I have always been believer of the fact that timing the market is impossible; particularly because the numbers of variable factors are beyond one’s imagination and as we move forward the variables will increase. However what I certainly believe is that one can price the market just like one determines the valuations of the stocks before investing.
Even while pricing we won’t consider complex valuation methods because at times a simpler approach can be more effective than the most complex analysis.
Our market’s are attractively valued based on long term averages
It’s always better to take some cues from the past and when it comes to stock markets there’s no better guide than your past experiences.
We believe tracking historical valuations and correlating them with the present can unfold a picture worth a 1000 words and some of the below pictures are doing just that.
As can be observed from the above pictures, it’s after many years (2008 was an exception which occurs only once or twice in a century) we are approaching the lower range of 3 for Price to book value of SENSEX and higher yields of 1.5%.
Based on our calculations, the average Price to Book value for SENSEX for the period ranging from 2001 till present is 3.62 while at present we are trading almost 10% below the long term averages. Similarly the yields are in excess of 1.5% and very close to historical yields of 1.58%.
When it comes to investments, those made at low valuations reap the maximum gains and valuations are likely to be low during times of pessimism and negative news flow. We are in the midst of all that and that’s why we are witnessing cheaper valuations.
Now look at this below figure, picked up from a report of a leading Mutual Fund which very rightly explains that why equity investors are in for some very exciting times provided their time horizon is 2 years or more.
We believe it’s an opportune time to start making staggered purchases in the stocks of good companies. On reading this the bear camp may get annoyed and can come up with a counter argument that Price to Book value of SENSEX can drop further to 3 or the US is in crisis, Eurozone is in dire straits, slowdown in India, high inflation, etc.
Well frankly speaking the arguments against investing can be many and I myself can enlist them while I just have two arguments in favor of making stock investments and those are:
- Cheaper valuations and
- The very bright growth prospects of the Indian economy.
And finally for those who believe they will buy only at the bottom, here are a few thoughts you must ponder over.
- What if the market does not correct by another 10-15%?
- What if the stocks that you like, don’t come down during market corrections?
- What if the market remains range bound at current levels for some time and then move up?
Well I am ready to bear a notional loss of 10-15% than lose out on an opportunity of substantial gains as can be observed from the third picture.
Ekansh Mittal [firstname.lastname@example.org]
Till about two years back i.e. Aug’09, the stock of VIP Industries was trading at Rs 75-80 and guess what it’s already a 12 bagger with current market price hovering around Rs 960.
You all knew for sure the brand equity of VIP Industries, the bellwether in the travel products i.e. luggage, however most of you must have missed out the same and thus missed out a 12 bagger for your portfolio. In investments, one should keep it simple and if you just look around yourself i.e. the products at your home, you may end up buying a multibagger stock for your portfolio.
Well that much for VIP Industries, what about finding another multibagger from your surroundings which is as much comparable to VIP industries in both brand equity and business economics. Well here are some details:
Cera Sanitaryware Ltd.
- Amongst the largest player in the organized segment in it’s sector commanding a sizable market share (VIP Industries too is one of the largest player in the organized luggage market)
- The name of the brand is almost there for you to see everyday.
- You buy the products once and then probably don’t replace the same for at least 7-8 years (well this was actually a concern for me that replacement is not frequent, however it’s the same with luggage. You buy a VIP suitcase or strolley and then probably don’t replace it with a new one for many years)
- 3-4 such products in every family (3-4 luggages in every family)
This was about similarity between the businesses and brand equity of Cera Sanitaryware Ltd and VIP Industries. Now some differences
- Cera Sanitaryware Ltd commands a very low market capitalization i.e. 1/10th of the market capitalization commanded by VIP Industries
- VIP Industries is currently quoting a market capitalization of 3 times it’s annual turnover while Cera is commanding a market capitalization which is marginally less than it’s annual turnover (A definite opportunity of re-rating)
- VIP Indsutries is currently quoting at 30 times it’s annual profits while Cera is quoting at approximately 8 times it’s annual profits.
- There’s a major institutional ownership in VIP Industries and most importantly the roaring bull Rakesh Jhunjhunwala holds 6.4% stake in the company while Cera is devoid of any institutional ownership (Well Retail investors are always at an advantage in comparison to institutions, provided they harness the same).
Disclaimer: Well many of you reading this may not agree with my above comparison, however I have every reason to be bullish on Cera as I am personally invested and all our members of Alpha and Alpha Plus Portfolio are invested in the same since Rs 160-180.
Also, I am keeping my fingers crosses as I have been strongly recommending the same to all those who have been touching base with me.
Ekansh Mittal [email@example.com]
Equity has an image of being a very risky investment (only for those who don’t understand it completely) vehicle that somehow works in the long term. A look at past data and you will find startling results. Your chances of incurring losses goes down as your holding period goes up. If you held investment in the Sensex for at least 14 years, beginning any date in the past 30 years, you would have never lost your money.
Some startling numbers for long term. A simple, but arduous test performed on Sensex figures (closing end-of-day figures) since its inception on 3 April 1979 reveals some noteworthy points.
The test assumes you invested in SENSEX (taking the Sensex closing figures as the net asset values, or NAVs, of a mutual fund scheme) for a period of one year on any day between 3 April 1979 and till as recent as possible. At the end, the test takes an account of the number of one-year time periods where you made money and the number of one-year time periods where you lose money.
Next, the same exercise is repeated while increasing the holding period by a year till 30 years. So on the lower end, while the holding period is one-year, on the farther end the test also assumes that you invest for a time period of 30 years, anytime between April 1979 and till as recent as possible.
- The lesser your time horizon, the more are your chances of making losses. For instance, if you had invested for one year, you would have made losses 2,026 times out of total of 6,784 one-year time periods between 1979 and till as recent as possible or 30% of the times.
- On the other hand, as you increase your time horizon, your chances of making losses go down. For instance, investing for seven years or 11 years would have dropped your chances of making losses to 7% and 4%, respectively. In other words, your chances of making money go up to 93% and 96%, respectively.
- Here’s the clincher: if you had invested in Sensex, India’s oldest stock market index, for at least 14 years, in any 14-year period—since its inception in 1979 till as recent as possible—you would not have lost any money. Out of a total of 4,189 14-year time periods since Sensex’s inception, you would have made money in all instances.
What about returns?
Although the average return between investing in any 14-year time period, right up to, say, 20-year time periods swings between 13.78% and 14.75% on average, the minimum return that you earn goes up as your investment horizon goes up.
If you invest for 30 years, the minimum you would have earned was 16% compared with a maximum of 18.22%.
Guaranteed returns over a 14-year time period sounds good on paper, but do we have the patience to stick around for 14 years?
Think over it because you may yourself be killing the Golden Goose i.e. Stock market’s with your impatience and over indulgence.
It’s no surprise that while making outstanding stock purchases, a certain percentage of errors in purchasing are sure to occur. Also if someone tells you that all his investments went right, be rest assured that there couldn’t be a bigger lie.
Fortunately the long range profits from really good stocks should more than balance the losses from a normal percentage of errors in judgement. This is particularly true if the mistake is recognized quickly.
However here I would like to point out one very important aspect of behavioral finance which most of the people suffer from. There is a complicating factor that makes the handling of investment mistakes more difficult especially acknowledging errors in judgement. This is the ego in each of us.
None of us likes to admit that we have been wrong. If we have made a mistake in buying a stock but can sell the stock at a small profit, we somehow lose any sense of having been wrong. On the other hand, if we sell at a small loss we are quite unhappy about the whole matter.
This reaction, while completely natural and normal, is probably one of the most dangerous in which we can indulge ourselves in the entire investment process. More money has probably been lost by investors holding a stock they really did not want until they could “at least come out even” than from any other single reason.
If to these actual losses are added the profits that might have been made through the proper reinvestment of these funds if such reinvestment had been made when the mistake was first realized, the cost of self-indulgence becomes truly tremendous.
Furthermore this dislike of taking a loss, even a small loss, is just as illogical as it is natural. If the real object of common stock investment is the making of a gain of a great many hundreds per cent over a period of years, the difference between, say, a 20 per cent loss or a 5 per cent profit becomes a comparatively insignificant matter.
Everyone makes bad investment decisions (even the likes of Buffett, Jhunjhunwala did), however it is important to acknowledge them to yourself and thus avoid riding on to your losses and this can only happen if you overcome your EGO.
Sanghvi Movers Limited (SML) is engaged in providing crane rental services to companies in India and is one of the largest cranes hiring company in India, located in Pune.
SML has lion’s share with ~40% market share in the overall domestic crane hiring market and ~75% market share in the high end crane market. It is the largest crane hiring company in India and 9th largest in the world.
Some Key Investment Highlights
Strong Operations – Sanghvi Movers is a largest company in the Crane Rental segment and has grown at a scorching pace over the last decade. Sanghvi has a strong domain focus with adequate technical expertise and skilled manpower. Besides giving cranes on hire, SML provides an entire gamut of services which includes movement of materials, erection of equipment, assisting in fabrication, skilled personnel and the required engineering services.
Significant Competitive Advantage – Sanghvi has a strong moat in the form of client’s trust which is a very big entry barrier for newer players. It has nurtured this relationships over the years and hence been able to work on important projects of its customers.
Pan India presence – SML has maintained a good track record in terms of effective deployment of Cranes at competitive rates with due regard to time schedule as well as safety and efficiency in operations through it’s pan India presence through number of depots. The area under coverage through depots stands at 95 acres and in order to save on time and cost aspects, and increase its operational efficiency, SML is in the further process to set up few more depots at strategic locations.
Near monopoly in higher capacity cranes – SML focuses on the higher capacity cranes market, since the below 100 MT capacity segment has many players operating in it. SML has approximately 65% market share in the above 100-150 MT crane segment and approximately 80% market share in the above 250 MT crane segment.
Attractive Valuations – Sanghvi is trading at very attractive valuations considering its earnings quality, its leadership status and historical valuations. Company is trading at a EV/EBIDTA of 3.94 on FY 12(E) which is cheap for a company which has a ROCE of around 15%. Sanghvi deserves a premium and hence ready for a re-rating in its price.
For complete report–Click the below link
Common sense means paying attention to the obvious. This is not as easy as it sounds. We all have vivid imaginations, and we tend to get lost in our fantasies.
When fantasy replaces common sense, life becomes farcical and even tragic. Life is a series of ordinary events that follow the laws of logic and probability. These ordinary events are indifferent to our fantasies and require the careful, accurate navigation of common sense.
It’s easy to get lost in all kinds of fantasies in stock markets and therefore it’s all the more important to apply common sense when taking a plunge into the world of investments and trading.
Let’s learn the lessons of common sense w.r.t stock markets:
Did you ever realize when your broker asked you to trade intraday and guaranteed that you can manage a daily return of 0.5-1% or let’s say 10% per month by trading in equities then why did he himself not trade?
Did you realize that if he’s so sure about 10% monthly return, why did he himself not get a loan of 5 Lakhs from the bank at 1% monthly interest and traded with the same for 9% effective return and thus pocketed 45,000 each month.
Did you ever ask yourself that why do 98% of the intraday, short term, momentum seeking, and F&O traders lose and why does the world’s third richest person advises you against trading?
Well, if you had asked such basic questions and applied common sense you could have saved many Lakhs that you may have lost in your greed for quick and easy money.
It’s time for you to introspect and find out if you are one of the above poor investor who is always at the losing side or you are one of the smart ones.