Where are you putting your Eggs?

Every bull market contains a lot of increased operator activities, and lot of little known craps becomes operators darling, finally to trap inexperienced & innocent retail traders / investors.

The following article is a selected portion from economic times article.

Courtesy : Economic Times

Several small caps trading at eye-popping valuations

When little-known Tilak Finance made it to the MSCI Small Cap index, it stunned many on Dalal Street. The company's turnover for the year ended March 31, 2014 was Rs 6.42 crore, while its market capitalisation — value of outstanding shares — was Rs 3,861 crore on Friday. The company's only asset is the 19.2 lakh shares, worth Rs 86 lakh, it owns in Esaar India (not Essar Group).

The inclusion of Tilak Finance along with a couple of others into the MSCI index has put the spotlight on small-cap stocks — many of which are trading at eye-popping valuations. Market watchers said the abnormal values of these stocks suggest operators are active in many of them.

Some interesting ones

Complete article may be assessed from HERE

It's clear as shown in the table itself that, lot of shares are trading at abnormal valuations without having any background and trading at 3000 to 5000 PE, as a conventional valuation parameter!! The only way to escape from these type of companies is to be vigilant with you investment decisions.

Arrow Coated Products : Update

Hi friends,
Lately receiving lot of queries regarding Arrow about its valuation and new agreements.

The major development and rationale may be as

1. Increased borrowing limits : Obliviously to increase the quantum of business

2. Listing in NSE : To get better visibility in investor community

3. Agreement with Careli

Initially struggled to get details (as any companies announcement, I usually try to cross check and verify the facts Vs blah blah), main reason as the company having Spian origin, one with the website created with Spanish language. 

And once I was able to get in to some level of details, it was mind blogging.

You can get details from 

http://www.careli.es/

And much more details from their FB page

 LINK : https://www.facebook.com/floppcareli

[Use translate option by using right click to read in English]

These information gives a view that the company is in existence for long, with a very good portfolio of products.

PS: But still unable to get the Market Cap related info of Careli. Once I get those info, I will update as a separate post.

Factor 2: Business opportunity, scalability and sustainability

Out of the six factors I mentioned earlier, this is the most difficult part to identify and predict properly. i.e. identifying an upcoming sunrise sectors at reasonably early stage. Other five factors can be analyzed either quantitatively or qualitatively with much better precision, with the past available data. Where this second factor requires little imagination and bit luck too.

Inorder to succeed in identifying gems based on this criteria, you requires to have the required imagination skills to forecast 10 or 20 years future outcomes and trends.

A simple example: If you were able to identify a revolutionary change in mobile technology and invested in leaders like Airtel a decade back, it might have turned a 20 Bagger by this time, still with lot of gunpowder left in it!

Another classy example I would like to pen is about two companies from the same sector with legacy products, where one turned to be a huge huge multibagger while the other is still drowning in mid sea!

HINDUSTAN MOTORS  Vs  EICHER MOTORS

Or

Amby		Vs		Bullet !!

These two initial UKproducts, later turned to be Indian, suffered a lot in the past to survive and both products only changed little during its life span. One is out of production and the other is still the favorites of the youth!

The success in investment / share market also will depend on your prediction analyzing who will win the race?!

A decade back (say in 2001), if you have invested Rs. 10 thousand, both will speak differently now, similar to the demand of the products!

Company	Inv Year	Avg Share Price	CMP	Inv amount	Present Value
Hindustan Motors	2001	Rs 4/-	Rs 8/-	10,000/-	20,000/-
Eicher Motors	2001	Rs 24/-	Rs 14000/-	10,000/-	5,800,000/- (Rs 58 Lakh)

I just gave this example to show that how much difficult is to identify winners from the total pack.

Here in this case both companies having products with outdated technology and both products were never changed much in its life time. Still one became the favorite of youth due to its own reasons and at the mean time, the other one parked in our minds with good old memories!

Similarly, in the whole world sectors like Motors, Pharma, Computer , IT excelled in the past. NEXT BIG THEME MAY BE ROBOTICS!!!

Have enough imagination! (Nothing more can be said about this factor)

Happy investing!!

Arrow Coated Products: Update

Hi,

This is the update I received from the Arrow Coated Products Meltz Team.

I think its very important development going forward.

[Information from the Meltz Team Facebook page : LINK HERE]

Earlier Posting in Arrow Coated Products

1. Last result update 

2. Arrow-coated-product-update-based-on-shp.html

3. Arrow-coated-products-update-based-on-ar.html

4. SIP - Sep -2014 

5. SIP - July - 2014

6. SIP - Jun -2014

Happy investing All!

A very interesting article

Below lines are taken from the article published in thehindubusinessline.com, and sharing with you since it’s covering an analysis about small cap stocks between 2004 to present.

Courtesy: The Hindu BusinessLine

Investing in small-cap stocks could be full of thrills but it is fraught with risks too

For Indian investors, small is beautiful. The BSE Small Cap index has delivered 118 per cent return since last September, even as its large-cap counterpart, the Sensex, panted way behind, with a 59 per cent return. That is not all. Investors in stocks such as Symphony, Greenply and Ashoka Buildcon have seen their holdings appreciate manifold since the beginning of 2014.

But does that mean you should rush to buy these stocks? No. Investing in Indian small-cap stocks is a high-risk game. While you have a small probability of making mind-boggling returns, the chances of making losses are much higher. Lack of sufficient information, poor corporate governance and very thin liquidity are some reasons why these are best avoided.

But if you are one of those who revel in adrenaline-pumping activities such as bungee jumping, you might want to put some of your money into these stocks; just for thrills.

Small-caps over the long term

There is a popular misconception that investments in small-cap stocks invariably result in losses over the long term. But that is far from the truth. A BusinessLine analysis of the returns of small-, mid- and large-cap stocks between 2004 and now shows that it is the outliers that give smaller stocks notoriety. For, a small portion of small-cap stocks have delivered mind-boggling returns that large- and mid-caps can never dream of matching. At the same time, the proportion of stocks that have delivered negative returns is also larger in smaller companies.

We considered the returns of 1,648 stocks whose market capitalisation was less than ₹200 crore on April 1, 2004. A chunk of these stocks — or 44 per cent of the universe — recorded a price increase between 1 and 10 times. About 17 per cent gained between 10 and 100 times. The proportion of stocks gaining more than 100 times was miniscule at 1.4 per cent. This creamy layer includes stocks such as Symphony (1,680 times returns), TTK Prestige (231 times) and Cera Sanitaryware (180 times).

In comparison, 63 per cent of the large-cap universe chalked up gains between 1 and 10 times in the past decade. There were 93 stocks with market cap greater than ₹2,000 crore towards the beginning of 2004. This is comparable to the mid-range of the small-cap stock performance. But when it comes to stratospheric returns, only 12 per cent of the large-cap stocks could multiply their prices more than 10 times. Again, while the largest gainers among the small-cap lot notched up gains between 100 and 2,000 times, the best performer among the larger stocks was Kotak Mahindra Bank, which gained 28 times in the last 10 years.

So, what is the risk involved? Around 22 per cent of the smaller stocks witnessed price erosion in the past decade. That is, one in every five stocks was a lemon. Large-cap stocks emerged a clear winner, with just 8 per cent of the stocks seeing price erosion.

Higher volatility in smaller stocks

The small-cap index has recorded much sharper rallies and higher declines. For instance, between April and December 2003, the small-cap index rallied 172 per cent while the Sensex gained 97 per cent. In the 2008 crash, the Sensex lost 56 per cent while the BSE Small-cap Index lost 77 per cent. In general, the declines and rallies in the small-cap index are twice the moves in the Sensex.

The complete article may be accessed here: http://www.thehindubusinessline.com/features/investment-world/smallcaps-sizzle-should-youjump-in/article6627318.ece

Waiting for more Clarity

Hi Friends,

I hope all of you might have aware about the new SEBI restrictions by this time.

I, as well as lot of value hunters didn't have a concrete idea about the level of restrictions imposed.

Any how it’s clear that, it's not proper to give a BUY / HOLD / SELL call on any particular stock unless you are a SEBI registered research analyst. So from here onwards I will not be giving any particular call on any stock nor new monthly SIP candidates in the blog (as it indirectly giving a BUY recommendation).

[Till more clarity emerges on the restrictions; or till I register with SEBI] 

The present value of portfolio is 2.52 Lakh (with a total invested corpus of Rs.1.25 Lakh in a span of six month).

My view about new SEBI norms

According to me, the new SEBI rules are having very good objectives and in need of the present situation. There are a lot of firms / people giving different recommendations through TV / websites / blogs, and the sad part is that more than 80 % are having mischievous crooked intentions. I did know few such blogs personally too, but don't want to name it publicly. So, hopefully, these restrictions may have better effects going forward.

MVPP blog will continue in these modified lines :

Personally I think, the learning / or acquiring knowledge is more important than simply following any blog / analyst. Sure, a good blog ( like value pick blog) will help you to reduce your searching, but it should not be the end point. Even if it’s recommended by me or the Great VP, we should be in a position to analyze that picks ourself.

With the new SEBI guidelines, the searching time of an investor will increase and inorder to find a multibagger we may have to turn every stone that's untouched. Of-course it’s a tedious task, but I think it’s more important to hold on our winners well enough is more important than finding new multibaggers in every month.

Greatest Example:

If we take the average number of the total companies invested by total number of years, by the greatest Buffet – Munger pair, it will be just 1 share / year!! So inorder to make a fortune in share market, you don’t have to find too many number of picks, but need to find those winners with a moat, and hold on; and remember - you just need to find only 1 idea per an entire year :)

So from now onwards my concentration will not be any company specific; but towards the basic causes behind a huge multi-multi bagger. Similarly the essential points required to develop the skills to evaluate a company.

The series on 6 Most important factors to consider while searching for a Multibagger and similar postings will be continued.

Happy investing.

Factor 1 : How to evaluate the Promoter quality?

Its a million dollar question! Is there any collective mechanism to ensure promoter quality of a company with cent percent guarantee?  The obvious answer is NO.

That’s why including great investors like Rakesh Jhunjhunwala, Ramesh Damani  and others made mistakes while selecting few odd companies.

So I would like to quote a famous quote from one of the most famous American President, before discussing further.

You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.

Abraham Lincoln

From the above quote, If we can escape from the second group ( i.e. some of the people becoming fools all the time ), our share market success is bound to happen; and eventually we can differentiate between good, average and bad promoters.

In general, we may be able to classify the promoters in to four groups.

All the promoters comes to share market for collecting money from the public, but the inherent reason behind the collection of the money and future dealings will be different for each one. Based on that reasons and actions, I have made these classifications.

	Listing Objective	Profit Distribution	Other Remarks
Group 1	To create / improve a business	Shares equally among all including Public
Group 2	To create / improve a business	Shares only a minor portion with Public
Group 3	To create / improve a business	Swallow all the profit either by diverting it in to unnecessary investments or by showing operational loss by fudging accounts.	They seldom throw few bones to satisfy retailers.
Group 4	Just to collect money by fooling public, by showing a company which only exist in paper, with the help of photoshop and website!	Some time they show profits, only to rig the share price – normally during a bull phase - to ultimately pump and dump!	They continue as a listed entity to make more money by looting more people by applying lot of frauds or joining hands with operators.

In the above groups, group 1 is ideal, but at the same time very rare too. So as an investor, our aim should be to find promoters of Group 1 or at-least better half of group 2.

Note: Promoters are humans and are bound with human nature. So the migration from one group to another is possible over time (or generations) for either good or bad.

The only remedy for us as an investor is to be vigilant and analyze the latest happenings inside a company at-least quarterly. And also be ready to ask few following key questions yourself and try to find the answers in a particular context.

Key Questions

Q.		Whether the company dilutes equity frequently with out any solid reasons?
Q.		Whether the company issues lot of ADR or GDR to dubious foreign parties and later, after converting it as shares, the same is dumped to Indian public?
Q.		Company is showing consistent growth and profit, but how the money is utilized?
Q.		Whether the company invests lot of money in private / unlisted (and dubious) companies?
Q.		What is the dividend distribution ratio while considering the net profit?
Q.		Whether the promoter sells the shares in open market while preaching great future and giving advertisement on media?
Q.		Percentage of pledged shares and possible reasons behind the pledge.
Q.		Whether the company does unnecessary gimmicks like issuing bonus or FaceValue split etc while the share price is quoting reasonably low?
Q.		Trying to get frequent attention by vague or illogical news?
Q.		While all other companies in the same sector show major trend reversal and operational profit; whether this company still shows operational loss?
Q.		Whether the same promoters earlier promoted any dubious companies which eventually winded up?
Q.		Do there exist any cheating /default cases against the promoters?

[These are the few questions I got from my experience. It would be my pleasure to add any number of questions to this list, if needed, if provided in the comment column. ]

If there arise few answers which sheds doubt on promoter quality please stay away, since there is an entire universe of companies (more than 4000), out of which we can select for investing.

Even if we miss 1 or 2 genuine multibaggers (although possibility is very low) due to this vigilance, there is no need to worry at all, as based on the theory that You Can’t Kiss Every Pretty Girl in the world.

To sum up this section I would like to give a quote from our Legendary investor.

“The difference between successful people and very successful people is that very successful people say “no” to almost everything.”

― Warren Buffett

This is part 1 of series in 6 Most important factors to consider while searching for a Multibagger.