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Your First Step in to Intelligent investing


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Have you been let down poor investment decisions? Were you provided advise or tips or products that turned out to be junk? Its now time for you to take things back and have a full control on what you …

Have you been let down poor investment decisions? Were you provided advise or tips or products that turned out to be junk? Its now time for you to take things back and have a full control on what you want to achieve and take decisions that suit your own requirements and create more wealth in the process. I welcome you to take your first step in to intelligent investing!

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  • 2. Disclaimer 2       This is not an investment recommendation, but only an illustration for knowledge purposes All facts and data shared are accurate to the best of our knowledge. Readers are advised to double check if required before acting on investments. The information here could be based on past data, which could have changed significantly. Past performance is not necessarily an indicator of future performance Any logos, company names, brand names, trademarks or symbols used here belong to the respective owners The author or presenter may have personal investments in the stock or company discussed
  • 3. AGENDA 3 Money in Life, Financial Goals Savings & Investments Where to create wealth?- The Asset Classes Why Equities? Styles of Investing Value Investing Concept Economic Moat – The Secret to Successful Investing Value Investing Process Summary
  • 4. Money in Life 4 Myth • Money is not everything in life • Money can’t buy happiness • More money = More trouble Reality • Its important, its an enabler • Can’t buy happiness or love, but can keep life running smoothly • Law of Attraction applies here • Wise and productive use of money can do wonders • Getting rich or wealthy (legitimately) is not bad
  • 5. Money in Life – Financial/Life goals 5 Having life goals or financial goals is inevitable • • • • • Retirement Planning Children’s education Pursue a hobby or start a small venture A vacation Wedding Short Term Goals Long Term Goals Allocating Responsibilities/Accountabilities
  • 6. Case: Time & Money 6     Vicky and Aamir studied together and started working in the same year Aamir started investing 5 years earlier than Vicky See the table below showing details of their savings Who does better and how? Item Annual Savings Years Interest Rate Vicky 100000 25 12% Aamir 100000 30 12%
  • 7. Case: Time & Money 7 Item Annual Savings Years Interest Rate Accumulation Difference   Vicky 100000 25 12% 1,33,33,387 - Aamir 100000 30 12% 2,41,33,268 1,07,99,881 Aamir started early and was able to make 2.41 crores (against 1.33 crores for Vicky) Vicky makes about Rs.1 crore less since he started 5 years late
  • 8. Budgeting & Cash Flows 8  Create a budget to know your monthly incomes, expenses and net savings  Identify  top expenses and leaks Find ways to maximize your cash flows  Find additional income options  Curtail expenses (umpteen ways)  Minimize loans and credit card use  Famous Quote “If you buy things you don't need, soon you will have to sell things you need.”- Warren Buffett
  • 9. Savings & Investments 9 Savings Save for a rainy day Safety first, returns second Investments Create assets or build wealth Focus on returns & safety CrossMovement (S-I or I-S) When your short-term funds are in excess of needs When you reach closer to your goals Meets Short-term goals or needs Plan for long-term goals
  • 10. Where to create wealth? – The Asset Classes 10 Fixed income Equities Bonds/Co. FDs Bank Fixed Deposits Real Estate Gold
  • 11. Inflation – The Silent Wealth Killer 11   CPI is 10% or more FD and fixed income options generally provide 10% or less (before tax) barring few exceptions  Your returns are negative  Does this create wealth?  No but its still important for savings or preservation of surplus cash
  • 12. Equities – The Ultimate Wealth Creator 12 What are equities? • Equity Share represents part-ownership in a company Benefits shareholders by providing • Dividends or share of profits & • Capital Appreciation (of share price)
  • 13. Why Equities? 13     They can provide about 15-20% returns p.a. and can beat inflation Returns are non-linear creating potential for wealth creation Flexibility to buy smaller or larger quantities Easier to liquidate
  • 14. Issues with Equities 14       Probably less understood Temptation to trade Overpriced The company or its management is poor Highly volatile Others…
  • 15. Things to do before you jump in to Investing 15 Have a budget to maximize savings and create positive cash flows Have an emergency fund/contingency fund of about 3-6 months of your salary • Why is this required? Research the product/instrument that you want to invest in
  • 16. Things to do before you jump in to Investing 16 Provide for life and health insurance to protect family in case of eventuality • Choose term insurance plans only Plan for ad-hoc expenses or responsibilities Minimize credit card and other loans (except home loans) • Ideally your debt payments (EMIs) should be less than 40% of your monthly income
  • 17. Risk in Investing 17     Risk exists in all investments in varying degrees “Risk comes from not knowing what you are doing” – Warren Buffet Risk is the permanent loss of capital Investors should first aim to reduce the probability of permanent loss of capital
  • 18. Styles of Investing 18 Growth Investing • Choice of fast growing companies, which are doing well in the current market Value Investing • Choice of unfavourable stocks that are available at a price, which is lower than its true value Index Investing • Investing in a basket of stocks that form the index (basically creating a portfolio that replicated index) Others
  • 19. Which investing style to follow? 19   You can pick up a mix of different approaches But we recommend a strong focus on Value Investing Principles  This   works for growth stocks too Successful investors who follow value philosophy include Warren Buffett, Seth Klarman, Mohnish Pabrai, Prem Watsa, etc. In India: Rakesh Jhunjhunwala, Rahul Saraogi, Amitabh Singhi, etc.
  • 20. Value Investing Idea 20 Pick companies that are currently out of favour or ignored, but fundamentally sound To buy companies at a significant discount to their true underlying value • Eg. You buy a company worth Rs.100 crore for Rs.70 crore In-depth Research & Analysis to evaluate fundamental strengths and weaknesses
  • 21. Old School Value – Ben. Graham 21 Benjamin Graham’s Philosophy  Shortlist companies that are cheap on PE, PB basis and with good dividend yield (>5%)  Stock Price <= Net Current Asset Value per share  Special Situations or Turnarounds  Buy Back or Arbitrage  Deep value techniques – Cigar butts? Statutory Warning: Smoking and careless investing are injurious to health and wealth
  • 22. Buffett’s Transformation 22    Berkshire Hathaway – how did it start as? Where is it today? Textile business  Highly competitive  Cost & Margin pressures  Capital intensive Statutory Warning: Smoking and careless investing are injurious to health and wealth
  • 23. Analysing Business 23 Threat of New Entrants Bargaining Power of Suppliers Competitive Rivalry Threat of Substitutes Bargaining Power of Customers
  • 24. Economic Moat – The secret to successful investing 24   Moat = Competitive advantage and pricing power Types  Cost Advantages  Price Advantages
  • 25. Economic Moat – Price Advantages 25 Product Differentiation – eg. Apple (may not be durable), Wabco (air braking) Intangible Assets • Brands (eg. Coke, Titan, Colgate, Gillette, etc. ) • Regulatory Licenses (NMDC, Coal India, Solar Ind. - explosives) • Patents & IP (Intel, Bosch) Switching Costs (HDFC Bank, MS office) Network Effects (NSE, Naukri, etc.)
  • 26. Economic Moat – Cost Advantages 26 Economies of Scale • Eg. Container Corp., Coal India, Tata Steel • Large Distribution – Eg. ITC • Large scale – Maruti Suzuki, Walmart Cheaper Access to Resources • Coal India, Sesa Sterlite, Hindalco Process Based Advantages – efficiency, best practices • Toyota (TQM), Ambuja Cement (efficiency)
  • 27. Brands without a Moat 27 Mere presence of brand or popular product is not a Moat Brands without a moat Eg. Flipkart, MakeMyTrip, Camlin Wind Energy – Suzlon Had first mover advantage Legal or regulatory issues, high debt Kingfisher Airlines Acquisition of Air Deccan High costs & overleveraged (debt) Violation of regulatory norms and procedures
  • 28. False Moat – Avoid! 28 A short-term advantage Popular products (but low margins, returns) Recent performance looks favorable High growth expectations or Fancy (FB, Sify, etc.) Well-known personalities in the top management
  • 29. Determining a Moat 29 Does the product/service have a recurring demand Does the company have better profitability against its peers? Consistent market share overall or within a niche Not subject to price-regulation Has the company earned high returns on capital? Can it continue to earn high returns over long-term? Changes: Technology, substitutes, etc, and their impact Others – Refer Porter’s 5-Forces
  • 30. Financial Indicators of Moat 30 Buffett’s Secret Recipe • High and consistent Profit Margins • Growing Free Cash Flows • Minimal Capex to sustain long-term growth • High RoE and RoCE • Consistent Growth in Earnings and Dividends (baring few exceptions) • Million $ Question: Does the Moat really translate in to superior financial performance?
  • 31. Value Investing Process 31 Business Model Financials & Intrinsic Value Understand the Margin of Safety Business (A stock is Evaluate the a part-ownership company’s Arrive at a in a business) financials and Purchase Price future prospects to after providing for arrive at an adequate Margin Intrinsic Value of Safety (Discount)
  • 32. Summary – The Foundation 32         Money in Life Case: Time & Money Where to create wealth? – The Asset Classes Inflation – The Silent Wealth Killer Equities – The Ultimate Wealth Creator (Why Equities and Issues) Things to do before you jump in to Investing Risk in Investing Styles of Investing
  • 33. Summary – The Structure 33         Value Investing Idea Old School Value Buffett's Transformation Analysing Businesses Economic Moat - Secret to Successful Investing Types of Moats - Price and Cost Advantages Determining a Moat & Financial Indicators Value Investing Process
  • 34. 34 Thank You Looking forward to your continued participation Contact: +91 8050705299 Web Slideshare: Google Group: “Value Stock Picks”