Incremental Learning by Rupesh Tatiya 2017
The content discusses the concept of incremental learning and provides insights into undervaluation, headwinds/tailwinds in industries, and relaxing checklists for investment decisions. It emphasizes the importance of identifying undervalued businesses, recognizing industry trends, and adjusting investment criteria based on insights gained. The narrative also highlights examples of stock performance and the impact of industry dynamics on stock prices, urging investors to conduct thorough research and exercise patience in their investment journey.
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Presentation Transcript
INCREMENTAL LEARNING RUPESH TATIYA 2017
Disclaimer The views expressed here are my personal views. It is a safe to assume I am personally invested in some of the stock ideas that may have been referred to in the presentation. It is also possible that I may have exited or may exit from these positions in future without prior notification. My views will be biased. This is NOT a stock recommendation. Kindly do your own due diligence and/or consult a registered investment advisor before making any investment decisions.
Undervaluation Undervalued average businesses gave better returns in last one year than great businesses priced on higher side. Great businesses are evolving stories and nothing like it if you can catch them early. Several examples Jammu & Kashmir Bank 60 to 90 Plastiblends 390 to 590 Kaveri Seeds 350 to 655 Alembic Pharma 670 to 511 PI Industries 700 to 811 Businesses having great ROCE (> 20) are already well discovered in current bull market and very difficult to make decent return on. Low ROCE business with improving margin or reducing debt etc. can also provide decent return. PPAP OPM from 6% in 2013 to 19% in 2017.
Headwinds/Tailwinds Tailwinds in an industry can take your returns to different orbit, need to spot these early. CFH 870 to 3100 in < 18 months due to Affordable Housing related government policies. Headwinds in an industry can result in stagnation of stock price for a long time. Sonata stuck at 150 for 3 years despite decent growth in international business. Pharma Stocks Alembic Pharma Need to differentiate tailwinds from trending and hot industries. IoT Need to learn to differentiate business that perform despite headwinds. These might be excellent return candidates Arman Financial Services?
Relaxing The Checklists Heritage Foods The stock has been amazing wealth creator. In FY12, the stock was trading around 100 odd. FY13 the stock was trading around 200 and today stock price is around 1200. The company issued bonus shares in ratio 1:1 in July 2013. So in last 5 years, stock has been amazing 10+ bagger. The above performance is despite blunders. The company did a classic case of "Peter Lynch Diworsification" by entering into Retail business and losing money consistently. Also the D/E > 1 till FY13. Also the promoters of the company are politicians (N Chandrababu Naidu Family). Based on above three, my checklists would have ruled the stock out as an investment candidate. To rationalize the point 2, we will use HM. As he says, just because an investment worked out does not mean it was not risky and just because investment did not work out does not mean it was not good call. So maybe it is still okay to miss out on this story. BUT I think our checklist filters can not be absolute. They have to be relaxed from time to time if one finds some good insight into story. The company was trying to hive off retail business for almost 3-4 years without much success. they did so finally in Q3FY17. The lesson here is that - one can not be a hawk and track and question company on quarterly basis. Business is combination of several variables and sometimes it can take a long time to achieve something. The patience is virtue if one has done proper research.
Miscellaneous Different skillsets needed at different stages of growth, slot businesses by Mcap. Go easy on checklists in small/micro cap companies. One or two good things (some competitive advantage or promoters) can take a company from say 500Cr to 2000Cr Completely different skillset needed to take company from 2000Cr to say 10000Cr or 10,000Cr company to 50,000Cr company. MFI Industry continue to face issue every few years and is inherently risky Loan Waiver Fashion Always do some work on stock tips provided by anyone, need to have basic initial screening framework, be skeptical Bought into Alpa Labs based on Poorinju s recommendation, lost some money Learn to turn down the hype at both ends of spectrum great/bad businesses and look at valuations. Learn to get out of echo chamber. Mayur hasn t gone anywhere in 3 years despite being such a good business Same story with Ajanta Pharma Kaveri Seeds is coming back up despite promoter issues, forensic audit
