How little we know?

That was exactly my feeling after reading some of the facts in the past few days which I am going to discuss below.

The heading of this post have 2 meanings:

1) How much as an individual I know?

2) How much as a retail investor community WE know compared to big players out there?

Companies, Promoters, Brokers, Auditors, Institutional investors etc, all these people have only one thing in their mind apart from making profit. It is to use every opportunity to take the money out from Retail investors pockets. (Not all companies, but most of them). This greedy nature of companies combined with the pressure to stay top in the competition allows them to do such things. They make use of every option they have, to show us that their books are stronger than actual.

What is the Piotroski score of your stock ?

In fundamental analysis, no single tool or ratio will give the complete picture of the stock. Let it be P/E, EPS, D/E etc, all these ratios must be considered together to get the overall financial health of the company. In today’s post let’s know about something called “Piotroski score” which gives a number using fundamental analysis. What is this number and how it must be used? Let’s see below:

Joseph Piotroski, an American professor of Accounting at Stanford University. He rose to fame by his most influential 2000 paper he wrote at University of Chicago titled “Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers” (Click here link for the full report)

How to Value Financial services firms (Banks & NBFC’s) ?

With more than 50% of my direct equity portfolio holdings are being in NBFC’s (Gruh & Repco), I want to dig little deeper and wanted to learn, how differently Financial firms are valued?

But then, where to go? Stupid question right?  Who else can be the right person other than the Authority of Valuation himself “Aswath Damodaran”.

In this post I am going to take it with an Indian example and value most consistent wealth creator of Indian markets “HDFC”.

How to differentiate between Moats and Hawa Mahals ?

For most of us, it’s common sense to pay more for something that is more durable. From kitchen appliances to cars to houses, items that will last longer are typically able to command higher prices, because the higher up-front cost will be offset by a few more years of use. Hero Motor corp bikes costs more than TVS bikes, Asian paints costs more than Berger paints and so forth.

The same concept applies to the stock market. Durable companies that is, companies that have strong competitive advantages are more valuable than companies that are at risk of going from hero to zero in a matter of months because they never had much of an advantage over their competition.

What is an Economic moat?

“The idea of an economic moat refers to how likely a company is able to keep competitors at bay for an extended period. One of the keys to finding superior long-term investments is buying companies that will be able to stay one step ahead of their competitors.”

What should be my first stock ?

Last Sunday, I met a friend and the conversation went some thing like this.

Friend: Krishna, last year when I asked you to suggest one good fund as my First equity mutual fund, you suggested me to go with balance fund and chosen HDFC Prudence. It is performing amazingly well. I am sitting on a return of nearly 29%. Thanks for it.

Me: Welcome. But actually, the major chunk of your credit must go to Modi mania, another major portion to Prasanth Jain’s conviction and only a decimal fraction of it should come to me.

Friend: Now I want to come to direct equities. Can you suggest me one good stock to buy right now ?

Me: NO. Believe me, this is the best suggestion I can give you (at least for now).

Equity Valuation using Discounted Cash Flow method !!!

In the previous post we discussed Equity Valuation using Price Multiple method and now let’s try to discuss one of the most important and widely used method to calculate intrinsic value of a stock.

We all hear phrases like “Cash is the King”, “Show me the Money” etc.  all these tends to one simple rule of Valuation technique.

I am quoting here one of my favorite quotes of Aswath Damodaran:

“Value of an asset is not what someone perceives it to be worth, but it is a function of the expected cash flows on that asset.”

Addiction to Prediction !!!

Every day morning while I get ready for my office, my remote switches to Business news channels (mostly ET Now).
It goes something like this:

1) Market view for the week by Technical Gurus.
2) Opportunities you have to find every minute to maximize your returns.
3) Morning Mantra
4) Buy Now sell Now (Name itself is amazing, Isn’t ?)
They will not stop here,
5) Markets @ Lunch
6) Closing traders
and the loop continues,
7) Markets tomorrow.

Ufff… So much of information (wait, really ??)