Blog on Value Investing | Safal Niveshak

Value Investing Contest Winning Entry #2: V-Mart Retail

This report was prepared by JK, as part of the Safal Niveshak Value Investing Contest. None of the facts herein have been validated by Safal Niveshak. Also, please DO NOT treat this report as a “recommendation” from either the author or Safal Niveshak. Do your own homework.

The Big Picture
Understanding the big picture, foreseeing the structural trends and sector tailwinds play a critical role in identifying and developing conviction on ideas that go on to become multi-baggers creating huge wealth for investors in the long run.

So what are the current structural trends going on in the Indian economy?

I can clearly identify two –

1. Switch from Unorganized players to Organized players: Organized players are gaining market share from the unorganized players. This structural shift is happening in every consumer facing sector, be it jewellery, bathroom solutions, plumbing solutions, kitchen appliances, shoes, apparels and inner-wears, restaurants, or retail.

Why this switch? Because of rising income levels, customers’ aspirations are increasing and organized players are considered to be providing higher quality products.

Social proof, advertisements, Pavlovian association (to associate ‘I have heard of this product’ to ‘I like this product’) are the psychological reasons which are making sure that this switch is here to stay.

Value Investing Contest Winning Entry #1: Balkrishna Industries Ltd.

This report was prepared by Ankit K, as part of the Safal Niveshak Value Investing Contest. None of the facts herein have been validated by Safal Niveshak. Also, please DO NOT treat this report as a “recommendation” from either the author or Safal Niveshak. Do your own homework.

Company History and Business
BIL is a Siyaram Group Company with its history dated back to 1962. From setting up its first manufacturing unit in 1988, it has come a long way in becoming India’s leading exporter of “Off-Highway Tires”. It is an export oriented company with 90% of sales moving to different countries worldwide.

Highlights of the company’s business and financial strength are as follows:

Widest and comprehensive product portfolio of over 2,000 SKUs and develop 100 to 120 incrementally per year.
Current achievable production capacity is 166,000 MTPA (metric tonne per annum). It is to be enhanced to 276,000 MT by FY15.
Market presence in more than 120 countries all over the world.
Manufacturing facility at: Aurangabad, Maharashtra; Bhiwandi, Rajasthan; Chopanki, Rajasthan; Bhuj, Gujarat; Dombivali, Maharashtra
[Read more…] about Value Investing Contest Winning Entry #1: Balkrishna Industries Ltd.

Value Investing, the Sanjay Bakshi Way 2.0 – Part 2

Image Source: Outlook India

After talking about the important concept of economic moats in the first part of his interview, in this second and concluding part, Prof. Bakshi talks about his thoughts on valuations, mental models, diversification, checklists, and why you must buy great businesses for the long term.

Safal Niveshak: One of the problems that new or small investors have is that they can’t really get their heads around valuation. It seems so complex. A lot of the terminology is complex, the concepts are, and there is a lot of contrary thinking needed to effectively value businesses.

How can valuations be made easier? How have you made it easier? Or can it not be made easier?

Prof. Bakshi: Vishal, that particular problem is equally applicable to large investors!

Anyway, over the years I have dealt with the problem in many ways. As a disciple of Ben Graham, when working on any business and not necessarily moats, I developed my own ways of thinking about valuation.

Value Investing, the Sanjay Bakshi Way 2.0 – Part 1

Image Source: Outlook India

After much delay owing to issues in getting mutually convenient dates, I have finally finished my interview of Prof. Sanjay Bakshi. 🙂

Here is the first part of the interview. As you will find below, it’s amazing the way Prof. Bakshi has explained critical concepts in investing in a highly comprehensive yet simplified manner.

Enjoy the wisdom!

Safal Niveshak: Let me start with a question I have been waiting to ask you for some time now. Through a comment on a link I shared on FB and through a few of your posts over the past few months, you have suggested that your investment philosophy has moved further towards high quality businesses, and great managements. Can you please elaborate on the same? What has been this transition all about? And why?

Prof. Bakshi: I started my career as a value investor in 1994. Over the last twenty years, I have practiced most styles of value investing including as Graham-and-Dodd style of investing in statistical bargains, risk arbitrage, activist investing, bankruptcy workouts, and Warren Buffett style of investing in moats. There have been times when I have owned 40 stocks and times when I have owned just 10.

I teach all these value investing styles in my course at MDI. I tell my students that they need to pick a style which suits their personality.

Results: The Safal Niveshak Value Investing Contest 2014

First, I wish you a very happy Holi!

May you have the most blessed Holi festival than you ever had. May it be full of fun and love. May you be as colourful as the festival itself or even more.

And may you use the least amount of water while playing and washing off your colours. 🙂

Now, after a tremendous response to the first edition of Safal Niveshak’s Value Investing Contest, I feel happy to announce the winners of the same.

I received 23 entries in total and found it extremely tough to rank them in terms of quality and simplicity of analysis.

Thus, I have chosen two winners for each of the first three positions.

While my choice of winners does not devalue the quality of analyses sent by others, it’s just that I had to pick the best very few, and here they are –

1st Prize

Ankit K – Balkrishna Industries
JK – V-Mart Retail

2nd Prize

Sudhanshu Jain – Munjal Auto
Venkat Sivagnanam – Gabriel India

3rd Prize

Maheswar Reddy – Tree House Education
Nishanth Muralidhar – Swaraj Engines

Here are the prizes winners have won –

1st Prize – Books of choice, worth Rs 2,500/- each
2nd Prize – Books of choice, worth Rs 1,500/- each
3rd Prize – Books of choice, worth Rs 1,000/- each

Congratulations to all the winners, and thanks to all who participated!

I will publish the reports of winners on the website very soon.

A Fundoo Professor Called Sanjay Bakshi

In my preparation for the upcoming interview of Prof. Sanjay Bakshi (this Sunday), I was reading through a few of his past articles and lectures, when a thought struck my mind.

A lot of Safal Niveshak tribesmen still do not know much about Prof. Bakshi and his vast investment insights, except for his interview that I carried in 2012.

As such, I have created a special page on the website dedicated to Prof (after due permission from him), who is one of the best minds in India in the fields of Value Investing and Behavioral Finance.

This page is a collection of my best picks from among his vast writings that are available on his blog as well.

Start by reading about Prof. Bakshi’s life story. Then read through some of his best posts (as per me) I have listed on the page.

I’m sure you will benefit a lot from them in your efforts of becoming a sensible, long-term investor.

Reading Prof. Bakshi has been an important step in my work-in-progress of becoming what Charlie Munger calls a ‘learning machine’. I’m sure it won’t be any different for you.

P.S. This page has been created after due permission from Prof. Bakshi.

Any Monkey Can Beat the Market! Really?

Any monkey can beat the market! That’s exactly how a headline of an article I recently came across reads.

This article was published in the Wall Street Journal in late 2012 (a tribesman recently shared it with me) and stated that if you give a monkey enough darts to throw at stock pages, they’ll beat the market. This was based on a research that simulated results of 100 monkeys throwing darts at the stock pages in a newspaper. The average monkey outperformed the US stock market index by an average of 1.7% per year since 1964.

Now, that would have bought them a lot of bananas!

In fact, as early as 1973, Burton Malkiel, a professor at Princeton University had claimed in his book, A Random Walk Down Wall Street, that “A blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts.”

Now, given that the monkeys have not just earned as much as the US stock market index, but have handsomely outperformed it, there’s something worth pondering about for those who are trying to work hard to pick their own stocks.

Why care to analyze businesses and estimate intrinsic values when you can hire a monkey (or I will send one to you for a fee 🙂 ) to pick your stocks?

You must care, dear tribesman!

10 Big Ideas from Warren Buffett’s 2014 Letter

Warren Buffett has been the highlight of two of my last three posts –

On an extended holiday, as I read more of the legend, I am happy to share more of him with you as well. 🙂

Buffett’s latest annual letter to shareholders is out (click here to read), and here are ten important ideas I have pulled out for you from the same –

Warren Buffett’s Age-Old Secret on How to Get Rich

Have you ever wondered why we are willing to hold on to our real estate investments for years even as we trade in and out of stocks?

So, we may buy and/or sell just 1-2 properties in our lifetimes, but the count of stocks we move in and move out of runs into 100s.

Of course the size of the investment plus ability to liquidate (buy and sell) is one factor. But the most important factor that is at work here is – Stocks provide you minute-to-minute valuations for your holdings, whereas you don’t see quotations for your real estate holdings so frequently.

When it comes to stocks, Ben Graham’s mentally-ill fellow Mr. Market comes to you daily and quotes a random price that causes you to behave irrationally.

“Don’t just sit there, do something!” he shouts at you daily, and you gladly take his advice and buy stocks when he quotes a high price and sell when he quotes a lower price.

Announcing: The Safal Niveshak Value Investing Contest 2014

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 2,000 word (max.) report on one Indian company of your choice. It may be a great, or good, or a gruesome business.
Deadline for report submission by email to me is 10th March 2014.
Your chosen company can be from any industry.
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
- Competition
- Financial strength
- Management quality (have they been good or bad allocators of capital)
- Risks (what can go wrong)
- Valuation (challenge the market’s current valuation – whether the stock is overvalued, undervalued, or fairly valued – 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.

Evaluation & Rewards
I will evaluate each submitted entry ONLY on the quality and simplicity of analysis, though good presentation and proper language is more than welcome (would save me editing time!)

There are three prizes to be won –

1st Prize – Books of choice, worth Rs 5,000/-
2nd Prize – Books of choice, worth Rs 3,000/-
3rd Prize – Books of choice, worth Rs 2,000/-

All submitted entries would be published on Safal Niveshak (the author can remain anonymous if he/she wants).

This contest is now open. Remember, the deadline is 10th March 2014.