Investing

This page contains our best articles on the subject of value investing and investment behaviour.

If you wish to receive these and all future such articles straight into your email, subscribe below to my free newsletter - The Safal Niveshak Post - that offers practical, time-tested insights to help you navigate stock market with confidence. Subscribers call it a "gold mine" for investors, and it's read by 80,000+ people across 120+ countries.

* No charge. No spam. Only wisdom.

Announcing: Two-Month Course in Financial Statement Analysis

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 financial 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.

In fact, if you know just the right ways to read and understand the financial statements, you can make much better investment decisions than someone who would just not look at the ‘numbers’.

Over the last few months, I have received requests from a lot of readers for a specialized course in financial statement analysis.

In light of that, I am happy to announce a new 2-month course exclusively focused on this subject – of analyzing financial statements.

Value Investing Contest Winning Entry #6: Swaraj Engines

This report was prepared by Nishanth Muralidhar, 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.

About the Business
The Indian tractor industry has 13 national and a few regional participants. The market share is, however, concentrated amongst the top-five manufacturers, who account for over 90% of total volumes.

India’s current tractor penetration is estimated at 20 tractors per 1,000 hectares of agricultural land. While this is close to the averages in some countries, the statistic belies the fact most of the land holdings in India are smaller than those in foreign countries. Also penetration numbers vary widely across states, with states like Punjab, Haryana or Western UP enjoying significantly higher penetration compared to the rest of the country. Some regions like Eastern Uttar Pradesh, West Bengal, Orissa, Madhya Pradesh, Karnataka and Andhra Pradesh have relatively low penetration levels.

Also, there exists headroom for growth of smaller horsepower tractors among small and marginal farmers. Further, even if tractor density was to remain constant, demand in the industry is expected to remain sound on account of shortening tractor replacement cycle.

Industry growth drivers are scarcity of farm labour, strong replacement demand, government support, increasing mechanization and exports (From ICRA 2012 Report).

Mahindra and Mahindra Tractors (M&M) is the market leader, having a share of 40% and has only one supplier for its ‘Swaraj’ brand of tractors – Swaraj Engines Ltd. (SEL).

The Cocktail Party Stock Market Indicator

Apart from Graham’s The Intelligent Investor, there is no better book to get started for beginners in the stock market than Peter Lynch’s One Up On Wall Street.

The real beauty of this book is the easy-going review of the simplistic stock picking style that brought Lynch so much success in his profession as a fund manager at the US mutual fund company, Fidelity.

This book is low on number crunching but high on anecdotal stories. Moreover, readers are given a clear picture on how to get off to a good start in the markets.

Using humour, Lynch helps you discover that he is a normal guy who thinks rationally, believes in doing his own independent research on companies, asks plenty of questions, and gets caught off guard by the market at times, just like anyone else.

Anyone thinking about buying individual stocks must read this book before they ever make their first stock purchase.

Anyways, as I was re-reading the book, here is something I came across that can be termed Peter Lynch’s Cocktail Party Stock Market Indicator.

The Investor Who’s Always Right

If you look back at the careers of the world’s most successful investors, a large majority of them have learned about successful investing in the best possible way – by making mistakes.

Warren Buffett did it with Berkshire Hathaway – the textile business. Charlie Munger admits he still makes mistakes even after many decades as a business person and investor. He has also said that it is important to “rub your nose” in your mistakes.

Doing wrong, or making mistakes (in investing or in life) is inevitable.

As Einstein once said, anyone who has never made a mistake (if there is such a person) has never tried anything new.

Value Investing Contest Winning Entry #5: Tree House Education

Tree House Education This report was prepared by Maheswar Reddy, 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.

Tree House Education & Accessories Ltd. (Tree House) is the largest self-operated preschool education provider in India. After establishing itself as one of the top brands in pre-school education, Tree House has also entered the K-12 school segment.

Rapid growth – From one center in 2003 to more than 400 in 2014:

2003 – Incorporated first Tree House pre-school in Mumbai
2006 – Established 6 more pre-schools
2007 – Converted to private limited company and launched first franchise
2008 – INR 35 crores investment from Matrix Partners India
2009 – Entered K-12 and day care segments
2010 – INR 15 crores investment from Matrix Partners India
2011 – Converted to public limited company; Successfully completed IPO of INR 112 crores; INR 9 crores investment from Matrix Partners; INR 31crores investment from FC VI India Venture
2012 – Acquired pre-school business “Global Champs”; INR 41 crores investment from ON Mauritius & Aditya Birla Company
2013 – Acquired pre-school business “Brainworks”

13 Lessons from 13 Years of My Life

I celebrate three anniversaries today –

Thirteenth anniversary of landing in Mumbai for the first time on 4th April 2001 to do my MBA
Eleventh anniversary of joining my first and last job on 4th April 2003
Third anniversary of quitting my first and last job on 4th April 2011

Life has come a long way from that time when I came to this unknown city in 2001…

…from early 2003 when I had lost hope of getting a job after being rejected by the very few employers who attended my MBA college’s placement season, and from the time I had almost rejected my only job because the salary was almost as much as what I would have earned in the role of a peon. So much for an MBA degree, huh!

Anyways, good sense prevailed, and I took on that job. Apart from the fear of becoming an “educated unemployed”, I was also helped by a promise I had made to my ‘would-be wife’ before joining my MBA that we would get married as soon as I got my job so that her family didn’t get her married off somewhere else. 🙂

So, the saying that there is a woman behind every man’s success has been true in my case. In fact, the woman in my life has not really been ‘behind’ me, but has walked besides me, holding my hand through the thick and thin that life has brought.

Well, I am not going to bore you today with my life story (let me keep it for some other day :-)), but would like to share with you a few life lessons these past 13 years have taught me – both in terms of my life, and my financial life.

Value Investing Contest Winning Entry #4: Gabriel India Ltd.

This report was prepared by Venkat Sivagnanam, 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.

I started to screen for a quality business which I understand and has long-term competitive advantages and potential to generate free cash flows for at least the next 20 years to come.

With this in my mind, I decided to focus on automotive industry in India as it is going through a domestic slump and has been in the news for bad reasons (high-interest rates, inflation, low sales etc.). It is not unusual to find an under-valued and reasonably strong business in a sector that is undergoing a temporary slump or recession.

I restricted my screening to automobile sector. Further, within the automobile sector, I decided to focus or limit my screening to the automotive components/products suppliers, rather than vehicle manufacturers/OEMs.

Value Investing Contest Winning Entry #3: Munjal Auto

This report was prepared by Sudhanshu Jain, 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.

Business Description and History
Munjal Auto Industries Limited (Munjal) operates as an auto component manufacturing company in India. The company provides exhaust systems, steel wheel rims, and spoke wheel rims for two-three wheelers; and fuel tank assemblies, seat structure systems, and side step assemblies for four-wheelers.

It also offers assemblies, including BIW parts, pillars, cross bars, control arms, tie end bars, accelerators, and brake and clutch pedal assemblies; and sheet metal components comprising mild steel parts, stainless steel parts, welded components, tri-nickel chrome plated components, liquid painted oven baked parts, heat resistant painted parts, tubular components, and roll formed parts.

The company was incorporated in 1985 and is based in Gurgaon, India. The company is a subsidiary of Thakurdevi Investments Pvt. Ltd. It is part of the Munjal group of companies. Its manufacturing plants are located in Gujarat, Haryana and Uttarakhand.

10 Lessons from the 2008 Crisis

Seth Klarman is not an investor you would read about much in business media. He is one of the more reclusive kinds out there. He rarely speaks in public or grants interviews.

Klarman is known for his very deep value investing style and willingness to pursue value where others get very nervous. Some people, in fact call him Warren Buffett of his generation.

Late last year, he returned US$ 4 billion cash to his clients (from a fund size of around US$ 30 billion). In fact, Klarman has had about 30% of his fund’s assets in cash over the past two years as he has long been concerned about the state of the financial markets and typically looks for deeply-discounted situations.

In a recent letter to his clients, Klarman has warned that the QE (quantitative easing) stimulus bubble has become unsustainable and will burst at some point in time.

He has noted that “most” investors are downplaying risk and this “never turns out well,” noting that most people are not prepared for anything bad to happen. He wrote in his letter (emphasis is mine)…

No one can know what the future holds, but any year in which the S&P 500 jumps 32% and the NASDAQ Composite 40% while corporate earnings barely increase should be cause for concern, not further exuberance.

It might not look like it now, but markets don’t exist simply to enrich people.

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.