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Safal Niveshak StockTalk #10: Cera Sanitaryware

Disclaimer: The opinions in this report are for “informational and educational” purposes only and should not be construed as a recommendation to buy or sell the stock(s) mentioned. I do not recommend that you act upon any investment information without first doing an independent research as to the suitability of such investment for your specific situation.

Welcome to the tenth issue of Safal Niveshak StockTalk. (Read previous issues)

After covering BHEL last time, this time I’ve researched on Cera Sanitaryware Ltd. (CSL), one of India’s leading manufacturers of sanitaryware. Before we dive deeper into CSL, here is a brief overview of the sections of this report.

About CSL
Safal Niveshak’s 20-Point Checklist
Intrinsic Value Assumptions
Risk Statement
Financial & Market Snapshot
“Should I Buy CSL?” Checklist

How to Value Stocks using DCF…and the Dangers of Doing So

Warren Buffett wrote in his 1992 letter to shareholders of Berkshire Hathaway…

In the Theory of Investment Value, written over 50 years ago, John Burr Williams set forth the equation for value, which we condense here: The value of any stock, bond or business today is determined by the cash inflows and outflows – discounted at an appropriate interest rate – that can be expected to occur during the remaining life of the asset.

What Buffett defines here is essentially what we know as the discounted cash flow or DCF, a key method to calculate intrinsic value of companies.

The interesting thing to note here is that no one knows whether Buffett has ever used DCF himself!

Even Buffett’s business partner and alter ego Charlie Munger has occasionally said that he has never seen Buffett doing any DCF calculations.

Wit, Wisdom, Warren: Lessons from the World’s Best Investor

Image Source: Rediff

I have nothing but utmost respect for Warren Buffett, the only man who became the world’s wealthiest by picking stocks.

My fondness for Buffett has its roots in a chance email forwarded by a friend in 2006, which contained link to one of his letters to shareholders. Till then, I had known Buffett as a successful investor, but never bothered to read the philosophy that made him an investing great.

Anyways, as soon as I finished reading this letter my friend sent me, I was hooked! The hook was so strong that I printed every single one of Buffett’s annual letters to shareholders of Berkshire Hathaway (and also his Partnership letters) and read them page by page.

Take Control, Investor!

Okay, this is going to be my smallest post on Safal Niveshak so far. But I hope this will leave you with something to introspect. 🙂

There are five key aspects of investing…

Risk = Not knowing what you are doing
Cost = Broking commission + Financial planning fee + Entry loads + Administration fee + Subscription fee for magazines, stock research + Consultation fee + Taxes
Time = Long term compounding
Emotion = Your behaviour
Return = Future gains/losses

Now…

So it beats me why…

Is this really true of you?

If yes (thanks for being honest!), tell me what you are doing to change this?

If not, hail Mogambo! 🙂

Timeless Resources on Value Investing

When I started my career in 2003, I “confidently” counted myself among the elite few from my MBA college to have made it to the lucrative “equity research” industry (MBA + campus placement + finance job = Overconfidence!)

I thought I had a wonderful chance to bring into practice whatever I’d learnt during my specialization in Finance, and especially things I’d learnt reading the subject of “Security Analysis and Portfolio Management”.

Things looked great till about early 2006, while I was still learning the “tricks” of the trade – the concepts of CAPM, beta, and efficient markets seemed so relevant.

Applying Behavioral Finance to Value Investing

“Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ…Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.” ~ Warren Buffett

We call ourselves rational beings. The truth is that we aren’t rational but rationalising beings.

The brain that sits on the top of your head isn’t a flawless machine. Yes, it is powerful. But it has its weaknesses. In everyday terms, we call such weaknesses as ‘biases’.

The good part is that while we cannot exchange our brains with other people nor can we upgrade it at a hardware shop, we can reduce the number of mistakes that our biases cause by just taking notice of them.

How Will You Measure Your Life?

I recently shared with you the secret mission of Safal Niveshak, which has not much to do with the field of stock market investing.

Then, I also shared the best advice I ever got, which again was relevant not just for my investing pursuits but also for my life.

Today, I’m sharing with you another amazing article I read recently on the subject of “life”.

You might wonder why I’m writing (or covering) so much on the subject of “life” on a platform dedicated to investing.

Well, that’s the entire point of becoming a “Safal Niveshak” – one who is not just successful in investing his financial capital, but also enriches his human capital.

What to do with Opto Circuits?

I’ve received a lot of emails over the past few days on my report on Opto Circuits (OCIL) and my “latest view” on the stock in light of its continuous fall – now down almost 11% from my intrinsic value of Rs 130.

Some people have also sent me hate mails asking why I researched and reported on a dud company like OCIL that is facing the “biggest problems faced by any company in the world”.

One reader also blamed me saying – “In my opinion you have just had a look at the presentations on the website of the company and not put your mind on the bigger picture.”

One reaction I can have on such emails is to rue my luck and curse myself for reporting on OCIL.

“How could you touch such a company?” the “expert analyst” inside me is itching to say.

The Best Advice I Ever Got

While doing my MBA during 2001-03, I was a very energetic guy…like most MBAs usually are.

So whether it was completing my assignments on time, making clean presentations, participating in extra-curricular activities, and spending time studying for the exams…I was full of energy and drive to do something in life…

…something that earns me a good name and money, and that can make my parents proud.

This is usually the dream that a small town boy harbours while working hard to achieve his goals of a good education, and then a good career. In that way, I was no different.

So I was energetic, and also thought that I possessed a reasonable amount of intelligence to achieve whatever I wanted to achieve in life.

It was here that I came across this snippet from a lecture that Warren Buffett gave at the University of Florida School of Business in 1998.

I had no idea about Warren Buffett then, except that he was one of the richest men in the world. And in following my dreams of a nice career with a nice starting salary, I was excited to read something that a ‘rich man’ said.

Revealed: The Most Awesome and “Undervalued” Resource on Safal Niveshak

Image Source: Ploomy.com

Last night, I was looking at my Google Analytics account for Safal Niveshak. This is a tool that helps me know, for instance, which are the most and least visited pages on the website.

I was tracking the visits for the past one month, and something struck my eyes.

While my open letter to my daughter and Prof. Sanjay Bakshi’s interview topped the charts in terms of the number of visits, what lay low was a page that I consider as the “most awesome resource” on the entire Safal Niveshak website.

The page I’m talking about is the…