Friday, November 29, 2013

Economics and holistic approach to problem solving - the Indian Genius


 This small lecture is just a tip of an iceberg into sneek preview of economic prosperity possible if man applies his mind and where we are headed. Most modern universities of 2013 not excluding the MIT, Harvard are veritable kinder-gartens. 

What is not covered in this lecture is - already in title - it was not just the Indian Vedic Rishis but exemplary men from all civilizations Greece, Egypt, Persia (http://en.wikipedia.org/wiki/Omar_Khayyam) etc. that produced masterpieces of men, so profound in their intellect, thorough in outlook, well rounded in personality and focused on their goals that everything was work of art springing out from inside their essence, and not a probe from outside in. The ascent and descent of civilizations, given that we had space faring civilizations using nuclear fusion, using gravity has to do with what in Vedic system is called Yugas, or many other civilizations like  Mayan, Greek as Golden, Silver, Bronze, Iron age. Intellect of the man itself rises and ebbs during these ages and the ability to creatively produce. Read more on the ages by Yukteswar Giri.

Enjoy a couple of the trillion enigmas of cosmos


A Monopoly business unearthed & uncovered

I wrote about 6 months back at link "My search is on for investment in another morally corrupt monopolistic venture."

Continue to hold the view that a < 10 stock focused and concentrated portfolio of MNCs in developing countries is likely to outperform all sorts of buy-and-hold investing and small cap investment as a portfolio. Though you may never get 20-30 baggers in 4-5 years as one can make in Kitex Garments, Mayur Uniquoters, TTK, Symphony or Cera, but the limited portfolio weight to small caps reduces the prospects of equivalent gain.

The ones I have mentioned in the past are Unilever Nepal here, Steamships Trading here, Glaxo Bangladesh, Reckitt Benckiser Bangladesh in which I am invested.

I have made a passing reference to Gillette Pakistan at 13 PE. Another nice deal is Coca Cola Nepal at 6% dividend yield. Each one in solo cited above is better than stock indices in other countries and collectively as a garland of dream portfolio, in my opinion, unparalleled in bequeathing investing reputation with peerless glory.

The best for a capitalist and perhaps also controversial by far is Murree Brewery Ltd. based in Pakistan in which am not invested as yet. Reading a bit about it - all the excitement felt by group thinkers and funds alike appears like a Cola without any fizz towards United Spirits. I don't get the excitement with United Spirits, I won't buy it at half the current market price. I must be feeling really lucky with alternatives or a simpleton. 

Murree Brewery is a legendary company founded in 1861, only company with liquor license in the country since independence with no competition. Mysteriously for capitalists also happens to be listed in Stock Exchange. Profits have nearly quadrupled in past four years. 

http://www.murreebrewery.com

http://en.wikipedia.org/wiki/Murree_Brewery

http://www.telegraph.co.uk/news/worldnews/asia/pakistan/9153934/Ale-under-the-veil-the-only-brewery-in-Pakistan.html

"The Murree Brewery is in an obscure lane off the road that leads to Army House, an imposing Victorian building that is the official home of Pakistan’s Chief of General Staff"

"If you are non-Muslim Pakistani in Punjab and have a permit, you are allowed to buy six bottles of whisky or one case of beer per month. ('Not enough,’ jokes the company’s technical manager, Fakher Mahmood.) Given that the company produces some 820 million half-litre bottles of beer, whisky, vodka, brandy and other alcoholic drinks per annum – and that those minorities make up less than five per cent of Pakistan’s 170 million people, those Christians, Sikhs, Hindus, Buddhists, Parsees and pagan animists would have to be consuming more than 90 bottles per person per year, man, woman and child."

http://www.spiegel.de/international/spiegel/alcohol-in-pakistan-the-politics-of-boozing-a-405232.html

http://www.telegraph.co.uk/news/worldnews/1543915/Pakistan-brewery-produces-Muslim-worlds-first-20-year-whisky.html

"Few distilleries in the world, even the high-end ones in Scotland, produce 20-year-old malts," said Minnoo Bhandara, the Parsee businessman whose family has run the Murree Brewery since the creation of Pakistan at the partition of British India in 1947."


Perhaps some of you get an inkling why I feel in a Louis Vuitton showroom when I look at Sensex and the dross listed there, well not really detritus, I do like Hindustan Unilever and Nestle India and it will be attractive at 1/3rd their current market price relative to opportunities. Murree Breweries Ltd. has given bonus shares in the past 5 out of 7 years, has tripled in past 12 months and is still available at 9 times annual earnings. Did I say monopoly ?

Saturday, November 16, 2013

Pakistan Vindicates

I have had an uphill battle trying to convince others to invest in Bangladesh, Nepal, Kenya etc. for what appeared to me absolutely no-brainers, geo political risk and currency risk notwithstanding. I have found those opportunities better than any listed company in India. Friends aside, I have not even been able to convince my own family members. My enthusiasm and exuberance met with nonchalance and derision. That is putting it mildly. Until Pakistan story unfolded I felt like the only person who had some lose nut in his brain.

Over the past few months Pakistan Stock Exchanges have opened up to foreign investment, legally for any and every citizen/institution anywhere across the world. I tried early in 2012 to get an account opened to buy Unilever Pakistan, then available at 5000 Rs, similar valuations and attractiveness as Nepal Bangladesh companies are trading today, but it was not allowed for foreign nationals to  invest. It finally got delisted at 15,000 Rs recently.

http://tribune.com.pk/story/527447/going-private-for-delisting-unilever-pakistan-faces-a-higher-price/

 Come 2013 and portals of heavenly abode for value investors, sorry, legal investment hurdles for foreign investors are cleared with foreign repatriation. Pakistan, deemed to be an even less economically stable country than Nepal or Bangladesh, serves as a good example. 18 Month spot charts of 3 out of 25 or so MNCs listed in Pakistan for the recent 18 month period ending 17th of November 2013, i.e. today, are pasted below.

Abbot Labs - 4 bagger in 18 months

WYETH - 6 bagger in 12 months, 10 bagger in 18 months








NESTLE Pakistan - Only tripled in 18 months. 

"only" is intentional

Some people had automatic explanation why Gillette/Colgate/Nestle in India can trade at 50-70 times annual earning but similar companies in other developing countries can only trade at 10-12 times. Today NESTLE Pakistan has been re-rated to 60 times earnings ! This had to happen as certainly as death and taxes. Sigh of relief. Peter Lynch never invested in multibaggers in Financial Industry right in his own backyard. A funny quote applies to all of us laser focused on BSE and NSE India trying to find value in Louis Vuitton like priced BSE Index, not once questioning whether we are in the wrong store. "The closer you are to the church, the farther from God".

Even today, these countries mentioned are more attractive than India and that's where I am investing. Buffett - "I skate to where the puck is going to be, not to where it has been". Thank God sufficient people with investment muscle think like me so as to be able to re-rate companies in seemingly unstable countries. Common sense prevailed over xenophobia. Thanks for the Pakistan precedent, I am hopefully on the right track.




Saturday, November 9, 2013

Success

I am a firm believer that living up to a single phrase can transform one's life. Depending on our mental attunement to an idea we only choose to play the radio station that is on our frequency, and latch on to quotations or phrases that suit us. World is full of ideas, but we choose to pick only the ones that fulfill our immediate needs. Its rare to find a person who follows Buffett as a role model not primarily for  investing/stocks/material wealth, other things being secondary. Amazingly, he did not bring up any of his children to follow him, none of them accumulated much wealth or pursued investment profession. Then, isn't is worth paying heed to what Buffett himself took seriously. According to Buffett, at 2 min:50 sec into first interview, "Success is not to be measured with Money. It is living up to your full potential." The definition of "full potential" is out of scope of discussion, probably cannot be discussed, only experienced. In case you follow Buffett, are you living up to your full potential ?



Three Genertions



What Buffett learnt from Munger - Making Silk Purses from Silk



Recall writing a similar post on success few years back here.

Friday, November 1, 2013

Booking Losses, Keeping Profits and Holding on

My personal portfolio comprises with an exception of maybe one, all companies with market cap well below 1000 Crores i.e. small caps. Its verily a roller coaster ride.

Its easy to make money in the markets but harder to retain them over long term.

In analysis of past 18 months over mistake made and what could be improved upon.. Net of losses in Vikas WSP, holding on, Zylog - booked loss, Cravatex - a minor position now, the other small caps like Atul Auto, Wim Plast, RS Software, Orbit Exports etc more than made up the loss.

What have I learnt:

#1 is that in a small cap portfolio, the diversification needs to be wider

#2 Once the environment/underlying hypothesis has changed, eg: RBI legislation on gold curbs is effective. Do not be brave, err on the side of cowardice, cut all positions, sell all jewellery stocks

#3 Stay hungry and change with the times

By # 3 I do not imply lowering your standards but stop doing what does not work. The best part about investing is the limit on losses to 100% of investment and no upper limit on profits.

Keeping Profits

That is only possible by being right and making fewer decisions. i.e. Holding for longer term. One simply cannot be right 50 times a year.

As you can see, with 3 out of 8 small caps misfiring, you may be correct in your assessment but if your temperament is to hold on to positions for ten years or longer many a spanner lie in wait for the compounding machine to break.

Holding On

Small caps rarely qualify holding on. There was a time when leading debt free companies were growing at 30% per annum and available at 10 times earnings. Now leading companies are growing at 10-15% and available at 50-75 times earnings. eg; Dabur India, Nestle India, Colgate Palmolive India. Hardly a better alternative ?

A risk of leveraged financial institutions can be taken to get close to 20% compounding. All housing finance companies in India fall in this bracket. 

Or alternate geographies where some leading companies are available at 10-20 times earnings. Reckitt Benckiser Bangladesh available for 300 Crores INR ( population adjusted value should be 9000 Crores INR if Bangladesh is to reach world average in next 15 years), Reckitt's global market cap is 300,000 Crores INR. Bangladesh would be roughly 3% of world population in next 15 years.

GSK Bangladesh for 900 Crores INR (again 25 times undervalued on world average parameters), or Bata Bangladesh etc. look quite promising for buy-hold-and-retire type of investment. Just have a look at their balance sheets, overflowing with cash, needless to say zero debt. Just the kind that can sport 100%+ ROE. In IT speak they're companies in Gartner Magic Quadrant with outstanding ability to execute with broadest vision.

My leaning has moved from small caps and focus is now on leaders available at mid cap valuations. Also I am encouraged by holding a concentrated portfolio which is more amenable to Global leaders. A different type of risk is assumed, country and currency.

Two quotes from Munger come to mind, not quotes verbatim but something on these lines "You are supremely rich if you hold shares of three best companies". and
"You are adequately diversified if you have biggest mall, best restaurant and best grocery store in a town". What begs an answer also is, would you buy a company that is successful and has a leadership status in one state of a country ? (eg: Thangamayil, Atul Auto), or a leadership in one country (eg: Dabur, Havells, Emami, TTK), or leadership in over 150 countries ? (eg: Colgate, Unilever, Reckitt, GSK), isn't that an easy answer... 


If you do not know the process of investment in Bangladesh, feel free to ask.

Disclosure: Vested interest in Bangladesh stocks mentioned. 

EDIT: Unilever Nepal available at 2 times annual sales. Unilever India available at 5 times sales. 
GSK India available at 6 times annual sales. GSK Bangladesh available at 1 times sale. 

GSK Global is bigger than Unilever, both are no-brainers IMO.