Time for Recession?

Its a MIND game, purely psychological.

Some things to keep track of?

*High Yield Bonds are rising?

*Companies are flooding to raise debt on fears

*the spread between high bond yield and investment grade bonds is High > 6%

Questions

1. Where can one track new bond issuances?

2. Convertible bonds specially 

3. Where can we track historical bond issuance prices for similar bond types

Stock Buying Checklist

Stock Buying Checklist

Qualitative 

Goal: Will the company continue to prosper while maintaining durability of its business/earnings and is highly sustainable

Output: Goal behind is to ensure that in future: the company will continue to maintain the durability and be sustainable

Process/Questions To Ask/Checks to do:

1. What is the future of the company? do you see it to be thriving after 25 years?  
2. What will ensure the company is relevant in future? MOAT, is the company a Need or Want?
3. Is the company a good Capital Allocator
1. If acquisitions : how much are they paying for acquisition, <5x revenue, <5x assets VS market valuation of similar companies
2. acquisition in down years
   
4. Light Capital for incremental Sales or need substantial capital
1. preference is for light capital for incremental sale
2. differentiate between growth vs maintenance capital
3. Depreciation and Capex can be helpful indicator
5. Is the Company Eco System WIN WIN for its vendors, suppliers, customers, employees, shareholders
   

Quantitative 

Goal: Historical Durability and Sustainability

Use Historical Data to - Ensure the company has Durable and Sustainable Earnings, so we can easily see the future

Process/Questions To Ask/Checks to do:

1. Revenue double in 10 years 
1. exceptions: Financial companies like Banks Or Big Giants
   
2. Margins 
1. Profits growing at similar or better rate than Revenue
   
2. Stability of operating Profits/increasing specially in down years
3. if lower margins: asset turnover
   
3. Shares decreases through Stock Purchases
   
4. Return on capital >= 10%
5. Price to Book
6. Expenses Going down
7. Risk specially in terms of Receivables, Inventories
8. EB/EBIT
9. DEBT Cost and how long
10. SB comp(Stock based compensation) as an drag on Operating Income
11. Read Annual Report
1. Check if the company reports return on capital metric and provide longer term performance records like 3 years/ 5 years/10 years if financial data as opposed to previous years
   
2. Check segments and how revenues/profits across segments over time
3. Check geographical
4. Customer Density
5. Competition
6. make sure revenue is recurring VS one off
7. Repurchases of stock
   
12. Read Proxy report

Proxy Report checklist:

• Summary Compensation Table
• CEO Pay Ratio
• CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
• PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP BY MANAGEMENT
• Metric company is tracking for CEO pay
• Return on Capital
• Time based long term vesting
• No Options - instead RSU, PSU
• TSR return
  

 

 

 

Want to double your money every 2 years with safest investments?

 Here is the magic

• Buy companies which are going to be there for next 30 years, make a list
• e.g: Consumer Products: Gillette, Johnson and Johnson
• Banks like Bank of America, Chase, State Bank of India
  
• Finance Toll agents like Moody's
• Payment Toll agents like Visa, Master, Amex
• Make sure you understand the company, questions to ask
  
• Do i understand the product of the company, have i tried and loved it?
• Do you use it regularly, how about your family friends?
  
• Does the company has favorable mind share in its customers?
• What is the competition around those products, quality ?
• Would you prefer the product if they increase the price by 5% tomorrow?
• if answer is YES: that's your stock pick
• Now wait for the right price multiple and the scoop it
• e.g: 2000 crisis, 2008 crisis, 2018 Dec drop, 2020 march pandemic drop
  
• 10% growth year over year compounded is 17 times the original principal
• Essentially double every two years
  

Calculations for the Stock to understand Stock markets better!

Questions: When to buy bonds over stocks, potential Stock market correction

Answers: Intelligent Investor

Earnings yield: 3 year avg Earnings over Price of Stock. (A)

Dividend yield: <similar>

Bonds Yield: yield from S&P AAA bonds

Earnings Yield / Bonds Yield : Ratio of A to the yield on Bonds

Dividend Yield / Bonds Yield : 

Earnings to Book Value:

 

>> image: https://photos.google.com/photo/AF1QipMoCcdv3M-s9dwS2TG7kT6oHEzq5fnjUNSXvWMV/edit

src: Intelligent Investor

-  ratio dropped for Earnings Yield / Bonds Yield and correction happened in next 2 years (30 years period, dropped from close to 4% to less than 0.72%, roughly 1/10th level.)

- Earnings to Book Value has remained between 11-12%. for 30+ years

 

https://photos.google.com/photo/AF1QipNrv8qnurJ6CdfxmJkJhIcrDIIhfvIujoxd8209

DCF calculation for Google

Fair Value Price with 20% discount : 1043.62

calculations here

50 grand dollar mistakes turned out to be a gold mine!!

How mistakes became learning opportunities:  

1. Respect the market, learn from the greats, pay attention to the analysts but be careful in reading between the lines:

1. Common Stocks, Uncommon Profits: no need to chase silo stocks, look for good companies which you use on a daily basis, if you like their product, there is a good chance the stock is going to do better in the long term. Buy with Margin of Safety. 

2. Tap into Great Investors: See what other great investors are buying in this category, research and analyze them as Homework. you will come out stronger

3. Never buy Bad Management: DCHL stock: bad management(later realized) in spite of a good brand like newspaper, book store, IPL (Deccan Chargers)

1. learning: never invest in bad management, look for signs of performance and integrity 

4. Respect Mr. Market, Market has lots of swings: buy with conviction and solid foundations

1. Buying VIAC, Discover Bank, Capital One and many others from the lows and selling them based on the quarter earnings was not good. Should have paused and understood the earnings report better

5. Headlines of Stocks earnings could be deceiving, read carefully

• learning: read 10Q better especially for bank stocks as they provisions losses upfront and it might disguise an opportunity depending on the quality of the bank

2. Compounding works:

1. Play to your core competency: Build your competency and you will come out as a winner, compounding really works

2. Research about the company with better SEC tools: spend considerable amount of time reading books, studying Warren Buffett/Charlie Munger, Mohnish Pabrai, Guy Spier, understanding financial statements, 10k, 10Qs 

3. Cash is King, Being Lazy is good a lot of times, Avoid Impulse, Use your resources

1. Not sitting on my ass: especially when we don't know how we will use the cash generated!

1. Amazon: classic example, kept for for 10+ years and look at the returns

2. Covid: sold in 1950 and then the stock turns to 3300

2. A lot of times sitting with cash is so useful

1. Covid 19: March 17 - April 10 was a golden period, had i not had the cash, it would have been impossible to get those opportunities

3. Avoid Impulsive purchases and Recheck your transactions: Mistake with Options buy due to Robinhood intuitive interface and impulsive buy

1. loss of 5 grand

2. Learning: Roll back a mistake asap

4. Use your resources: Banks can waive wire fees, so work with them as allies, Read 13 f filings from great investors

4. Friction is good

1. Check your transactions, especially default settings: Wealthfront - How a wrong characterization of transfer pumped in 200k+ in a stock account, which led to 50k+ loss.

2. Learn your craft and practice if you want to play the long game: Depending on others for your finances can be sometimes really bad.

1. leanings: 

1. verify your transfers, read the defaults

2. It's good to roll back mistakes as fast as possible [in my case i did mail wealth-front, but the ship has sailed and it takes 4-5 days to cancel] and by the time losses were increasing and i let it be there for some time with market flip flops

3. glad i sold all of them, moved money to RobinHood for buying actual stocks. [changed the landscape

4. Robinhood is crazy with minimal friction to buy/sell, so be careful especially with options. <Friction in dealing with money is good>

   
   

Please share your experiences in stock markets, would love to learn on things NOT to do 🙏🙏

Learnings from the March lows 2020

• Buy Good Quality companies
• Sit on you ass and enjoy the ride : The time saved is amazing.
• Avoid news about comparisons and other growth stories.
  
• Options trading is fun but super time consuming, overall it has been a new learning.
• Monday's has bee typically +ve and Thu/Fri is when the market drops [last 3 weeks, fingers crossed]
• Amazon holding for a decade has been so rewarding :-). I wish i had not sold them in March lows. But glad, Had made better investments.
  

Need to learn to be better

• Avoid daily Stock market check
• Careful with Options trading with right check and balances
• Read more about low volatility and value stocks.

How Mistakes became learning opportunities

PS: pardon for weird formatting with numbers

1. Common Stocks, Uncommon Profits: no need to chase silo stocks, look for good companies which you use on a daily basis, if you like their product, there is a good chance the stock is going to do better in the long term. Buy with Margin of Safety. 

2. Tap into Great Investors: See what other great investors are buying in this category, research and analyze them as Homework. you will come out stronger

3. Never buy Bad Management: DCHL stock: bad management(later realized) in spite of a good brand like newspaper, book store, IPL (Deccan Chargers)

• learning: never invest in bad management, look for signs of performance and integrity 

4. Play to your core competency: Build your competency and you will come out as a winner, compounding really works

5. Research about the company with better SEC tools: spend considerable amount of time reading books, studying Warren Buffett/Charlie Munger, Mohnish Pabrai, Guy Spier, understanding financial statements, 10k, 10Qs 

6. Not sitting on my ass: especially when we don't know how we will use the cash generated!

• Amazon: classic example, holded for 10+ years and look at the returns

• Covid: sold in 1950 and then the stock turns to 3300.

7. A lot of times sitting with cash is so useful

• Covid 19: March 17 - April 10 was a golden period, had i not had the cash, it would have been impossible to get those opportunities

8. Respect Mr. Market, Market has lots of swings: buy with conviction and solid foundations

• Buying VIAC, Discover Bank, Capital One and many others from the lows and selling them based on the quarter earnings was not good. Should have paused and understood the earnings report better

9. Headlines of Stocks earnings could be deceiving, read carefully

• learning: read 10Q better especially for bank stocks as they provisions losses upfront and it might disguise an opportunity depending on the quality of the bank

10. Avoid Impulsive purchases and Recheck your transactions: Mistake with Options buy due to Robinhood intuitive interface and impulsive buy

• loss of 5

• Learning: Roll back a mistake asap

11. Check your transactions, especially default settings: Wealthfront - How a wrong characterization of transfer pumped in 200k+ in a stock account, which led to 50k+ loss.

• leanings: 

1. verify your transfers, read the defaults

2. It's good to roll back mistakes as fast as possible [in my case i did mail wealth-front, but the ship has sailed and it takes 4-5 days to cancel] and by the time losses were increasing and i let it be there for some time with market flip flops

3. glad i sold all of them, moved money to RobinHood for buying actual stocks. [changed the landscape