This document provides tips for improving investment acumen. It recommends understanding accounting and financial statements, valuing companies using discounted cash flow analysis, comprehending a business's unit economics and profit drivers, comparing fundamentals to market expectations, thinking in terms of probabilities rather than certainties, constantly testing investment theses, guarding against cognitive biases, following a disciplined portfolio allocation process, and dedicating time each day to reading broadly. The overall aim is to gain proficiency in analyzing companies and making well-informed investment decisions.

1. IMPROVING INVESTMENT
ACUMEN
ABHISHEK BASUMALLICK

2. 1. UNDERSTAND ACCOUNTING
 You have to be able to read financial statements
 Use financial statements to understand how the business is doing and correlating management commentary to
reality
Reference:
 http://www.investopedia.com/university/fundamentalanalysis/
 Dr Anil Sharma of IIT Roorkee on Financial Reporting and Analysis- 60 sessions of roughly 30 min each
https://www.youtube.com/watch?v=OT5RdoJAkhY&list=PLPjSqITyvDeUTeAOGhip_ubjN3y8oqT13

3. 2. UNDERSTANDVALUE
 Intrinsic value is the present value of all future cash flows
 Drivers of value
 Cash flow (certain for bonds, uncertain for equities)
 Timing (certain for bonds, uncertain for equities)
 Risk (uncertain for bonds, uncertain for equities)
 Focus on understanding the magnitude and sustainability of free cash flow
 Industry life cycle
 Competitive position
 Entry barriers
 Economics of the business
 Capital allocation skills of management
1. Understand DCF process
2. Study companies in an
industry together
3.Talk to industry experts

4. 3. UNDERSTAND HOWTHE BUSINESS MAKES MONEY
 Understand the basic unit economics – different for different industries
 Understand the drivers of profitability
 Understand the drivers of sustainability of profitability and return on capital
Read reports from KPMG, PwC,
EY, BCG, IBEF etc and try to
understand business models
Understand the inputs and
outputs of the business and how
one part affects other parts

5. 4. COMPARE FUNDAMENTALS WITH EXPECTATIONS
 Fundamental value is different from the value that is already in the price
 Price has embedded future expectations of all market participants
 Significant money can be made only if there is “variant perception”
1. Read “Expectations Investing”
2. Don’t chase story stocks
without understanding or
conviction

6. 5.THINK IN PROBABILITIES
 Nothing is certain
 Focus on the process and not on individual outcomes
 Magnitude of win vs loss matters more than frequency
You can lose money in large cap
established companies
Never be out of the market

7. 6. CONSTANTLY TESTYOUR THESIS
 All investments are based on a thesis
 No investment thesis is always sacrosanct
 Seek non-confirming evidence
 Update your thesis when new information arrives
Follow quarterly results
Follow the competitors

8. 7. BE CAREFUL OF MENTAL BIASES
 Behavioral biases like endowment effect, loss aversion, sunk cost fallacy are
very powerful
 Checklist based approach
 Written down process
 Use frameworks for stock selection, portfolio allocation, selling decisions etc
https://fs.blog/mental-models/
excellent compilation of mental
models
QGLP Model for stock selection

9. 8. PORTFOLIO ALLOCATION IS KEY
 Investing has two components
 Identifying a great opportunity
 Meaningful allocation to it
 Increased allocation with higher conviction and better prospective payout
 Following a rule based approach with a minimum and maximum stock and
sector allocation for risk management purposes
Learning to average up with
increased conviction
Reducing allocation / selling
when valuation is extreme or
conviction reduces
https://forum.valuepickr.com/t/to
wards-a-capital-allocation-
framework/504
Valuation & Conviction matrix

10. 9. READ MORE
 Allocate dedicated time to read every day
 Read across a wide spectrum of disciplines – business, history, biographies, sociology, psychology etc
 Read material which is opposite your point of view and try to understand the opposing perspective
 Pursue active reading

11. THANKYOU
@A_BASUMALLICK