Investing

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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!

Read Richard Feynman Before You Buy Your Next Banking Stock…

First things first. This post is not about my analysis of banking stocks and how I expect them to do in the future. But it is something far more important than that. Thus, proceed only if you are interested to read further.

I am seeing a lot of research reports and recommendations these days on a lot of banking and finance companies – like Gruh Finance, Repco Home Finance, HDFC Bank, and Axis Bank, to name a few.

A lot of these banking and financial stocks are being recommended and bought because these companies are expected to be big beneficiaries of a revival in economic growth.

So, a lot of people I know who cannot differentiate between a bank and an NBFC, or NPAs and CASA, or GPMs and NIMs, are lapping onto these stocks…because their prices are rising…because a lot of “other” people are buying them.

What is more, a lot of others are buying some of these stocks because…

“CASA is going to increase”
“NPAs are going to come down”
“NIMs are improving”

If you are one of such people, and own these stocks for the above-mentioned reasons, or are looking to buy these, you must read this below note from the celebrated American physicist and a great teacher Richard Feynman.

I have picked this note from Feynman’s marvellous book – The Pleasure of Finding Things Out – and you will know by the end of it what it is doing here.

Why Smart People Like You Make Stupid Money Mistakes

Imagine yourself in the following situation: You sign up for a psychology experiment, and on a specified date you and nine others whom you think are also subjects arrive and are seated at a table in a small room.

You don’t know it at the time, but the nine others are actually associates (planted subjects) of the experimenter (they know about the experiment), and their behaviour has been carefully scripted.

You’re the only real subject.

The experimenter arrives and tells you that the study in which you are about to participate concerns people’s visual judgments.

He places two cards before you. The card on the left contains one vertical line. The card on the right displays three lines of varying length.

He asks all of you, one at a time, to choose which of the three lines on the right card matches the length of the line on the left card. The task is repeated several times with different cards.

Value Investing Workshop in Hyderabad
After a great response from Mumbai and Delhi, I have my Art of Investing Workshop in Hyderabad on 20th July (Sunday). If you want to attend and want to claim an early-bird discount, click here to register now!

On some occasions, all or a majority of other “subjects” unanimously choose the wrong line. It is clear to you that they are wrong, but they have all given the same answer.

What would you do? Would you go along with the majority opinion, or would you “stick to your guns” and trust your own eyes?

Poke the Box: The Uncomfortable Solution

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

Are you right because your stock moved up 200%? Answer here.
Is the Sensex heading towards 30,000…40,000…100,000? Find out here.
Follow these 5 simple rules of investing successfully in a Modi-fied India

Book Worm
“The Little Book that Builds Wealth” from Pat Dorsey is a wonderful book if you want to understand the concept of economic moats and how companies and their shareholders benefit from them. Here is an important excerpt from the book on the various ways to make money in stocks, and why moat investing stands out…

There are lot of ways to make money in the stock market. You can play the Wall Street game, keep a sharp eye on trends, and try to guess which companies will beat earnings estimates each quarter, but you’ll face quite a lot of competition.

You can buy strong stocks with bullish chart patterns or superfast growth, but you’ll run the risk that no buyers will emerge to take the shares off your hands at a higher price.

You can buy dirt-cheap stocks with little regard for the quality of the underlying business, but you’ll have to balance the outsize returns in the stocks that bounce back with the losses in those that fade from existence.

Or you can simply buy wonderful companies at reasonable prices, and let those companies compound cash over long periods of time. Surprisingly, there aren’t all that many money managers who follow this strategy, even though it’s the one used by some of the world’s most successful investors. (Warren Buffett is the best-known.)

Are You Right Because Your Stock Moved Up 200%?

I find a lot of Mrs. and Mr. Right these days in the stock market – people who bought a few stocks in the past 6-12 months and have seen all or most of them sky-rocket 100-200% since then.

For instance, a schoolmate who is a housewife with no business dealing in stocks, has started recommending trading tips in our batch’s online group, “because” she is getting her price calls right!

Then, someone wrote to me yesterday “praising” how my “recommendations” like BHEL, Engineers India, Crompton, Voltas, HMVL and Tata Motors have finally been “successful” as they have risen sharply in prices.

This very person had written a hate mail to me last year when some of these stocks – or let me say, their prices – were down in the dumps. 😉

Such is the way we behave as investors.

Sensex @ 40,000 is Here!

“You’ve got to be careful if you don’t know where you’re going, ‘cause you might not get there.” ~ Yogi Berra

“The Golden Era Begins. Sensex target – 40000 by March 2017.”

This is not my prediction but one from a leading private sector bank’s investment advisory group. I received this report in my email yesterday, and haven’t stopped giggling reading the headline and the report’s conclusions again and again.

The author of the report states (emphasis mine)…

No no, we are not being very bullish, but are trying to value Sensex on the average multiple of 17x (which was seen in the previous bull run, the highest multiple being 25x 1 yr forward).

As per the Bloomberg consensus estimates the FY17 EPS stands at Rs 2000, we think that the FY18 earnings could grow at 20% for the larger companies if the GDP growth moves towards the 8%-9% mark. Hence, the FY18E EPS is projected at Rs.2400. At 17x FY18E EPS, we get a target of 40800 by March 2017, which we think could be a reasonable target to look for by the investors.

We think that the earnings growth would largely be led by the strong developmental focus of the new government and the multiple rerating would be primarily led by the under ownership of equities by the retail investors.

Sensex Nonsense is Back!
If you read Chapter 3 of Ben Graham’s The Intelligent Investor (which is one book you must read now, in these times of euphoria), the heart of Graham’s argument is that the intelligent investor must never forecast the future exclusively by extrapolating the past.

Forget IPL, Even EPL is Fixed!

“IPL is 100 percent fixed and I am only aware of one owner who is directly involved in betting (Vijay Mallya). Mallya is himself involved in betting, he earns 100-200 crores in IPL.”

These were the statements from actor Vindu Dara Singh who was caught in the 2013 IPL (Indian Premier League) spot-fixing scandal.

Singh’s comments aren’t something most of us don’t know of this cricket tournament (and others) that has been mired under betting and fixing controversies ever since its first edition in 2008.

But as die-hard cricket fans, we have come to take fixing as an integral part of the game.

“After all,” my friend, who loves watching these matches in stadium, tells me, “sport has been fixed through the ages – athletes dope, they cheat, they dive and try to fool the referee/umpire all the time… they try and eke out every little advantage they can. It is an undeniable truth.”

“Yeah, it’s an undeniable truth,” I say, “…and thus the cricket lover must beware that what he may be watching is not a game played on the field, but one that’s played in the room full of bettors and fixers.”

Now, if you are still reading this, you may be wondering why I am talking about the IPL and its fixing.

Well, I want to lead you to another kind of betting and fixing that’s going on in a different world that’s far from cricket and sports. And the person who pays a heavy fine for falling for this betting and fixing is…YOU.

Yes, you!