Archives for 2014

How to Analyze Any Industry

This is Lesson #18 of my Mastermind Value Investing Course. I am sharing it here given a lot of request from readers.

One of the legendary investors, Peter Lynch, who successfully ran Fidelity’s Magellan mutual fund for more than a decade, has often mentioned that investors are well advised to buy a business that’s so good that an idiot can run it, because sooner or later an idiot will run it.

Now, Lynch’s comment begs an important question – What dictates a company’s economic returns?

I am not asking what determines a company’s share price performance or what determines stock price returns for shareholders. Instead, it’s more important to know what drives a company’s economic profitability and sustainable value creation.

Safal Niveshak is 3 Years Old!

Safal Niveshak is 3 Years Old Yes, it’s time to put on the big boy pants…Safal Niveshak completes three years today. 🙂

A lot has happened in these quick three years, but as with any three-year-old, I’m just getting started.

Most of all, I want to thank each and every one of you for “raising” this initiative to this point — it truly could not have happened without you, dear tribesman.

I know I’ve said it before, but it bears repeating – Thank you so much for reading, for commenting, for your interest and support, for keeping me honest, for helping this entire movement of creating smarter and independent stock market investors become greater and spread wider.

You are magnificent, and I am supremely grateful for your time and attention.

I do feel very fortunate on many levels and I’ve been wanting to use this little milestone to do something special. So I’ve decided to give Safal Niveshak’s birthday to charity: water, a non-profit organization bringing clean, safe drinking water to people in developing countries.

Help Me Celebrate Safal Niveshak’s 4th Birthday
If you go to the special page I’ve created on charity: water and buy a well for a village that doesn’t have one, you can supply clean water to two people for twenty years. If just a few hundred of the readers of Safal Niveshak do it, we could alter the lives of a few thousand people for a generation.

Our world is facing a crisis around the issue of water — something we all need, and which most of us take for granted.

Yet for around a billion people, water is something that they’re constantly thinking about — in fact, their lives revolve around the logistics of getting it for their family.

Millions who are unable to access clean water simply don’t make it to their fifth birthday.

It’s a massive problem with many complexities that make my head spin, but my hope is that this birthday, Safal Niveshak and its tribesmen can do something small to make a difference.

Help me reach the goal to raise US$ 1,500 (original target was US$ 1,200, which I raised considering that it was met in quick time…and so more people will benefit now) for Safal Niveshak’s 4th Birthday campaign I am running on charity: water. I have pitched in with a US$ 200 starting contribution and will fund the shortfall, if any.

I’m not asking you to do it as a favour to me (that would be silly) but as a favour to you. Because it feels good to see a fellow being survive to see the beauty of life for the next many years.

So, if Safal Niveshak has touched your life, I would be happy and honoured if you can help the guys at charity: water provide clean-drinking water to a few of those who do not have access to this precious and necessary resource of Mother Nature.

I would also be happy and honoured to hear your thoughts – in the Comments section below – on your journey with Safal Niveshak so far.

Thanks again for being there!

The Delusion of “Acche Din”

“Acche din aa gaye hain! (Good days are here)” exclaimed my friend Ravi as he visited me after a long time.

“Why, what happened?” I asked in my usual state of confusion.

“Arrey, haven’t you see the stock market?” he said, “How fast it is rising!”

“Oh great!”

“And I have made tonnes of money in this rise!” he said with the best smile I ever saw on his face for a long time.

“Wow!” I exclaimed to show how I shared his happiness. “So, happy days are here again?”

“Yes!” Ravi replied.

Industry Analysis: Cement – Part 2

Click here to read Part 1

7. Competition and Consolidation

Although the Indian cement industry has some multinational cement giants, like Holcim and Lafarge, which have interests such as ACC and Ambuja Cement, the Indian cement industry is broadly home-grown.
Ultratech Cement, the country’s largest firm in terms of cement capacity, holds over 18% of the domestic market, with ACC (50%-owned by Holcim) and Ambuja (50%-owned by Holcim) having 10% and 9% shares respectively (as per FY13 capacity numbers). Many of the remaining dozen top players are India Cements, Shree Cements, Ramco Cements, Lafarge, Birla Cement and Binani Cement.
Between them, the top 6 and top 12 cement firms have around 50% and 70% respectively of the domestic market. Around 100 other smaller companies produce and grind cement on a wide range of scales but are often confined to small areas.
The industry has seen some consolidation in the past, and the same is going to be the mantra for most large payers in the years to come. With larger capacities, companies enjoy a better cost structure driven by significant vertical integration and location advantage with respect to sourcing of raw materials and market access. Most small companies, because of lack of one or more of these factors, have a weaker competitive position.
The industry economics and the regulatory actions exhibited by the Competition Commission of India (see here and here) may push marginal players to consolidate. However, not all marginal companies would be attracting acquirers. Companies with either access to resources (raw material and power/fuel) or proximity to relatively underserved markets or both are most likely to be targeted for consolidation.
A few compelling reasons why Indian and foreign cement majors appear to be gung-ho about acquiring cement capacities in India include a). Excess capacity of the existing players which can be used to fulfil the global demand at lower cost of production; b) Rising cost of greenfield/new projects which also tend to have longer gestation period.

What A Tulip Can Tell You About Sensex Reaching (Or Not Reaching) 100,000

This post has been authored by Dev Ashish of Stable Investor.

Tulip You must be wondering whether what you just read in the title of this post is correct or not? Isn’t it?

You are being told that a flower can tell you whether Sensex can reach 100,000 or not? Now this is really strange.

Not Warren Buffett. Not Charlie Munger. But a flower?

Well, a flower can help you in answering the question whether the Sensex will reach 1 Lac or not. But mind you, this figure of 1 lac is not a figure of imagination which I have pulled out of a magician’s hat. This is a number which has the blessings of many so-called market experts.

But for the time being, let’s park the discussion of whether Sensex will reach that target or not.

Let’s get back to the story of Tulip.

Buy Right, Sit Tight. Seriously?

As I was driving along a busy South Mumbai road recently, my attention was drawn to a huge flashing sign, which said “Hey you! Get off your phone!” (no, I wasn’t on my phone).

It then scrolled to another message which said – “Distractions cause collisions, give driving your full attention.”

I found it ironic that, in order for me to pay attention to their flashing sign-board, I had to stop paying attention to the traffic and the road in front of me.

To be able to read their very important scrolling safety message, I had to look across the opposite lane (that is where the sign-board was placed!) and spend 10-15 seconds trying to decipher some flashing words.

Amazingly, someone somewhere got paid for that idea.

You will find similar “dangerous safety messages” in the financial world every day – messages where people ask you to play it safe but then sell you stuff that can put your money and peace into danger.

Like this video – Save the Investor – where someone is asking you to “buy right and sit tight”…

(Click here if you can’t see the video above.)
Someone who would have to put shutters on his business if you were to “buy right and sit tight” is asking you to do so!

I mean, seriously?

Buyer, beware!

2-Months Online Financial Statements Analysis Course: Just 45 seats remain to claim the Rs 1,000/- early-bird discount for my 2-months online course in financial statements analysis. If you wish to learn how to analyze financial statements to be able to make better and well-informed investment decisions, click here to join now!

Industry Analysis: Cement – Part 1

As part of my initiative to help you enhance your “circle of competence”, I am starting on a new series on analyzing key industries that can offer you profitable, long-term investment opportunities. I start this series by analyzing the Cement industry.

1. About Cement
Wikipedia defines ‘cement’ as…

…a binder, a substance that sets and hardens as the cement dries and also reacts with carbon dioxide in the air dependently, and can bind other materials together. The word “cement” traces to the Romans, who used the term opus caementicium to describe masonry resembling modern concrete that was made from crushed rock with burnt lime as binder. The volcanic ash and pulverized brick additives that were added to the burnt lime to obtain a hydraulic binder were later referred to as cementum, cimentum, cäment, and cement.

At the basic level, cement is a binding substance that is intended for use in building or construction material and can withstand varying environmental conditions. The four elements necessary for its creation are iron, aluminum, silicon, and calcium.

These elements are burned together in a kiln and are finely pulverized to create the powder and used as an ingredient of mortar and concrete we then call cement. This powder hardens once it is mixed with water but water does not break the bond once it is formed.

The manufacturing process of cement consists of mixing, drying, and grinding or limestone, clay, and silica into a composite mass. The mixture is then heated and burnt in a pre-heater and kiln to be cooled in an air-cooling system to form clinker. This is the semi-finished form of cement. This clinker is cooled by air and subsequently ground with gypsum to form cement.

Poke the Box: Pay Attention, and Be Prepared

Let’s Start with Safal Niveshak
Just in case you missed any of this on Safal Niveshak over the last few days and weeks…

Safal Niveshak now has 2,000+ “followers” on Twitter. If you are not one of them already, click here to follow and read the investing and other thoughts I am thinking through my days.
Admissions are now open for the 2nd batch of my 2-month online course in Financial Statement Analysis. Click here to join now!
You think manipulating stock prices is illegal? Well, read here about some people who are doing it in broad daylight, and no one’s questioning!
Looking to buy a banking stock? Richard Feynman has some advice for you.
Read here why smart people like you make stupid money mistakes
Want to attend my Value Investing Workshop in Hyderabad on 20th July, Sunday? Simply register here.

2-Month Course in Financial Statement Analysis: Admission Open for 2nd Batch

Over the years, if there is one big issue I have seen small investors face while searching for businesses to invest in, it is that they find it difficult to read financial statements that companies use to report their performance.

The terms like Assets, Liabilities, and Equity seem like bouncers!

In fact, the very term ‘financial statements’ sounds so over-whelming to most investors, that they don’t look what lies inside an annual report, which is such an important document to read before investing in any business.

But the reality is that reading financial statements in one of the most important skills you must learn before getting into stock picking…

…and it is one skill that would give you an upper edge over 95% of all individuals who are just trying their luck in the stock market, as they speculate in stocks without understanding what they are getting into.

And to help you do just that, I have designed a special course called…

Financial Statement Analysis for Smart People
This 2-month online course is aimed to help you gain a deep understanding of how to read financial statements, and in a very simplified manner. Overall, you will…

Learn to read, understand, and analyze the key financial statements – Balance Sheet, Income Statement, and Cash Flow Statement;
Master the key ratios to analyze the true financial performance of a company; and
Know the tricks to identify shenanigans companies use to manipulate financial statements

The first batch of this Course ends in a few days, and here is what a couple of students have to say on their experience…

I am very happy that I have been re-living my learning days my subscribing to Safal Niveshak’s Financial Statement Analysis course

A definite must-have for any serious value investor! ~ N.H. Sahasra (1st Batch)

I found the “Financial Statement Analysis Course” interesting as well as enlightening. I learnt a lot about the components of the Balance Sheet, Income Statement and Cash Flow Statement.

Worth the money I spent on this course. ~ A.V.P. Gurumoorthy (1st Batch)

Admissions Open for the 2nd Batch
A lot of readers have written to me over the past two months about how they missed being part of the first batch of this course.

If you are one of them, I now invite you to join the 2nd batch, which would begin on 5th July 2014.

Here is what you’ll get by subscribing to this Course…

10 comprehensive PDF lessons on – Reading annual reports, understanding financial statements, conducting comprehensive ratio analysis, and identifying financial shenanigans.
Around 4 hours of classroom-style video lessons
Several real-life examples of Indian companies to help put things into perspective
Exercises at each stage to test your learning
Exclusive members-only forum to ask questions and discuss problems you face while analyzing financial statements

Let Me Offer You a Deal!
The Financial Statement Analysis for Smart People course is priced at Rs 3,999/- for a two-month subscription.

However, if you are among the first 100 people to subscribe, you can get in at a special early-bird price of Rs 2,999/-, which is a big discount of Rs 1,000!

So if you are interested, I invite you to join the Financial Statement Analysis for Smart People course and learn how to make better investment decisions (and more importantly, how to avoid mistakes) by knowing how to read, understand and analyze financial statements.

Click Here to Subscribe
(First 100 subscribers can claim an early bird discount of Rs 1,000/-)
Benjamin Graham, the father of Value Investing, said that you should buy your stocks like you buy your groceries.

If you focus on the fundamentals of a business, which are reported by companies using financial statements, you shouldn’t go wrong in your investment decisions.

While the Financial Statement Analysis for Smart People course will not train you to be an accountant (just as a first-aid course will not make you a doctor), I’m sure it would give you the confidence to be able to look at a set of financial statements and make sense of them…

…so that you are able to make much better and well-informed investment decision than you are doing now, and more importantly, you don’t get burned.

Click Here to Subscribe

How to Manipulate the Stock Market, Legally?

Imagine you win a lottery of Rs 100 crore (just imagine!). What would you do with this “free” cash?

Spend it to buy all the luxuries of life? Maybe!

Give most of it to charity? Really?

Invest most of it in the stock market so that it grows over a period of 5-10 years? Maybe!

What about manipulating the stock market so that your Rs 100 crore doubles in the next 1 year?

“The last option looks great!” you think, and then ask, “But isn’t manipulating the stock market against law?”

Yes it is!