Blog on Value Investing | Safal Niveshak

Maximizing Shareholder Value: A Dumb Idea?

Sometime in 2007, I called the Investor Relations head of a leading Indian power company. “I request for a meeting with your CFO,” I said.

“Where are you calling from?” she asked back.

“I work for an independent research company working for retail investors, and we are looking to initiate coverage on your stock,” I replied. “I had some questions before writing the report and thus wanted to meet your CFO.”

“Are you writing a Buy or Sell report on our stock?” she asked.

“How can I tell you that now?” I said “I need to finish my research and only then will I make a judgement on whether the stock is a buy or a sell.”

“Wait, you are from a retail research organization, right? She asked. “Sorry, we do not have a policy to meet companies focused on retail investors. We only meet the institutional guys because they can help up increase our market cap, not the retail guys. We want to maximize shareholders’ wealth, you see.”

Safal Niveshak Value Investing Contest 2015

Here’s your chance to showcase your analysis skills to the Safal Niveshak tribe, and in the process win a prize if your entry gets chosen amongst the best.

Contest Rules

Write a 3,000 word (max.) report on one listed Indian company of your choice.
You may submit more than one report, but will be eligible for only one prize.
Deadline for report submission is 25th October 2015
Email your report in a Word file to vishal[at]safalniveshak[dot]com with the subject line as – “Value Investing Contest 2015 – Company Name”
The stock must have a market capitalization of more than Rs 100 crore
The idea must be well researched (by you). Your analysis must cover these areas:
- Company history and business
- Moat analysis (if moat exists)
- Competition
- Financial strength (provide data/charts to support your analysis)
- Management quality (have they been good or bad allocators of capital)
- Risks (what can go wrong)
- Valuation (no price targets required; challenge the market’s current valuation instead of calculating your own)
The report would be exclusive to Safal Niveshak. But you can post an abstract at other places and link to the full report on Safal Niveshak.

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5 Big Questions on IPOs…Answered

The IPO season is back with a bang. First, the company behind the Cafe Coffee Day chain Coffee Day Enterprises will hit the markets today with its IPO to raise around Rs 1,150 crore or US$ 176 million. Then, later this month, India’s only profitable airline, Indigo, will open subscriptions to its Rs 2,500 crore or US$ 400 million IPO.

These are not anywhere close to the biggest of big IPOs India has seen, so rest assured that we are not at the peak of a bull market. 🙂

But like all IPOs in the past, it’s very important for you as an investor to be careful and not give in to the hype and excitement that surrounds public issues. Towards this, here are my responses to the five key questions you may have about investing in IPOs. I also share below a template for analyzing an IPO document.

The Journey of Safal Niveshak

Taking a break from writing on investing, behaviour, and business, today I share with you the journey of Safal Niveshak over the past 4+ years.

This is a short presentation I gave at a recent meetup of value investors, and I thought I must share it with you too…for you have been my partner in this journey.

So if you want to know anything and everything about what Safal Niveshak is and what it stands for, you will find in this presentation (click here or read in the panel below).

It’s a long journey, but it’s worth it. And I thank you for being my fellow traveller.

Now, as we move ahead, I would love to have your thoughts on how this journey has been for you. Please click here to share your thoughts.

How to Live and Invest Without Failure

Early this year, a close friend of mine, Rajiv, had his eyes set on finishing the Mumbai half-marathon (approx. 21 km) in less than 180 minutes.

So, crossing the finish line in 160 minutes was something of a major triumph for him. He was genuinely happy.

One another friend, Sameer, ran the same distance and recorded the exact same time of 160 minutes. However, this guy wanted to cover the distance in 150 minutes or less. Consequently, he was shattered.

He described his experience as a massive failure and as a result, his mind and body language were both a reflection of his belief (the belief that he had failed).

Sameer could have labelled his run many things but he chose ‘failure’.

Latticework of Mental Models: Framing Effect

“Is it okay to smoke a cigarette while praying to God?” a young man asked his father, a religious man.

“Of course it’s bad. It’s a great sin and very disrespectful act,” the father replied. He was disturbed with his son’s atrocious question.

“But last time you told me that to get rid of my addiction I should start praying while smoking. Didn’t you say that?” It seemed to him that his father was contradicting himself.

“No my son! Don’t confuse smoking-while-praying with praying-while-smoking,” the father explained.

“But what’s the difference?” the son was perplexed.

“There is a difference. A huge difference. I don’t know what but my brain tells me that there is.”

Now before we get started on a debate about the validity of father’s argument, let me clarify that the reason I brought up this anecdote was to highlight an important mental bias which plays out in our affairs very subtly.

Life 2.0: Is Getting Rich Worth It?

Some of the greatest things, the greatest discoveries, have come about by serendipity. Let’s explore its magic here.

I recently wrote about the mental model of Inversion in Safal Niveshak’s Latticework series. ‘Inversion’ suggests that sometimes you stumble upon very useful insights by inverting the problem.

Now, what use is a mental model if you can’t implement it? So let’s use it, for the sake of personal amusement, to investigate one of the most popular problems in the world.

Yes I am talking about the conundrum of – “How to get rich.” The inherent assumption here is that everyone wants to be rich and they are just looking for the “how” part. Keeping that in mind, one of the ways to invert this question is to ask – “Is getting rich worth it?”

Before you decide to skip this article thinking that it’s another one of those “money can’t buy happiness” rant, just stick with me for few more lines and I promise that you won’t regret.

I consider this as an opportunity to wear my curiosity cap and look at the real and practical problems faced by super rich. Now given the fact that the author, yours truly, isn’t so rich (money wise), is it justified for him to comment on problems of rich? So in my defence all I have to say is that I never let my lack of first-hand experience with a topic stop me from speculating on it.

Unlike previous Life 2.0 articles, this post doesn’t aim to provide any ‘how to’ advice. My intention is to share with you a different perspective, the view from the other side of the fence where grass seems greener.
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Hope Is Not An Investing Strategy

“I hope the stock market rises again,” my friend Ravi told me as we met for dinner during the weekend.

“Why?” I asked.

“I have put in a lot of money over the last few months…that’s why!” he replied.

“Ravi, it’s good to be an optimist by nature,” I said, “But ironically, it doesn’t work that way in the stock market.”

“Why do you say so Vishal? Isn’t it a basic human nature to hope for the best?”

“Of course yes. In fact, I believe that hope is a component of a healthy state of mind, and opposite of negativity that we see all around. But then, when it comes to the stock market, hope is dangerous.”

“But why?”

Why Good People Do Bad Things: A Conversation With My Daughter

Volkswagen, the world’s third largest in terms of vehicle sales, recently admitted to cheating on emissions data for 11 million of its diesel engine cars sold between 2009 and 2015.

As I was explaining the scandal to my daughter, the first question she asked was – “Why do they do such wrong things, Papa? Aren’t they already rich?”

“Good question Kavya,” I said. “It’s especially good to know that you understand what they did i.e., cheat their customers, was wrong.”

“But they are good people, right Papa?” she asked.

“Yes the people who created the scandal must have come from good families,” I replied, “…and must have been good with their family and friends.”

“So why good people do bad things?” she asked again, this time combining all her questions into one.

“Let me tell you a story, Kavya,” I said, “…story of a young girl named Barbie.”

“Wow, Barbie is my favorite doll,” she exclaimed with a smile.

“Yeah, but for the time being, let’s forget that she is a doll and let’s focus on the story.”

Latticework of Mental Models: Pavlovian Conditioning

Last month I decided to pay a visit to my friend Dr. Placebo in his clinic. It was a Friday and for some strange reason people are too happy to fall sick on a Friday. So it was a relatively less busy day for my doctor friend. For that matter it should be easy for you to guess the busiest day of the week for him – Monday of course. 🙂

I wasn’t sick as such but I like to catch up with Dr. Placebo once in awhile. In the past he has helped me in thinking about important mental models including Do Something Bias [1] and Mean Reversion [2]. So I was hoping that a chit chat with him will again nudge me to some fresh insights. I wasn’t wrong.

“So doc! Tell me something ironical about your profession?”, I asked him thinking that a question like that could lead the conversation to an interesting direction.

“The biggest irony of being a physician is that many people don’t really need doctor’s help. Many a times, my prescription is effective because people believe in them. Their belief in my treatment is what cures them. You see your doctor and you feel better.”

He continued, “Sometimes just the fact that a doctor or nurse is paying attention to us and reassuring us not only makes us feel better but also triggers our internal healing processes. In many cases they would benefit just by popping a sugar pill. And it’s a proven fact also known as Placebo Effect.”

“I see. That kind of explains your strange name.”, I winked thinking that he wouldn’t mind a friendly tease.

“Don’t get me started on the origins of my name. But you should read about Pavlovian Conditioning. Now if you please excuse me, I have to leave now. It’s Friday and I have plans.”, saying this he got up from his chair and started leaving.