone's common over-heard narratives/emotional swings/greed/fear/drama, is a superpower. In super emotive markets, weeding off emotionally-moody and weak is the best thing to do.  
• They dont worry about price fluctuations - and they think about stocks like businesses to be acquired, to be run, over decades. This viewpoint itself makes buying during volatility easier. 
• Willingness to put in one's money, leads to through research, which leads to conviction, concentration and patience
• They are temperamentally most stable people - not looking for small adventures/engagements/entertainment or small wins to feel good. This also reflects in the fact that they can bet big when the opportunity arises, as they can buy for years, without worrying for a quick exit.  
• They are conservative - after all its their own money. Longevity and survival is important than winning annual marketing games. 
• There is lack of involvement into other entertaining options like futures/options or smart quick money making deals. 
• They understand power of focus. They understand not getting involved into other commercial businesses.

I have learnt that being along with 2-3 self-made private investors, is better than following 10k people. 
Find them. Copy them. 

-- End --

H2 CY18 - Planted

The Game

You can't judge another investor's actions without understanding the game they're playing. There's so much underneath it... position sizing, capital flows, portfolio construction, timeframe, objectives, risk management, composition, etc... investing/trading is idiosyncratic.- @EdBorgato

True. 

We are not in the game of minimizing volatility as many institutions are. Institutions, running billions of retail money, want to retain that capital. So their objective is minimize volatility and give comfort of not-showing-any-contraction to the retail investors guys. Finally, retail gets exactly what they want.

We want to maximize returns, using volatility, still being in cheapest unloved, under researched areas of markets.  Chaos is welcome part of process, not some unexpected hindrance. Volatility is like speed breakers on the way... a car slowing at speed breakers doesn't mean the car is faulty. Best advantage to us is that 99% people view volatility and uncertainty as indigestible, and hence get off the car at wrong time.

Know the game you want to play. 

Planted

Our companies r doing well. Growing by 20-25%. The growth may not be visible, but it is working, under the hood.

Investing isn’t about PE ratios, ROEs, balance sheet analysis, company analysis … its being able to sit and take decision when everyone is losing their heads and blabbering same narrative, when the brain is freezing, prices are contracting, there is no visibility or certainity, and hopelessness all around and no new information is in sight – and still remain focused on workings of the underlying businesses in such turmoils. Our everyday OPERATIONAL HUSTLE is TO TIRE OUT THE MARKETS, not get tired out by the markets. Its not feeling down or wreaked or deprived due to falling prices. This is real face of investing.  

Some random general observations

• Many swashbucklers of yesteryear have fallen due to governance problems - punj, ranbaxy, sun, thapars, gaurs. Major and interesting shifts are happening in Indian corporates. Shows that only conservative, non adventurous and debt free may survive in long run. Check, Billions to Bust - link.
• Many beloved stocks are down to 2014/15 or earlier levels - Yes! No return for last 4+ years in many beloved high quality names - Tata motors, kajaria, kaya, greenply, greenlam, NBCC, vst tiller, symphony, db corp, HT, jagaran, navneet, bajaj auto, eicher, MPS, poly medi, eveready, poddar housing, bse, lupin, amara raja, gateway, emami, mayur uniquoters, sun pharma, cera, hero motors, crisil, acceleya, eclerx, dhanuka, lupin, cipla, Dr Reddy, ajanta .. list is endless. All of them were beloved stocks at some point of time. Many of them had poor capital allocation or having no growth (and hence management not going for capex) leading to PE contraction, or just repaying debt or dividends. 
• Observing that "Start-ups" dont make money or are not in the business of ever making money*. Its just playing musical chair business. 
• Finding that even listed companies from new economy, optically showing high RoE, but are in fact, unable to bear cost of equity capital of the investors (unless investors go ahead and play musical chairs). Ex- check the capital invested in Matrimony.com , and see RoE generated on real cost of equity invested. As going concern, RoEs are not lucrative. Its tough to start a business from scratch, (tougher to bootstrap), and generate honourable RoE. 

Recommended

Read - Masterclass with Super investors

Watch - Investing is hard

--The end.

*Definition of making money - In one conversation, a friend hitting a start-up  musical chair jackpot, thought he "made some money" - without realizing that his process is non-repeatable, and he is developing no repeatable skills, and he cant do same work in next 50 years of his life! Moreover, easy money killed the purpose of life!

Making money = attaining and growing skill time after time + repeatable process + having some purpose + having fun doing that in next 50-60 years! Anything, not adhering to this, is just not making money!

H1 CY18: Developments around a Brand

BRAND is manifestation of corporate thinking.

It requires (1) vision - long term thinking AND (2) day-to-day execution to achieve that thinking. Relentlessly!

BRAND is not just a logo, tag or symbol or advertisements. Its trust with customer, trust with business partners, availability of product (which means, company needs to have financial strength to procure and manufacture and distribute), honor with the bankers and hustle 24x7x365 for decades. 

One can clearly observe across leaders in different industries that there is CONSISTENCY OF CONDUCT - which means - If the management is excelling in one practice, it wont be corrupt in other practices. One cant expect management to "fool" around with investors, when they are dealing - exceedingly well - with farmers, distributors, bankers, government and other partners.  

AND the ULTIMATE JUDGES ARE THE COMPETITORS - Its difficult to GAIN RESPECT OF COMPETITORS again and again. ChamanLal guys gave plenty of time on THEIR own concall to appreciate the KRBL management.  

And NIELSON has been rating IndiaGate as top/dominant/progressing brand every year. For many years!

There are 3-4 main pain points in investment community against KRBL - 

1) Allegations by news article - Yes! They are "allegations" using unproved narrative when there is no charge against company and case is subjudice - lets not flow in downward spiral with just the allegations. The channel didnt mention about sub-judice nature of the case, or evidences involved. The best persuasive stock to be added to the story was to link the narrative with a BIG NUCLEAR-BOMB WORD - "augu****"  - narrative was made to stick in the minds of the readers. The channel doesn't have any downside and the story may be a planted one. 

Historically, had there been identical cases against other reputed corporates? The answer is Yes!! - 
ITC was raked in by ED in 1995 - there were direct allegations against the company, directors and US partners. The case dragged on for years, but DIDNT affect the operations of the company. If history is any guide....

DABUR's director assets were seized recently by ED. 

Net net, my take on event is - keep thinking and revising the thesis, with additional information. 

2) Poor crisis management - I expected mgmt to handle it well, with written disclosures to the exchange. But usually, corporates find themselves as deer-in-the-headlight during such situations. Remember, Uber's cases and responses in India?

3) Auditors - were on track to be replaced last year and it was discussed in AGM. I hope they will be replaced this year. With so much floodlights on the management, expect good work ahead!!

4) Pabrai deal fallout - Pabrai was hard working enough to do his through due diligence, despite a non-resident and gutsy enough to PUT IN BIG MONEY ON THE TABLE. However, ED thing was a black swan - YET unproved/subjudice. Let the case play its course in the courts before handing over a guilty verdict to the management. We know what happened to ITC's operations from the history!

5) No Sales growth - It is the EASIEST industry to show sales growth at the expense of profits - its not difficult to generate volumes and sales. However, if one listens to the concalls, the focus is on perpetuity, premierization, and growth of profits. PERIOD. 

With the guidance of 12-15% volume growth + new varieties of regional rice + new health products, the company's vision is clear to move towards creating HEALTH PLATFORM. With that in mind, the company has (1) moved to increased branded portfolio (2) high priced, new varieties of rice (3) new and high value products like Chia/Flax/Qunioa/Sprouted rice etc which dont require aging, are FMCG in-nature. The work put in by the company to launch new products and conduct events/shows over past 6 months are commendable - all of which is available on social media. The changes in advertisement/product placement are evident (change in advertisements from social value, towards health benefits can be seen on packs/ads).

Brand is a cumulative affect of last 2 decades of efforts - No one else is moving in that direction, as there is no money+vision in the industry. Industry players are facing defaults from iran and banks are enforcing criminal proceedings against NPA accounts. 

The supply chain is unreplicable - HUL, marico, cargil, etc tried and failed. Its looks simple, but not easy!! Plus the supply chain from India to mid-east is unique to them- long presence of IG as high priced brand + cheap sourcing advantage of high valued items like Qunioa from India, where marketing/supply-chain/brand is the biggest pain point for  the farmers. Totally un-replicable!

15% vols, 10% pricing growth and new businesses - I expect a moonshot. The business should do well. 

----Not an investment advise---- 

H2 CY17 - The Fallibles

Poorer companies r getting jacked up/raising as much money as desired from poor retail guys - most dont exhibit sustainable earnings or major change in operations. Ironically, many good large cap companies havnt moved an inch in last 3 years, mostly due to no growth or degrowth. Professional investors r somewhat cautious and doesnt seem to be playing with leverage yet.

One can find young crowd from tier III/IV towns travelling in local metro, and trading on their new 4G mobile connection with slick apps - on one hand, its indicates consumption being accessible to everyone, great market potential unleashing in India, and potential of many new investors ready to on-board financial markets; on other hand, current excesses in the markets. All said and done, India is a must market to be in now. 

The FMCG player is working well. In classical Munger's coke way (Practical thought about practical thought), they are far far ahead of competition. The super cash flows are giving them enough ammunition to experiment with products and advertisements/promotions. Product wise, not only the core business is growing fast (developing new segments, capturing unorganized, and assailing organised market share), new additional products are way ahead than any other imitator yet. Also, the flow of advertisement is a case study in itself - its changed rapidly from Pavlovian conditioning to emotive to operant conditioning now. The new segments being churned out of traditional products are exemplary. 

Credit industry too is growing fast and is expected to grow by 30-35% over next 3-5yrs (as mentioned in most industry concalls). There would be clear shift from unorganised to organised players in the industry, as new private sector banks increase reach, product portfolio and ticket size. The unorganized market and unbanked population, even in Tier I towns like Delhi/Bombay is huge. The consumption, in this segment, is quite observable by travelling in local metro/buses and finding ever-growing flux of people from smaller towns. There has been a drastic change in just last 5 years - one can easily observe that the average age of travelers in local metro has gone down towards mid-twenties, travelling around either for higher education or for jobs. 

In my view, there can be some market-contraction. However, if one pulls out of mkts, it can pose a timing-risk against growing businesses. Few played the game of mkt-timing since last 1.5 years - only to repent. Few jumped back with deprival super-reaction and FOMO. Predicting mkt-timing is difficult, as many companies are sitting unleveraged, or have over capacity, or due to reflexivity in the markets (prices creates business environment - poor balance sheets start looking healthy if they are able to raise money at high prices and move forward)

Businesses which are working well and growing fast, with visible runway, may deal well with mkt-contraction - eventually, price is slave of the future earnings. No growth/degrowth/shady companies can face headwinds or some time corrections. Possibility of new long term capital gains taxes, rumored to be introduced, is worrisome. 

In such times of euphoria, lets not forget how fallible we can be, like Bruce Berkowitz Fairholme/Eddie Lampert and their SEARS. And Bill Ackman/Sequoia and their Valeant. 

H1 CY17: Do Beautiful Business

This letter got delayed as I was travelling a bit.

I chanced upon an impromptu meeting with Pabrai. He was very generous with his time and thoughts. Got to see very closely the way he thinks about investments - the underlying question every time while discussing investment ideas was - how much growth can be expected in 5 years and what are its components? 

This was followed up by discussion on finding solutions to create do-good societal institutions which can run sustainably, with minimal capital inputs. 

He mentioned about Dr V of Aarvind Eye Care - how the doctor created a sustainable charitable and super efficient eye care hospital at low costs. Read Infinite Vision.

We also discussed Dakshna's effort in giving free education, followed by 78-year-young and super energetic Col Ram Sharma of Dakshna travelling with me to study the education model of Baba Aya Singh college, near Amritsar and how it can be cloned. If you haven't seen documentary on college by Ravish of NDTV, please see here - link.

--

The run of last few years should be taken with a pinch of salt - it was a good period in markets where everything has done well. The future will not be all butterflies and sunshine. 

Many sectors in economy are limping, as they should, due to change in technology/other reasons. Unemployment is going to be rule, rather than exception.  If we are not mentally preparing for such a environment, it may come as a shock. Mentally, this calls for disengaging from the game of chasing money beyond one's requirements, but understanding the capitalistic systems well and participating in it intelligently. And building local communities, neighborhood support groups, building local help/bartering/business groups around you. You may like to read - Beautiful Business. 

Do beautiful business. 

H2 CY16 - Demon - Narrative fallacy

Was demonetization good or bad, depends on which category a person belonged.
For organised capitalists, it was a god sent opportunity, as it's leading to consolidation n mkt opportunity. But for poor people, labourers, farmers,  SMEs, mSMEs, it was a devil's created mess.

Surely, GDP will go up and it will be hailed as masterstroke by paid media, but at the cost of heavy agony to the masses. In a country, where 60% population lives under $3 a day, this was a heartless n draconian.

The minds of the youth r seeded with insecurity.  There isn't any new hospitals, schools, social welfare projects that came up in last 2-3yrs, and the household savings - the  security of masses - has also been usurped away from poor, presumably to save SBI n its clients. Sadly, entire exercise hadn't yielded anything as the entire capital has come back to RBI. Next will be cyber hacks n misuse of Aadhaar. 

Someone did review of few years of history - last 5000 yrs - and the history doesn't make future look good. See this.

Placement
As capitalists, considering the economic earthquake, we r positioned well. Food, water, air n credit, all supplied by private sellers, r now the basic requirements of economically imbalanced society run by capitalists. Till it lasts this way.  

H1 CY16 - AlphaGO

Markets are getting too euphoric, with indices turning near to all time highs. This is total contradiction to the ground realities. On ground, industry is still living with hope and possibilities. Banks are in dire-most state and Messihas aka Rajans are evicted - one can understand where the puck is going. 

The wind sector story which started with too many bells and whistles, isn't being supported on ground level. Evacuation of electricity/payment by SEBs is still problem. The focus of investors is shifting towards Solar, where IRRs r lower, but evacuation is not a problem yet, as its size is tiny compared to wind.

Wat concerns me presently is the velocity of rate of change in tech ecosystem, which is disturbing each-and-every industry. Robotics/AI/Drones/synthetic bio/VR/batteries/fintech are changing at a rapid speed. I worry, that this will lead to unemployment, chaos, decrease in earning power of masses, and more inequality, with power shifting in hands of very few people eventually - looks like there will be only 2 classes - cash rich and credit rich. Labour intensive states can lose 'labour-cost-advantage' in age of cheap robots. Already job-creation is a nightmare. This is wat Jeff Weiner, linkedin guy, wrote in recent letter. 

           "Remember that dystopian view of the future in which technology displaces millions of people from their jobs? It's happening. In the last three weeks alone, Foxconn announced it will replace 60,000 factory workers with robots, a former CEO of McDonald’s said given rising wages, the same would happen throughout their franchises, Walmart announced plans to start testing drones in its warehouses, and Elon Musk predicted fully autonomous car technology would arrive within two years."

Considering that, we are looking for industries where rate of change is less/they are helped by the new technologies.  The capital raised is undeployed as valuations of desirables did not come in our range. Will wait.

H2 CY15 - Oh! The Humanities

Same story repeating (link) - lots of talks, too much politics, and sadly nothing getting done. Looks like broadcasting such noisy frightful bureaucratic drama on the TV is taking away our mental bandwidth/higher purposes from our lives and society. Purposes like invention, progress, healthcare, basic living rights, etc etc are strangely not visible. Unequal economic distribution, leading to flow of people towards metros is leading to stress, population imbalances, corruption, anxiety, pollution - it looks like a basic fabric of cities is destroyed - Delhi is full of dust and traffic and has become gas chamber, with possibly worst air quality - link. Looks like it will lead to public health epidemic sooner or later. 

Insecurity and unequal opportunity is pretty prevalent today. Unequalness in society is caused by corruption, which inturn is caused by demanding/consuming/hoarding more than one could consume in its lifetime - typical human condition. And it stems possibly from all sort of personal feelings of inadequacies/insecurities/incompleteness/fear. Eckhart Tolle has written/said well about this. Feelings of inadequacies, leads one to accumulate more and more, and consume more and more, giving fuel to commercial entities to exploit our biases. Munger understood this quite early in his life when he quoted - I wanted to get filthy rich like Warren not because I wanted ferraris, but because I desperately wanted to get independent. People misjudge the balance between utility of money (aka personal freedom to pursue one's passions) VS ego-satisfying consumption fueled by money. One is inward virtue, other is external embellishment. [[[[[[["Personal incompleteness" was a topic of great interest to me in last few years, and I was glad to work with few schools in last 2 years - you may see this Project Flourish files here. (and for a hilarious take, see BigBangTheory's Sheldon Cooper's own feelings of incompleteness, leading him unsatisfied and anxious)]]]]]]]

Commercial entities have always flouted our inadequacies/wants and the laws-of-nature with impunity. I am glad about a new wave which has sweeped Indian fmcg sector - Baba ramdev's pitanjali is giving tough fight to incumbent evergreen fmcg players with assumed-to-be permanent indestructible moats. I think the market here was ripe for "somewhat seemingly" honest/organic entity to enter and fight against for-profit-at-any-cost entities. Such entities don't realise that the cost of selling product is not just raw-material/operating costs, but also invisible costs like long term degradation of public health/environment. Things like cokes, snacks, or financial products (CDOs etc) of the worlds may do well for a period, but sooner or later they will come crashing down as a set of public will awaken to their mis-utility. Would be glad if ramdev's or some other organic movement works rationally and succeeds here. 

Rotten Picks 

There aren't many new insights presently. Its difficult to find amalgamation of good management, good business, and right valuations and industry tailwinds at the same time. What amuses me is the constant flow of new picks/gems on the channels and investor meets. Not many talk about old picks where they would like to still buy more and more upwards - as if companies in the pocket start to stink and old ideas begin to rot like vegetables :))..... Unlike food, in investing, one needs to relish rotten picks more than fresh picks. 

There is always a no 4, no 5 and so on, in list of possible opportunities. But they are always compared against no1 and no2. The investing process may look inactive to a novices, but effort is always ON in comparing things at multiple levels. As Jason Zweig says - 99.5% of the time the right thing for people to do is nothing.

We are in good company. 

H1 CY15 - In Thermals

The hawks are making lazy circles as they are in the uplifting convection thermals. 

The FMCG player had seen a radical shift in the power equation in last few months. Few more competitors died. Many refused to participate in crop buying, as the prices fell down and overleveraged traders exited. Lower prices, and higher volumes, is good news. The company was able to grow its dominance - both at the retail end, by expanding network, and at procurement end, by procuring more and by being a ready buyer. Goodwill in community has also increased. 

The wind energy sector is also facing tailwinds. Govt's concessions are helping the industry. But the rest of infra capex is still languishing. The hopes of industry are kicked down the timeline - from end-of-fy15 to H2-of-fy16 to now, maybe-fy17. Overall, volumes are slowing in many industries and we will see negative surprises. The hope-bubble is punchering as industries arn’t seeing much kickstarting on the ground. 

SEBs (state electricity boards) position hasn’t improved as expected. The new government claims that the 2012 FRP (Financial restructuring package) has failed. The losses of SEBs have grown. States like Rajasthan have again approached banks for another loan restructuring. Many guys have not increased power rates as promised in FRP. Without strong political will, conditions in power-distribution are very poor and slow. 

The exuberance of last few months OND & JFM has come down in many sectors.

Good things – India is still being considered as better off in the indebted world. The crude, commodities and mass-market are on our side. And the Indian retail investor is waking up. The capital flows from the Indian retail have jumped sharply, and this looks like to be a year with highest retail participation coming up. 

General et al - Overall, the general environ looks very chaotic today. Govt infights, regulatory indecisions, scams, pollutions, rising population in few metros, adulteration, lawlessness looks common in public affairs. Hats off to the entreprenuers who are still growing in such environs. Hope things smoothen.  

H2 CY14 - Sexy Sirens

General Economy

Lots of marketing is being done by Government to attract investors. Modi is playing relentless tireless cheerleader for India - a true capitalist PM and seems to be putting our best foot forward. Some ambitious projects are being promoted by Government– like the 1 lac MW solar project. For more, check this jazzy presentation by Government – 200 days of power minister’s achievements. Solar is aggressively being pushed and made mandatory for buildings in Haryana. With such initiatives, if implemented, things look good for India.

Oil downfall is another good news for India, as well as for other consuming countries. With oil reaching $50, Indians couldnt have asked for more. Although not passed to consumer, it is still benefiting government to manage the deficit. 

At same time, the fall in soft and hard commodities will reduce incomes for many players, esp. farmers. Rural economy is facing decline as observed by few farmers. The prices of many crops – cotton, rice, wheat, sugar, maize, etc - this season are very low. Even the source of easy money for farmers , viz.  the land sale – is on decline, as no more aggressive land buying is done by Industry or real estate developers.  Overall reduction in farmers' income is visible in decline in agricultural equipments/tractor sale. This doesnt bode well. 

Hope, the dope!

A part of market, sectors like consumption, which were expensive last year, have become psychotic this year. Seems like desperate money/newbies facing deprival super-reaction are chasing and buying in panic. Few companies have shown ZERO growth over past 6 years - zero, nil, nada, zilch!!! - and currently hyped up to justify 60x pe!! Another one, sells at 70x pe, 12x sales! Pied Pipers are playing and rats are high on opium.

Its easy to digress from one's strategy at such times, and get swayed by sexy sirens. The landscape look easy, but it is actually full of landmines. 

YOU as The Chief Manager

The question often arises, what if market tanks down from this level. Secondly, if it falls, do we see absolute crash like 1929?

My take is 1929 kind of situations are averted lately by easy money from the Feds. It has set up a entitlement assumption amongst fund managers that Government will protect the economy/markets no matter what. This is what we saw in last credit crises.  

So, if not an absolute blowout, how do we manage minor setbacks? AND at the same time, how do we think about the scenario where the market goes in opposite direction and becomes fairytale bull runs for 2/3/5 years? My answer is by becoming your own prudent asset allocator.

Time again, we have seen that assets, no matter what, over time, fetch higher valuations provided managements don’t swindle. There would be many buses for each bus missed, but the ticket price every year would escalate. Buffett was right when he said that compounding should start as early as possible – and asset acquisition should be done aggressively early on. 

It makes sense to take consistent additional exposure in assets, with inflows from earning income (or dividends, or insurance float/debt as in case of Buffett).  Managing fixed allocation, with some idle cash on balance sheet is not a great strategy for personal allocations. Rather, being fully in equities, and keep adding additional capital in rising economy, is the way to be (keeping an eye on valuations ofcourse). Similarly, adding when the markets tank, and successively take float/leverage, if possible (keeping in view on markets) on way down, could be much better policy. Again, nothing is absolute gospel – a careful vigil needs to be kept throughout. But one must keep take reins of one’s financial destiny.

Oppurtunities in a Bull run

This is second most prominent question asked. The answer resides in part in the above section - i.e. managing one's allocations. Its impossible to predict the run of a bull market, or a downfall. The only way is to buy cheapest wherever possible and keep a dynamic allocation, as described above. There is no dearth of opportunities in an upwards markets too. For years, markets can remain high (or low) than one’s wildest expectations – the only way out is to develop multiple skills/earning streams and keep allocating periodically.

I was buying some company last year. This year, I'm still buying it at 3-4x original price because the valuations have moved ahead and growth has accelerated and is visible. So, anchoring to original buy price is WRONG criteria. RIGHT thing is to anchor to the moving intrinsic value and keep allocation a dynamic process.  

As they say, Investing is simple, but not easy.

Etc

Found some interesting stats from different fund managers’ way of investing. Below is a pullout from Bruce Berkowitz’s Fairholme presentation. This is to point out the concentration being followed in his fund, where top security is almost half of the fund. Similar point was recently made by Pabrai at an investing summit in Mumbai,  please enjoy the interesting conversation here.