Saturday, June 22, 2013

Multi generational investing - Idea #1 and Idea #2

Munger: We remember the obvious than learn the esoteric.

Pick a big idea from another discipline than a remote idea from your own discipline.


You can significantly increase your opportunity cost, reduce risk profile for multi-generational investing by expanding your horizons beyond Indian BSE and NSE. That could also mean selecting Nestle Thailand at 18 PE over Nestle India at 50 PE ( underperformed Sensex over the past 10 years). Recently read how Sanjoy Bhattacharya lost to Fixed Deposits over the past 10 years of investment in Infosys. The mission in this series, then is to pick wonderful companies at a wonderful prices and practice assiduity for next 20 years. That's right we'll raise the bar on wonderful companies at fair prices.

My goal in this chain of posts is to pick easily identifiable ideas, which do not require research other than reading 5 years of annual reports, way cheaper than Indian blue chips, either on PE basis or dividend yield with high probability, bordering on certainty to be around for another 100 years. Companies like P&G, Nestle and Unilever. With exuberance in Indian top tier you may have to hold blue chips for 15+ years to outperform select mid caps. While mid caps offer value, blue chips are not worthy of investment given the opportunity cost.

How can you invest

Through Kotak Securities (I am not being paid any commission from Kotak), there may be more brokers out there. Any Indian national can invest in following 24 stock exchanges, through Saxo Capital/Kotak securities. This service of investing in International Equities through Kotak Securities is only for individuals. Currently it is not available for Partnership Firms, HUF, Trusts, NRIs and Corporates.


Finding these ideas have usually taken me less than 1/2 a day. Simply jump to the country exchange, search for top 10 companies or their franchises, like P&G, L'oreal, Coke. Cognizing that they are better than most blue chips listed in India at the price point and also more stable than mid caps for very long horizon, I will list them over next few years.I have about 5-6 ideas currently in which I am considering investing for myself. First two are presented below.

Idea #1
Mentioned in my previous post - Steamships Trading Company. It is listed on Australia Stock Exchange which any Indian national can buy. From the stable of a 200 year old business group, parent owns Cathay Pacific, Coca Cola bottlers, a very significant portfolio of property in Hong Kong. Any time is fine to invest, when you think Gold, Copper has bottomed out, will be an ideal moment. Not many companies pay 5% dividend yield that grow at 15-20% and are still available at 8 PE with conglomerate and monopoly characteristics. In this case the country PNG is considered remote/small cap by Fund Managers. Cheers to that !

Idea #2

Coca Cola bottler for South Thailand. Not sure yet, how an Indian national would go about buying this. Available at 17 times earnings and similar growth rate as top tier Indian MNCs, and equivalent prospects without the price tag. Covers 20% of Thailand territory for exclusive bottling and distribution licence.

I have yet to build position in other ideas, hang in there for more wonderful companies at cheap prices.

Munger: The way to win is to work, work, work, work, work and hope to have a few insights.

With this post I have erased India from the blog title. All you need is a handful of good investments for a successful investing career. Go ahead - take a bite and retire rich !

Saturday, June 15, 2013

Banks, buy-and-hold and where are my billions

Having lost 100% of principal capital in Bank stocks in the past, that question stays at van-ward on my mind.

When I express caution towards investment in Bank stocks, someone from my family enlightens the dark corners, "Invest in Bank stocks and retire rich. How many Indian Banks have you seen go bankrupt?"

While financial institutions may be cautious with lending to reliable businesses, it could be the macro factors that can sink them. I make no assumption of when and if that will happen. Reading page 30 of 172 from JK Banks 2013 annual report: Bank carries Contingent Liabilities of 32,282 Crores.Further on Page 79, Schedule 12 explains it as Liability on account of outstanding Forward Exchange Contracts and Other Obligations. Not only JK Bank but from Andhra Bank to HDFC Bank carry similar levels of contingent liabilities.

With Munger's admonishment that 2008 was just an aperitif, and that assets-good-until-reached-for in balance sheets of Banks (if not India) amounting to trillions of $ would blow up on us, I am not sure that Indian Banks would get a free pass to progress as the counter parties go down.

Some of this is reflected in valuations but a lot of it isn't. This makes banking overall unattractive from investing retirement funds.

It makes sense to buy those companies whose only fault is being too small, too remote where is institutional mandate is not to touch them. Other investment schools like single decision investing in Unilever/Nestle will also work sufficiently well but if your goal in life be on Forbes 100 (not that it is a laudable motto), I don't believe you can buy sufficient Nestle, Unilever and Coca Cola with your combined family's wealth in 2013 and still get there. You may have to do things differently! You can buy land in Zimbabwe which goes up by 10,000 times, or buy a Monopoly in Tonga Islands. But you can't buy Unilever India and expect to be on Forbes 1000 either (unless you are starting with 1 Billion $ to begin with.)

That is one terrible mistake people make when they equate Warren Buffet's 50 Billion USD = COCA COLA. Warren Buffett did not get rich by investing in these companies, he got rich by his business of taking 25% profits out of 100s of other people's money.