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Wednesday, 16 January 2019

Resources to Learn Equity Valuation

This is a question I received today, "I am on my journey to study and understand value investing. Can you please suggest some good sources where I can build my skills in the mathematical part of value investing. I mean analyzing the numbers. The "how to" of value investing. As far as the mindset part is concerned, I read about behavioral finance. My weak link is the numbers part, since I don't have a formal background in accounting or finance." 

I thought I would reply back to the person concerned. But then figured that this could possibly be a question that a lot of other investors, who may be starting out on their investing journey, may have. So, why not put it in a post so that it helps more people. 

So, here goes some good references, which I have found useful.

1) Aswath Damodaran course on valuation is available free on youtube (-

This is really great and helps navigate through the world of valuation through short and to-the-point videos. As Aswath Damodaran is a professor, his ability to convey his ideas through words is very good. Highly recommended.

2) Financial Statement Analysis and Reporting from IIT Roorkee  -

The next one I would suggest is a more detailed and involved course. This is from Prof A.K Sharma of IIT Roorkee and he explains in great detail. This is like doing a full course on the topic. I suggest one should take this as an actual course and make a disciplined study routine to go through this series. For example, I used to go through 2 videos a week.

3) Financial Statement Analysis and Security Valuation by Stephen Penman (

If you are better at learning by reading a book, then Stephen Penman is arguably the best you can get. 

4) Investment Valuation (

Aswath Damodaran also has many books on valuations, but his arguably the best one is

Happy Learning!

Friday, 11 January 2019

Weekly Reading: Some Interesting Stuff

As I mentioned in my last article in Economic Times, parts of the world is increasingly turning ultra-right-wing politically. This long-read from New Yorker is about Viktor Orbán, the Prime Minister of Hungary, who has been building a wall around his country and increasing his domestic popularity.
Posters throughout Hungary read, “If you come to Hungary, you must respect Hungarian culture!” All the posters were in Hungarian. That summer, Orbán’s government began to construct a fence along Hungary’s borders with Serbia and Croatia, essentially halting immigration to the country. Der Spiegel declared him “the political victor” of the immigration crisis, and, since then, each new terrorist attack at a Christmas market in Berlin or Strasbourg seems to bolster his standing.

I have been flirting with this idea of going back to the "dumb phone", but am finding it incredibly difficult. Mobile phone has become addictive and habit-forming for me as I use it for many different purposes. Here is an interesting piece on why should be looking to get back to the dumb phone.

A superb article by James Grant of the famous Grant's Interest Rate Observer on how huge government debt is impacting the US. The lessons apply to India as well.
It took the United States 193 years to accumulate its first trillion dollars of federal debt. We will add that much in the current fiscal year alone.
All told, the government owes $21.5 trillion, give or take a few careless tens of billions—that works out to $65,885 for each American.

An interesting account of how Coca-Cola influnced scientific study and public policy making in China to the detriment of people and led to an major increase in obesity.

Today's cloud storages and cheap hard drives mean we keep collecting all sorts of things, from emails, to files, photos, videos and keep them mostly because we think we may need it at a future date. An interesting story on how we have become digital hoarders.

Monday, 7 January 2019

ET Article: The Year Gone By

As we head into the new year, here is a look back to the year that was.

In 2018, markets have seen a strong correction, especially in the mid and small cap space, which is not visible in the index numbers. This has meant that most investors have lost money during the year. We can attribute the fall to many reasons. In my opinion, it was high valuation, lack of growth in earnings and money outflow that contributed majorly to the fall. FIIs sold throughout the year ending the year with outflows of 23,769 cr from equity and 51,328 cr from debt markets. This resulted in pressure on the currency. The rupee fell from 63 to about 70 to the dollar during the year and touching 74 in between. Oil prices spiked during the year scaring a lot of investors and economists spelling doomsday, but eventually came down lower to around $50 / barrel from the beginning of the year when it was around $65 / barrel.

We also saw some very important moves during the year. The bankruptcy code got implemented. The progress has been slow but hopefully will lead to long-term changes in the promoter behaviour as they stand to lose their companies in case they do not service their debt on time. We also saw a beginning of PSU bank mergers with the SBI merging the associate banks into itself and the announcement of the Bank of Baroda, Dena Bank and Vijaya Bank. The migration of banking from PSU to private banks is a consistent and long-term process and in future may end up with only 3-4 large PSU banks able to survive and the rest to be merged into them. SBI, Bank of Baroda, PNB seem the most likely candidates in that list.

The year also will perhaps be remembered, atleast for some time, for financial misdemeanours of the PNB scam and IL&FS collapse, resulting in a large sentiment change for the NBFCs. The NBFC space had heated up with a lot of new entrants starting their own NBFC businesses in the last couple of years. 2018 saw an end to those adventures. From now on only the strong, well capitalised, prudent and niche lenders would be able to thrive and grow their business.

Globally, FAANG stocks have seen an interesting year.  Apple and Amazon touched a trillion dollar market cap before correcting significantly by the end of the year. Apple is slowly going downhill, as they are not able to create any new products. For the first time, their reluctance to share new release product sales highlights the fact that their sales are losing steam. They are holding on to their margins by increasing prices, a strategy which has a low shelf life. Buffett's large sized bets, first on IBM and now Apple, shows, that he was probably right in avoiding tech stocks all these years as they were outside his circle of competence!!

Facebook has had a tumultuous year, with issues regarding piracy and data access to platforms like Cambridge Analytica. Regulatory risk seems to be very high for Facebook at this time.

Netflix continues to invest humungous amounts of money, 2018 budget was close to $8 billion, with around 85% pumped into original content. Being personally a movie and TV series binge watcher, I have a vested interest in their doing well!!

Google continues to be perhaps the only "irreplaceable" company for now. It is fully integrated into our lives. Search, YouTube, Maps, Android, Chrome are all de-facto choices for most people across the globe. The inflexion point will be when they try to monetise their non-search products like YouTube. That is when we will truly know the brand pull or if people are quick to migrate away to another similar product.

Back home Reliance Jio has completely disrupted the telecom space by ushering in dirt cheap data. This new data access is already changing behaviour patterns for a lot of people. I see people around me consume a lot more entertainment on their mobile devices now than ever before. A lot of my younger friends have completely moved away from watching TV. We have already seen completely new industries like food delivery and taxi apps come up over the last few years which has piggy-backed on this convergence of cheap data and smartphones. Over time, this behaviour will pick further momentum and a lot of industries will have to adapt themselves to the new way of doing business.

Another factor unfolding over the last few years and which took a spotlight in 2018, was what I term "hyper-nationalism". Leaders like Trump epitomise this phenomenon. This is a long shift and takes decades to fully play out. The world is now becoming more and more "selfish" as resources like jobs become fewer and the world population continues to grow. Countries and people will become more and protectionist and pandering to their local polity. And it may take years to reverse this trend. This will redraw corporate and trade structures as we know it. Expect to see lot more legislation and rules which will pause the free-flowing globalization of the last 2-3 decades.

Coming to the Indian markets, 2019 looks a promising year, as do all years. As the famous Chinese saying goes, may we live in interesting times!

 This article appeared first in Economic Times on 7-Jan-2019 at

Saturday, 5 January 2019

Weekly Reading: Some Interesting Stuff

An absolutely stunning collection of FACTS that New York Times reported throughout 2018. A page to be bookmarked and read to learn, laugh aloud at and get amazed by.

A behind-the-scenes look at how Amazon rules work in protecting the consumer and how the system is gamed.

A very good piece on hyperinflation and how it has reared its head every few years across the globe and created social, economic and political havoc.

A peak into the new-age world of e-sports, video games as spectator sports.
More than 10 million people tuned in on streaming platforms like Twitch and legacy networks like ESPN, with a higher share of 18-to-34-year-olds than the Super Bowl or the NBA Finals. 
It’s unclear what the popularity of e-sports among younger generations will mean for traditional pro sports. A 2017 study from Street & Smith’s Sports Business Journal found that the average age of a Major League Baseball TV viewer was 57, while the average ages for NFL, NHL, and NBA viewers were 50, 49, and 42, respectively. Meanwhile, nearly 63 percent of those playing Fortnite—the inescapable mobile game that’s made $1 billion since being released last autumn—fall within the coveted 18-to-24-year-old demographic.
Passion for the industry runs deeper in Asia, where gaming culture is more ingrained and American sports have less of a footing. South Korea recognized e-sports as a second-level Olympic sport in 2015, and this past August, e-sports made its debut at a major global athletic event with an exhibition during the Asian Games in Indonesia.

Companies are starting to bypass the Apple and Google appstore in how users discover, download and pay for their apps. Netflix has started this with iTunes and Spotify was quick to follow suit. It could be potentially disastrous for a company like Apple, whose so-called platform business can disappear very fast, leaving it as a hardware manufacturer of phones which people don't care for any longer.

Monday, 31 December 2018

ET Article: Investment strategy for election year? Just don't think too much!

2018 has been a very testing year for equity holders. Investors in midcaps and smallcaps have bled profusely. Largecap indices, with the exception of a handful of stocks, have also gone down. This is normal. Equity returns are not linear. Equity as an asset class does not give steady, regular returns. 2017 was a year of super-normal profits. On a two year timeframe investors have still made positive returns. It is the recency effect and the availability bias which plays tricks with our minds and makes us feel that the markets have let us down!
I will not hazard a guess on what the market will be like in 2019. Not because I don’t want to, but simply because I don’t know how to. I know at this time of the year, it is fashionable and probably expected to prognosticate about the next year, but I will refrain from that. Instead let me talk about a few important things that we should keep our eyes out for.
Firstly, let’s talk about the elephant in the room and get it out of the way - the general elections. Historically, Indian markets have had large swings immediately before or after the general elections. However, if we have a 2 year view, elections and its results don’t matter much. In 2004, the Nifty went circuit down post-elections, and yet the market went on to have a great bull rally for the next 3 years. Exactly, the opposite happened in 2009. The market went circuit up and then did not do much for the next 2 years. In the US elections, when Trump won, markets where expected to crash, yet it rallied. Recently, in the state elections, the ruling party lost in 3 of the major states yet the market went up instead of falling as was generally expected. I would argue that not only is it not possible to figure out election results, but it is not important to do so for investing.
Next is the US-China trade war. It is something which is too difficult and complicated to be able to infer its implications. One thing in India’s favour is that most of India’s economy is domestic-consumption driven and not dependent on either US or China.
Oil prices can destabilize our economy to a great extent. How it behaves in 2019 and beyond needs to be on our radar as investors because it can impact the currency and interest rates. We, as a nation, need to start actively looking at renewables and reducing our dependence on oil imports. 2019 is a year as good as any to get started on this.  
Job creation in the age of increasing automation is going to be an ongoing challenge. India needs to be able to support its huge population with jobs. We are in a peculiar situation with a scarcity at both ends of the spectrum. Industry doyens keep talking about unavailability of employable people and on the other hand our youth have no jobs. Should we be focusing on vocational training instead of trying to push everyone to get a graduation degree? What about the quality of education being imparted at various levels?
While these have nothing directly to do with equity investing in 2019, tackling these problems by an enterprise can provide long term mega-themes.
India is a 2.5 trillion dollar economy today. At the current pace, we should double in 8-9 years and then double again in another 8-9 years. In this while, market cap should also go up substantially from current levels because a lot more of the large unlisted players would come to the capital markets through IPOs. At a 100% market cap to GDP ratio, we are looking at approximately 10 trillion market cap in 16 to 18 years.  That is a 5-fold rise at the market level in that time frame. Individual stocks will definitely do much better. So, keep an eye on the longer term wealth creation stories, be invested in a well-chosen portfolio of stocks and fasten your seat belts for a bumpy ride on the way.

This article first appeared in Economic Times on 1-Jan-2019

Friday, 21 December 2018

Weekly Reading: Some Interesting Stuff

The creative destruction of capitalism gives it a remarkable advantage over other systems. You sometimes have to be willing and able to tear down in order to build up. The old and proven and venerable must sometimes give way to the new and innovative and transformational.
A capitalist economy should be judged not just on the aggregate economic improvement driven by its innovation but also on the design and strength of the social safety net that cushions the ill, or disadvantaged, or those who simply fail to thrive in their particular setting, geography, industry, or trade. After all, creative destruction is still destruction, even if inevitable and in the service of a net gain to society.

They analyze the DNA in a patient’s cancer cells. Using special algorithms, a computer then scours data on thousands of gene variants, hundreds of anticancer drugs, and millions of drug combinations to find the treatment that best targets the tumor’s abnormalities. It may be a new immunotherapy, old-line chemotherapy, hormonal therapies, or drugs that aren’t specifically approved for cancer.
Precision medicine flips the script on conventional medicine, which typically offers blanket recommendations and prescribes treatments designed to help more people than they harm but that might not work for you. The approach recognizes that we each possess distinct molecular characteristics, and they have an outsize impact on our health.

Third installment on how to write well, by Jason Zweig. This series is a must-read for all those who like serious reading and writing.
The essence of rewriting is destruction.  Journalists and other professional writers almost always call it “killing my darlings.”  Cutting is bloody, but rewriting is what hurts, because it requires brutal self-examination.  Rewriting also hurts more than cutting because, after you already put all that work into striving for perfection, now you have to scan everything you did with a cold, alien, objective eye that focuses on finding every imperfection.  If you can’t find any, you are writing, but you are not a writer.

Notes from Durgesh shah's talk at the second Value Investing Pioneer's Summit organised by the CFA Society, New Delhi.

New York Times' collection of the 100 most notable books of 2018

Friday, 14 December 2018

Weekly Reading: Some Interesting Stuff

This is one of the best articles' I have read this year. So many wow moments in this. Here are some excerpts:
When a supernova explodes, the blast wave creates high-energy particles that scatter in every direction; scientists believe there is a minute chance that one of the errant particles, known as a cosmic ray, can hit a computer chip on Earth, flipping a 0 to a 1. The world’s most robust computer systems, at NASA, financial firms, and the like, used special hardware that could tolerate single bit-flips. But Google, which was still operating like a startup, bought cheaper computers that lacked that feature. 

They were relentless optimizers. When a car goes around a turn, more ground must be covered by the outside wheels; likewise, the outer edge of a spinning hard disk moves faster than the inner one. Google had moved the most frequently accessed data to the outside, so that bits could flow faster under the read-head, but had left the inner half empty; Jeff and Sanjay used the space to store preprocessed data for common search queries. 

A list of the best scientific innovations of 2018. A fascinating peek into where we as humans are going. Things like the Iron-Man jet suit, indoor smart garden, shape-shifting vehicle wheels and the world's first migraine prevention drug make the list interesting and entertaining.

New technology is the key reason for today’s high equity valuations, he said: “It’s created this vision of a world for all of us where we can have high growth and no inflation forever.” But the United States has had many periods of technological change since the late 1800s and none ever produced permanent high growth and low inflation.
So China will abandon its link to the dollar. “It’s just not conceivable that the second-biggest economy in the world would take its monetary policy from Washington, DC,” Napier said. He expects an initial devaluation, then a free-floating RMB that allows China to inflate away its debt. And when the currency relationship ends, so will the nirvana of high US growth, low inflation, and high equity valuations.

A fascinating article on how Sweden has managed to be great at creating new start-ups in business and the changes it has put in place over the last 30 years to get where it is today.

How can 2018 be complete without something about graphite ;-)
Over the next five years, demand for graphite electrodes is expected to outstrip supply, keeping prices high. (Capacity is expected to grow by 8 percent annually, but demand should grow by 12 percent.) “We see this uplift as structural,” noted Sumangal Nevatia in a Macquarie Research report in June. “With no substitute, growing demand and limited new supply, graphite electrodes are now more a ‘strategic resource’ than a ­‘commodity.’ ”

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