The only way you can be ahead of 99.9% of fellow investors - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
PRINTER FRIENDLY | ARCHIVES

The only way you can be ahead of 99.9% of fellow investors 

A  A  A
In this issue:
» Will 'Make in India' remain a pipe dream?
» How vulnerable is India Inc to exports?
» Update on the markets
» ...and more!


00:00
What according to you is the only thing that could differentiate you from every other investor? In a digital world it cannot be access to information. Technical knowledge can be attained over time. Investing acumen can be developed with experience. So these are certainly not the factors that will offer you an edge over the rest. The only thing that every investor does differently is manage his portfolio. And it is with this that you could ace over 99.9% of fellow investors.

You would recall my colleague Rahul Shah writing about the concept of 'Lohe Ki Almari' portfolio in an earlier issue of The 5 Minute Wrapup. The concept was nothing but an adapted version of Robert Kirby's 'Coffee Can Portfolio'. Writing in The Journal of Portfolio Management back in 1984, Kirby had opined that the Coffee Can Portfolio is one of the best learnings from the Old West. That was the time when people put their valuable possessions in a coffee can and kept it under the mattress.

The uniqueness of Kirby's 'Coffee Can Portfolio' was that it clearly showed how the portfolio is designed to protect you from yourself. More specifically, the obsession with checking stock prices, the frenetic buying and selling, the hand-wringing over the economy and bad news. It forces you to extend your time horizon. You don't put anything in your Coffee Can Portfolio that you don't think is a good 10-year bet.

And what was Kirby's inspiration? It was an article by Benjamin Graham written in the earliest years of 19 century. Graham was of the opinion that the development of liquid, high-volume auction markets for shares of publicly held American companies has been about the worst thing that has ever happened to the investment business! The logic of the statement is so simple yet so profound. When you know you can sell something almost instantaneously, it messes with how you think about the purchase in the first place. You can be careless because you can get out quickly. And you keep looking at stock prices to know how soon you can make the earliest exit!

So you see the key principles of building a safe yet very profitable portfolio over decades has not changed in over a century! Yet, as investors each one of us tries to innovate with our long term portfolios. And each time we end up doing something foolish.

Ironically when it comes to other illiquid asset classes like real estate our thought process is very different. Like Kirby wrote "I have said often to almost anyone who would listen that... a portfolio of securities [should] be run like a real estate portfolio... The typical real estate commitment is made in anticipation of a projected cash flow versus expenses, i.e., the future internal rate of return... the investor does not assume that he will be able to sell the property at a higher price to someone else within a short time. Common stock portfolios should be constructed, and their future returns measured, by the same set of criteria."

We see no reason why sticking to these words of wisdom while building your safe stocks portfolio will not help you fetch returns better than most of your investing peers.

Do you like the idea of treating your stock portfolio like a real estate investment? Let us know your comments or share your views in the Equitymaster Club.

--- Advertisement ---
One Proven Way To Increase Your Overall Returns...

Yes! Investing in the right small caps has the potential to increase your overall returns too.

Some of the small caps we have recommended have given returns like 250% in 2 years, 110% in 2 years 4 months, 288% in 2 years and 5 months, 124% in just about 7 months and more...

And you know that every individual return adds to your overall gains.

So just think how quickly you could build up your wealth with a handful of good small caps in your portfolio.

Don't delay...

So click here to find out how you could become privy to high potential small cap stocks much before other investors...

------------------------------

02:45
Speaking of long term investments, the 7 signs of the Megatrend are some of the key factors that we are looking at. One of them being the progress of Make in India.

The announcement of the US$ 12 billion steel plant by global giant Posco a decade back was nothing but a dream come true for India. This was well before anyone conceptualized or spoke of Make In India. The investment was seen as a sign of trust in India's scope for nurturing the manufacturing sector. Also the mega capacity steel plant was expected to feed into India's blockbuster infrastructure growth story. Above all, the biggest foreign direct investment (FDI) at that time, in Odisha, was expected to change the fortunes of the state.

However, after batting every possible hurdle over the past 10 years, Posco has decided to give up! After series of protests from local tribal groups, land acquisition and environmental obstacles, the new Mining Law was the proverbial last straw to break the camel's back. Instead of manufacturing steel in the country, the company will be importing the metal from South Korea for its processing centres in India.

Instances like these make us wonder how serious are the state governments in helping the centre fructify the Make in India plan. Without some quick reforms to iron out the land acquisition and environmental issues even at the state level, the 'Make in India' revolution will remain a distant dream!

03:44  Chart of the day
Here's an interesting stat that the business daily Mint has shared today. 36% of the Nifty companies earn more than a third of their revenues from abroad. But when it comes to market capitalisation, these companies contribute to more than half. While the IT and pharma heavyweights have a much larger exposure to foreign markets, other key sector players having major exposure abroad include auto, metals and capital goods.

Today's chart of the day shows the top 15 companies with global exposure.

Which firms are highly reliant on the global economy?
Data Source: Bloomberg, CapitalLine; *Bank of Baroda

As reported, with global markets showing no signs of recovery anytime soon, revenues of companies having global exposure seems to be under threat. And that India is unlikely to achieve its targeted GDP levels if the 'export' engine doesn't start to chug along.

It may be noted that around the millennium, exports formed about 10% of GDP. As of FY14, the figure stood at 17%. The key sectors that are seeing trouble are commodities and the capital goods spaces - given the overcapacity situation in case of the former and the slump in crude prices in case of the latter.

But when it comes to the outlook on markets, is it possible that these sectors will remain a drag on the overall index? Well, it is very difficult to comment.

However, considering that a lot of the pain is already priced in, and with certain commodity businesses trading way below their book values, we believe the downside risks are not as bad as they are made out to be. For instance, heavy weights in the metal sector - Tata Steel and Hindalco are currently trading at about 0.87 x and 0.54x their consolidated book values. As a percentage of the total market cap of the Nifty, their weightage is less than 0.5% each. So, what will essentially determine the movement of the index will be the top half, which contribute to about 80'% of the index's market cap. The trends in their earnings, growth and valuations will essentially be the aspects that will drive the index movement in the future.

04:46
Indian markets were hovering around the dotted line at the time of writing. The Sensex was trading higher by about 20 points. While some weakness was seen in stocks from the realty and banking spaces, stocks from the capital goods and power spaces were the key gainers. Both the midcap and smallcap indices also were trading firm today, with the S&P BSE Midcap and S&P BSE Smallcap indices up by about 0.3% and 0.6% respectively.

04:55  Today's investing mantra
"It's in the nature of stock markets to go way down from time to time. There's no system to avoid bad markets. You can't do it unless you try to time the market, which is a seriously dumb thing to do. Conservative investing with steady savings without expecting miracles is the way to go." - Charlie Munger

Editor's note: There will be no issue of The 5 Minute Wrapup on 18th July on account of Ramzan Id.
Today's Premium Edition
A DuPont analysis on FMCG majors
A discussion aimed at finding out why certain companies fare better than the others on this aspect.
Read On...Get Access
Recent Articles:
How Unique Are the Companies You Invest In?
August 21, 2017
One of the hallmarks of successful investing is to look out for companies that have a unique and enduring moat.
You've Heard of Timeless Books... Ever Heard of Timeless Stocks?
August 19, 2017
Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.
Why NOW Is the WORST Time for Index Investing
August 18, 2017
Buying the index now will hardly help make money in stocks even in ten years.
This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)
August 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

This edition of The 5 Minute WrapUp is authored by Tanushree Banerjee (Research Analyst) and Devanshu Sampat (Research Analyst).

Equitymaster requests your view! Post a comment on "The only way you can be ahead of 99.9% of fellow investors". Click here!

  

MOST POPULAR | ARCHIVES | TELL YOUR FRIENDS ABOUT THE 5 MINUTE WRAPUP | WRITE TO US

DISCLOSURES UNDER SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014
INTRODUCTION:
Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint venture between Quantum Information Services Private Limited (QIS) and Agora group. Equitymaster is a SEBI registered Research Analyst under the SEBI (Research Analysts) Regulations, 2014 with registration number INH000000537.

BUSINESS ACTIVITY:
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment opportunities across asset classes.

DISCIPLINARY HISTORY:
There are no outstanding litigations against the Company, it subsidiaries and its Directors.

GENERAL TERMS AND CONDITIONS FOR RESEARCH REPORT:
For the terms and conditions for research reports click here.

DETAILS OF ASSOCIATES:
Details of Associates are available here.

DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:
  1. 'subject company' is a company on which a buy/sell/hold view or target price is given/changed in this Research Report.
  2. Neither Equitymaster, Research Analyst or his/her relative have any financial interest in the subject company.
  3. Equitymaster's Associates has financial interest in Hindustan Unilever Ltd.
  4. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.
  5. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research report.
DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:
  1. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
  2. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
  3. Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  4. Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  5. Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the research report.
GENERAL DISCLOSURES:
  1. The Research Analyst has not served as an officer, director or employee of the subject company.
  2. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.
Definitions of Terms Used:
  1. Buy recommendation: This means that the investor could consider buying the concerned stock at current market price keeping in mind the tenure and objective of the recommendation service.
  2. Hold recommendation: This means that the investor could consider holding on to the shares of the company until further update and not buy more of the stock at current market price.
  3. Buy at lower price: This means that the investor should wait for some correction in the market price so that the stock can be bought at more attractive valuations keeping in mind the tenure and the objective of the service.
  4. Sell recommendation: This means that the investor could consider selling the stock at current market price keeping in mind the objective of the recommendation service.
Feedback:
If you have any feedback or query or wish to report a matter, please do not hesitate to write to us.
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.

Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement

Disclosure & Disclaimer: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. The Author does not hold any shares in the company/ies discussed in this document. Equitymaster may hold shares in the company/ies discussed in this document under any of its other services.

This document is confidential and is supplied to you for information purposes only. It should not (directly or indirectly) be reproduced, further distributed to any person or published, in whole or in part, for any purpose whatsoever, without the consent of Equitymaster.

This document is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity, who is a citizen or resident or located in any locality, state, country or other jurisdiction, where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject Equitymaster or its affiliates to any registration or licensing requirement within such jurisdiction. If this document is sent or has reached any individual in such country, especially, USA, the same may be ignored.

This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Our research recommendations are general in nature and available electronically to all kind of subscribers irrespective of subscribers' investment objectives and financial situation/risk profile. Before acting on any recommendation in this document, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the securities referred to in this material and the income from them may go down as well as up, and subscribers may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Information herein is believed to be reliable but Equitymaster and its affiliates do not warrant its completeness or accuracy. The views/opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. This document should not be construed as an offer to sell or solicitation of an offer to buy any security or asset in any jurisdiction. Equitymaster and its affiliates, its directors, analyst and employees will not be responsible for any loss or liability incurred to any person as a consequence of his or any other person on his behalf taking any decisions based on this document.

As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407