Thursday, February 4, 2016

Long Term Wealth Creation

Oldies

As an investor intending to create wealth, my personal opinion is that its easiest to create wealth by buying cheap stocks (low PE) of companies that are growing (even if not at breakneck speed). Not that growth at reasonable price, surfing new technologies does not create wealth.

Change is the friend of society but enemy of the investor. Nice book on change and innovation I read recently (Innovator's Dilemma http://www.amazon.com/dp/1633691780).  Author covers multiple facets of change and difference between sustaining vs disruptive technologies, although a bit dated in terms of examples (written in 1990s) but valid in terms of framework of disruptive technologies. Leading and established companies were actually the first to recognize and frequently prototype disruptive technologies but could not get a board level agreement between marketing, accounting, finance, strategy to commit to disruptive technology due to 1/100th the size of the market at the time.


Very few companies last 50 years these days. And you know that any company or business group that has been around for several hundred years (there are several of them) has NOT compounded at even 10% CAGR. Because 10% Cagr of 1 Million $ over 200 years is 190 Trillion $, where as global assets are ~85 trillion $.

You need to sit up and take note when the company has been around for a hundred years. That implies that characteristics of the industry despite innovation allow for preservation of incumbents. Interesting statement from Nitta Gelatin Japan AR 2015 http://nitta-gelatin.co.jp/english/ir_info/library/annualreport.html




In the recent ten years the company has decided to focus on branding and consumer products like Gelixer, Wellnex Collagen, and not only excel in manufacturing. Currently Nitta Gelatin is #4 in terms of global capacity of Gelatin Manufacturing.

http://wellnex-collagen.com/

http://nitta-gelatin.com/bematrix-low-endotoxin-gelatin/

http://www.gelixer.com

The company has also opened new subsidiaries in previous ten years in emerging growth markets China, Vietnam and consolidated operations in India. 

The other company that I invested in last year was United Nilgiri Tea Estates India, also a 95 year old company. 



In my opinion next few years may be boring but interesting for these companies as the new money discovers that old is indeed gold.

Love the oldies.


Models

I also love some of these models where MNC competition is not present:

Hair oil usage in India !

Use of storage water tanks in African countries and India (story over for Sintex, diworsefied), as developed world water availability is 24/7. No competition from MNCs.

Artificial hair in Africa.

Gold / Diamond Jewellery (story over for India)


Focus on business models that are country need specific.


Some handicraft wood products in China.

Upcoming models in India (Ayurveda), Natural / Organic Foods.







6 comments:

  1. City Union Bank in India is over a 100 years old

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  2. Amit.. How do u see Kerala Ayurveda? Sluggish management but industrial tailwinds will be there.. Management may awake at any moment... whats your say?

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  3. KRBL-100 yr old story in rice.

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  4. "As an investor intending to create wealth, my personal opinion is that its easiest to create wealth by buying cheap stocks (low PE) of companies that are growing (even if not at breakneck speed)." & " And you know that any company or business group that has been around for several hundred years (there are several of them) has NOT compounded at even 10% CAGR." Reading this together is it fair to say that you will be comfortable in buying companies if you are sure in your mind about longevity of any company even if growth is only 10% CAGR for next 5-10 years [Specific to Indian companies]

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    Replies
    1. Its a mathematical impossibility the compound even at 10% above inflation for few centuries. So much for funds management industry if you look a big picture. :-)

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  5. Hai amit can I infer that the benefit will augur well for nitta gelatin India as well because I found nitta gelatin India has issued optionally convertible preference shares 10 lac and this fy they declared a higher divided nearly 100% for the preference shares is it not bad for a minority interest my query is purely on nitta gelatin India request your valuable feed back thank you

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