Thursday, March 31, 2011

World Changing Ideas

An idea can change the world, its true. Sneak a glance into amazing work that Intellectual Ventures (www.intellectualventures.com)is undertaking. Nothing short of an amazing company. This is the springboard for positive black swans.

 One of TED.com talks from Nathan, founding member of IV follows

 


 Most of the technologies take off soon after they become ridiculously cheap. Adrian Slywotzky calls it Value Migration. You have to look around for cheap solutions that work, polio vaccines, cellphone etc. Prevention is better than cure, nay far cheaper than cure. Eg. cancer, tornado. Tornado especially is a storm without an "off"  switch. Came across a really powerful and cheap idea to prevent tornado/twister from creation in first place.


While no one can tell which of these technologies will end up establishing biggest industries around them. I would venture for a long bet, by 2040, few things are pretty certain, days of petroleum industry are limited, currently  Exxon Mobil at #2 spot, #1 in 2009, and Chevron at #3 spot in Fortune 500 list would not be in top 50. Biggest industries would be the one we have not even anticipated. Rate of change is accelerating.

Saturday, March 26, 2011

Companies one can buy in 2011

I like several ultra micro caps right now but I cannot disclose them for several reasons, including I am not invested, they require active monitoring, their inclusion has to be balanced from a portfolio perspective etc.

The ones I feel can return 20%+ cagr over next two - three year period if bought as a portfolio are:

Gandhimathi Appliances
LIC Housing Finance
TTK Healthcare and Prestige, both
Gujarat Reclaim and Rubber Products
Globus Spirits
AK Capital
SB of Travancore
J & K Bank
Panama Petrochem
Astral Poly Technik
Photoquip
Cravatex
Page Industries
Wim Plast


I do NOT think Simran Farms should be averaged for those who asked. Seeking change just for activity can cause more damage than benefit, best stocks may be the ones you have and know a good deal about. I also feel that no stock should have more than 20% weight in portfolio, of course I do not comply to it myself on occasions :) AK Capital and Panama Petrochem can surprise on upside, LIC HF is strongest of all.

All the best

Thursday, March 24, 2011

Twosome books and stocks

Steven and Stephen's books are so entertaining that one has read SuperFreakonomics sequel if one reveled in the first one, Freakonomics. It trashes a plenty of myths. I obviously loved the treasure-hunt approach of the authors.

The books are all about how incentives motivate people to behave in ways not easily imagined or manifest.

The matter is too detailed to elaborate in a blog entry. But to get you thinking, it is unimaginable that merely leakage of trivial information on radio destroyed Ku Klux Klan.

One of figments of my mind this book has successfully corrected is the mode of transport 100 years back was far worse in terms of pollution than even present day diesel engine autobahn. Even in terms of death, horse or wagon claimed 1 New Yorker out of every 17,000 residents. Meanwhile in 2007, automobile accidents claimed 1 out of 30,000 residents in NYC. Worst of all was the dung. With 200,000 horses, 5 million pounds of dung annually was not easy to hide. During rain the mountain of dung would stench till heavens, disgusting and cause diseases.

How TV changed life in rural India and empowered women is also covered in the sequel.

Incentives are cornerstone of our life. What motivated Chicago school teachers to rub incorrect answers and algorithm used to catch them is very fascinating. It led to firing of scores of teachers. Japanese however did not investigate the trickery of collusion. One would learn about Sumo, game and its rules.

Drop in crime baffled Americans in late 90s and "experts" would come up with every imaginable idea ranging from better policing, tougher gun control laws, drug crackdown to prospering economy. To say the least all experts look dunderheads for their articles, the benefit of hindsight. The real reason was law in 70s that allowed women to exercise abortion, thus unwanted children were no longer born.

Its cracking amusing, scientists were looking for bird poop, not the sound of universe. Nicholas Taleb would admire this serendipity. The book answers why 90%+ drug peddlers work below minimum wage, why would one risk life than working in McDonalds ? An interesting chapter on baby names and numerous other accounts and gags are provided an insight into.

Two Stocks

Two stocks that I like for long term as much as these books.

While Hawkins Cooker is coming in buying range, their expansion has yet to be proven, one should keep tabs on it. Wait for next 1-2-3 quarters.

TTK Healthcare should also benefit from wealth generated by TTK Prestige and management focus on this business. Can be accumulated now. These are just my opinions.

Wednesday, March 16, 2011

Freakonomics and Cravatex Announcement

Just about to complete a superb book Freakonomics: A Rogue Economist Explores the Hidden Side of Everything by Steven Levitt and Stephen Dubner, Amazon Link

A must read for anyone who liked Influence by Robert Cialdini. Clearly the book has over 50 man years of research behind it. I'll post very interesting snippets from the book on widespread cheating by teachers in Chicago public schools, complete bewilderment of reasons behind drop in crime in the US in 1990s, Sumo wrestling considered sacrosanct by Japanese have implicit cheating as a cartel even though no money is changed, sage percipience of Narcotics business from a university graduate who lived amongst gangsters as a research work for four years. Steven is a non ordinary economist a detective and spy who has a lot of spunk and spark about him trying to figure stuff out.

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Cravatex

Since I am following this stock I noticed an announcement BSE on the 10th of March which prompted me to look into motivation behind it.

More details on the announcement is at

http://www.bseindia.com/stockinfo/anndet.aspx?newsid=1542710e-0111-4168-b0d6-eb4c93254233&param1=1


It is too early to comment on the prospects. There have been some changes in top management of FILA UK and Directors of Cravatex Ltd, Proline India Ltd i.e. Rajiv Batra and Rajesh Batra have stepped down as directors from Jan 2011 as can be seen from link below. Guessing this must have been part of negotiations to be mafia of whole of Indian subcontinent including neighbouring countries under their territory.

http://www.companiesintheuk.co.uk/ltd/fila-%28uk%29

Both brothers own a few other companies registered in UK dealing in sports.

http://www.companiesintheuk.co.uk/Company/Find?q=person%20RAJIV%20BATRA

http://www.companiesintheuk.co.uk/Company/Find?q=person%20RAJESH%20BATRA

Incase you did not know FILA faced financial hurdles due to over endorsement few years back and now the business is being resurrect globally since 2008. SBI group of Korea owns it along with management who went for rights issue and loans to capitalise the company.

Most of the innovation and extension in apparels like Golf apparels, Mountain wear, Innerwear / Undergarments and Kids range besides the sports range is coming in Korea, US and should follow in other countries with a time lag.

http://www.fila.co.kr/2010/main/main.html

Saturday, March 12, 2011

Example of Quantum Stock™ - Dharani Finance

 Quantum Stock is just a theoretical idea. It does not imply one is better off investing in such a security at any point.

Azmath asked if Hawkins Cooker, Symphony do qualify as Quantum Stocks ™

More precisely he asked :

Let me take the liberty to take your trademarked word Quantum Stocks™ :) The idea is pretty interesting, the mechanics of which may be allegorical to Quantum Mechanics, via Heisenberg's uncertainty principle. The reason: we can not exactly predict the value of the stock. The moment we predict (in reality 'invest'), the price of the stock moves because of low volume. Thats pretty interesting, and thats why I really appreciate your coined word.

Regarding external influence, I doubt. We can see the price per share history of such stocks during the past recession period. It has fallen considerably. Isn't it?
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 Thanks, I know Azmath, you are a quantum investor too :).

The ones I did mention in previous post do not indeed qualify as Quantum Stock™, apologies for that. A Quantum Stock™ is one where correlation with index such as Sensex or Nifty is little or none.

While I broadly agree with you that all stocks mentioned in earlier post have indeed fallen, those are also the ones with very high and certain future returns. Even though they have been the best stocks from sure investment perspective, in fact that is where one should have bet one's bottom dollar, for the sake of "theory" they are not quantum stocks.

For ex: Shoppers Stop was an excellent buy when it fell to 30 Rs (adjusted for split), now 320 Rs, it made very little sense to invest in Quantum Stocks™ because the certainty of bounce back is so high in front line stocks. I though took very slight advantage of Shoppers Stop, sold too soon. Therefore, we are not hung up on and limited in our investing horizons to just Quantum Stocks™ :) when other deals with higher certainty are present.

Example of Quantum Stock™ is Dharani Finance  (DF)  :)

http://www.dharanitravels.org

There are a few other examples too but since I have not invested, left unnamed. In Dharani Finance the possibility of money going to ZERO is negligible, it provides car fleet to 5 star hotel owned by a group company. It has portfolio of 4 Crore Rs in equities and 1.5 Crores cash, more than its market cap of 3 Crores, paid dividend and was unaffected by 2008-09 crash. I don't think management is interested in scaling operations just yet.

Dharani Finance  may have some short term potential since group company is expected to come up with a second 5 Star Hotel and car fleet requirement will double.




Regards

Disclosure: Not invested in DF.


Five year Chart below:

Crash of 2008-09 can barely be felt on blue line ( DF )

Friday, March 11, 2011

When Money Dies by Adam Fergusson

As the title suggest, it is a nightmare of a currency collapse. Dark days of Germany, Hungary and Austria are detailed with a historians meticulousness.

The style is not very free flowing thus impeding enjoyment.

Scope of the book is to provide an account but not survival guide to hyperinflation. Although implicit in the pages is the illegal activities conducted by businessmen when faced to the wall is evident by going long on foreign currencies and shares which represent tangible assets.

Just before the first world war Mark, Pound, Franc and Lira were about the same but over the next decade reparations and printing press rapidly impoverished Mark to 1 trillionth versus other currencies. The insurance sum received by widows or claims was less in purchasing power than the premium paid out of hard earned income in former years. Buffett who recommends this book is so correct in asserting that cash under carpet or bank is the worst asset one can own.

His Elephant Gun is Loaded Again; following other Investors & Quantum Stocks

Buffett's latest letter makes for very interesting reading for any and every serious investor, click here.


Related videos





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Following Other Investors:
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I have known many an investor who lost all their financial wealth by following others. Those horror stories are prime reasons for extreme aversion to stocks and cause of less than 2% of Indian household savings channeled to equity class as of today.

One has to find one's own style. In a diversified portfolio 60-70% hit rate is very good that that is what all investors get. In trading 30% strike rate is good enough and one finds 90 or so good traders out of a million traders. Thus, investing is far simpler to trading. The odds in investing are superior to casino, gambling, playing cards, hound or horse racing since it isn't a zero sum game.

Masses get enamored by Automobiles or one or another industry served on their plate. Fashion, thus exceeds the frontiers of clothing and extends to business, politics, investing or even sciences. It makes no sense to follow others blindly. If one does want to follow a successful investor like RJ then one would do well by replicating his entire investing portfolio, and not betting 40% of one's portfolio on the likes of Adinath Exim, doing the rounds these days due to the "next big thing" aka Coal Bed Methane source of energy in background of rising oil prices. All news anchor speak about the next hot trend, but did anyone mention that Symphony Ltd was available at 2 to 3 Rs in 2003 and is a 500 bagger ? Even if one spotted it in 2009 at 20 Rs, it would have been a 70 bagger by now. Bluest of blue chips pale with these kind of returns. Or a 100 bagger with Mayur Uniquoters in the decade gone by.

One sure way to get poor is blindly buy something that I write about or that anyone else buys especially in a disproportionate weight.

I have noticed an interesting trend driven by Institutional constraints in Quantum Stocks ™ - A term I long wanted to coin. 

  
Quantum Stocks : Similar to sub atomic / quantum phenomenon, where external forces at molecular or higher grade do not affect the dynamic of quantum universe. A stock lying around, perceived as piece of filth in trash bin is unaffected by all external forces of economy, foreign investment, inflation.

The market cap of the stock is so small and insignificant, that once one ventures in this domain with success, in a few years, one would end up buying virtually quarter to half of the entire company. The security is already so cheap that no external force acts upon it. It is simple but not easy to be a sole Quantum Investor. Because a) it takes a significant effort and b) requires pretty strong conviction despite flat returns for an extended time.

I had strong contempt for diversified portfolios and now I am somewhat humbled after I have seen some investors who hold 1000 stocks with at least 200 active positions - who have compounded @ 30% per annum for over a decade, thus the style is entirely yours to choose but following anyone else blindly is a path to nowhere.

The trend I was coming to, I have noticed that for ignored gems, it takes them a decade or longer to reach three figures i.e 100 Rs but the spurt to 4 digits is  quite sudden. eg: Symphony, TTK, Hawkins, VIP, Cravatex (still has not), Venky's India. Institutions are constrained in self imposed fetters by an arbitrary round figure in decimal system chosen by humans and nudge of dividend declaration. The performance also has to do with India's retail revolution, company's inflexion point backed by strong earnings.

Wednesday, March 9, 2011

State Bank of Bikaner and Jaipur : Rights issue

One can subscribe to the rights issue with decent returns (20% compounded per annum) within 24 months even if immediate returns are not realized, although the odds for latter appear very favourable.

The announcement was made on the 8th to Stock Exchange and it is the 10th of March today. Last date is 17th of March before one can make up their mind.

More info at http://bseindia.com/xml-data/corpfiling/AttachHis/SBBJ_080311.pdf 

PSU Banks as an industry have returned collectively better than any other industry in the past decade to investors (except Consumer Goods and Pvt. Sector Banks) , and that will continue, more so with MFI blood drawn, banks are making inroads to unserved sections. I am also quite bullish on nimble NBFCs which will bridge the gap between incompetence but low cost deposits of PSU Banks and arrogance / size of Pvt Sector banks. No names to drop there yet. As the bond market and securitization matures in India NBFCs will be back in the game prime time.