I received the following email from sanjay shetty and decided to post it as he has asked a very important question on valuation. I have done some work on it on my own and have put the results in the worksheet – Quantitative calculations.xls
You can download is from here or use the download link in the side bar. Please see the tabs – Maintenance capex and FCF anal.
My responses are in italics. There is a follow up question from sanjay on maintenance capex. I will post on it in detail shortly with an example. If you have looked at my valuation templates, you may have noticed that I use FCF based on maintenance capex for valuation purposes
Hi Rohit,
I've been viewing your blog, after your comment on my blog (http://indiainvestor.wordpress.com).
I had a few questions for you.
What methodology are you using to value companies in India?
DCF, comparitive or relative valuation, sum of parts etc. I try to value a company based on multiple approaches and also depending on the nature of the company
Are you using a Discounted Cash Flow method to calculate Intrinsic value? If so, are you checking the Free Cash Flow, how are you calculating it?
yes, i use free cash flow. I however do not use capital expenditure directly. I use maintenance capex needed to support unit volumes or competitive position (maintenance capex). Difficult for me to explain in brief. i have a few excels uploaded in my google group explaining the calculation.
I've see most of the companies I've analyzed seem to be blowing enormous amounts of cash, with almost negative free cash flow which is worrying. -
I think the key point is whether the capex is maintenance or for growth / accquisition. Let's take a short example. If a company earns 5% on capital , and has 10% margins (asset turn is 0.5). Then to grow by 5%, the company will use all its free cash flow. Also 5% growth is roughly inflation, so in this case the company is using all its free cash for maintenance capex
In case of a company growing by 20% and 10% margins (asset turns is 2), growth of 5% requires only 50% of the netprofit . The rest is cash flow which company can use to aqcuire other companies, give dividend or build assets. This is the case with grindwell norton. Grindwell has low FCF as it is investing the surplus cash in assets to increase volumes.
Hope the above clarifies .i have tried to provide a quick explaination and have left a few things out (like adding back depreciation)
Take for instance Grindwell Norton, which you've recently mentioned on your blog, Every thing seems rosy however Free Cash Flow is the concern.
I have taken out the detailed calculations by sanjay and put the final computations
Free Cash Flow
Mar’ 02 29.178
Mar '03 21.802
Mar '04 17.149
Mar '05 18.481
Mar '06 3.121
The worrying fact about this company is the amount of cash it's blowing, though currently it's Sales, ROIC etc. are all healthy and growing.
Free Cash flow growth is actually going from bad to worse. I'm calculating Free Cash Flow as Net Cash from Operations minus Capital Expenditure which is Purchase of Fixed Assets.
Thursday, November 29, 2007
Grindwell norton and Free cash flow
I received the following email from sanjay shetty and decided to post it as he has asked a very important question on valuation. I have done some work on it on my own and have put the results in the worksheet – Quantitative calculations.xls
You can download is from here or use the download link in the side bar. Please see the tabs – Maintenance capex and FCF anal.
My responses are in italics. There is a follow up question from sanjay on maintenance capex. I will post on it in detail shortly with an example. If you have looked at my valuation templates, you may have noticed that I use FCF based on maintenance capex for valuation purposes
Hi Rohit,
I've been viewing your blog, after your comment on my blog (http://indiainvestor.wordpress.com).
I had a few questions for you.
What methodology are you using to value companies in India?
DCF, comparitive or relative valuation, sum of parts etc. I try to value a company based on multiple approaches and also depending on the nature of the company
Are you using a Discounted Cash Flow method to calculate Intrinsic value? If so, are you checking the Free Cash Flow, how are you calculating it?
yes, i use free cash flow. I however do not use capital expenditure directly. I use maintenance capex needed to support unit volumes or competitive position (maintenance capex). Difficult for me to explain in brief. i have a few excels uploaded in my google group explaining the calculation.
I've see most of the companies I've analyzed seem to be blowing enormous amounts of cash, with almost negative free cash flow which is worrying. -
I think the key point is whether the capex is maintenance or for growth / accquisition. Let's take a short example. If a company earns 5% on capital , and has 10% margins (asset turn is 0.5). Then to grow by 5%, the company will use all its free cash flow. Also 5% growth is roughly inflation, so in this case the company is using all its free cash for maintenance capex
In case of a company growing by 20% and 10% margins (asset turns is 2), growth of 5% requires only 50% of the netprofit . The rest is cash flow which company can use to aqcuire other companies, give dividend or build assets. This is the case with grindwell norton. Grindwell has low FCF as it is investing the surplus cash in assets to increase volumes.
Hope the above clarifies .i have tried to provide a quick explaination and have left a few things out (like adding back depreciation)
Take for instance Grindwell Norton, which you've recently mentioned on your blog, Every thing seems rosy however Free Cash Flow is the concern.
I have taken out the detailed calculations by sanjay and put the final computations
Free Cash Flow
Mar’ 02 29.178
Mar '03 21.802
Mar '04 17.149
Mar '05 18.481
Mar '06 3.121
The worrying fact about this company is the amount of cash it's blowing, though currently it's Sales, ROIC etc. are all healthy and growing.
Free Cash flow growth is actually going from bad to worse. I'm calculating Free Cash Flow as Net Cash from Operations minus Capital Expenditure which is Purchase of Fixed Assets.
You can download is from here or use the download link in the side bar. Please see the tabs – Maintenance capex and FCF anal.
My responses are in italics. There is a follow up question from sanjay on maintenance capex. I will post on it in detail shortly with an example. If you have looked at my valuation templates, you may have noticed that I use FCF based on maintenance capex for valuation purposes
Hi Rohit,
I've been viewing your blog, after your comment on my blog (http://indiainvestor.wordpress.com).
I had a few questions for you.
What methodology are you using to value companies in India?
DCF, comparitive or relative valuation, sum of parts etc. I try to value a company based on multiple approaches and also depending on the nature of the company
Are you using a Discounted Cash Flow method to calculate Intrinsic value? If so, are you checking the Free Cash Flow, how are you calculating it?
yes, i use free cash flow. I however do not use capital expenditure directly. I use maintenance capex needed to support unit volumes or competitive position (maintenance capex). Difficult for me to explain in brief. i have a few excels uploaded in my google group explaining the calculation.
I've see most of the companies I've analyzed seem to be blowing enormous amounts of cash, with almost negative free cash flow which is worrying. -
I think the key point is whether the capex is maintenance or for growth / accquisition. Let's take a short example. If a company earns 5% on capital , and has 10% margins (asset turn is 0.5). Then to grow by 5%, the company will use all its free cash flow. Also 5% growth is roughly inflation, so in this case the company is using all its free cash for maintenance capex
In case of a company growing by 20% and 10% margins (asset turns is 2), growth of 5% requires only 50% of the netprofit . The rest is cash flow which company can use to aqcuire other companies, give dividend or build assets. This is the case with grindwell norton. Grindwell has low FCF as it is investing the surplus cash in assets to increase volumes.
Hope the above clarifies .i have tried to provide a quick explaination and have left a few things out (like adding back depreciation)
Take for instance Grindwell Norton, which you've recently mentioned on your blog, Every thing seems rosy however Free Cash Flow is the concern.
I have taken out the detailed calculations by sanjay and put the final computations
Free Cash Flow
Mar’ 02 29.178
Mar '03 21.802
Mar '04 17.149
Mar '05 18.481
Mar '06 3.121
The worrying fact about this company is the amount of cash it's blowing, though currently it's Sales, ROIC etc. are all healthy and growing.
Free Cash flow growth is actually going from bad to worse. I'm calculating Free Cash Flow as Net Cash from Operations minus Capital Expenditure which is Purchase of Fixed Assets.
Tuesday, November 27, 2007
Some interesting ideas
I have been looking at the following two companies for the past few weeks. I have yet to make up my mind on them. I generally prefer to buy at 50% of conservatively calculated intrinsic value of the company. Both the companies trade at a discount to instrinsic value, but above the 50% mark.
The companies are
Grindwell norton
SRF
My personal notes on each company
Grindwell norton
Grindwell norton is in the business of abrasives and refractories. The industry is dominated by two player – Carborundum and grindwell norton. Grindwell has been doing fairly well for the past few years. It has an average ROC of 15%+ for the past few years. It has been able to maintain a NPM of 10%+. The average sales growth has been over 15% on an average and the NP growth in excess of 20%. The asset ratios have improved, especially the Wcap ratio and the profit margins have improved from 7-8% to 10-11%. The company enjoys reasonable competitive advantage due to R&D support by parent, strong sales force, decent brand and a wide customer base. There are reasonable entry barriers in the industry too.
Grindwell has recently sold a stake and netted almost 100 Crs from the sale. The Company is debt free and has almost 100-150 Cr in cash and investments. The company is however trading at 20-30% discount to intrinsic value which is above my target price
SRF
SRF has the following business segments – Technical textile divison which is
includes tyre re-inforcements, belting fabrics etc. This division makes up almost 50% of the revenue, but contributes to less than 10% of total profits with Pre-tax margins of around 10%. This business segment is facing a lot of competition and has seen margins drop for the last few years. The chemical business makes up 40% of the revenue and almost 90% of the profit. This division is highly profitable with pretax margins in excess of 50%. The profitability of this division has gone up in the last few years. The rest of the revenue is from packaging films business. This business made a loss in 2006 and has just turned around in the current year.
The company has seen margins rise from 4% to around 10% (excluding one time CER gains). The ROC is around 15%+. Sales growth has been 15%+ and NP growth has been 20%+. The company looks undervalued on current measures. However the key point is the sustainability of the margins in the chemicals business. It is diffcult to see how the division would maintain such high margins. If the net margin of the company were to drop to around 6-7% from current levels (which are roughly the average margins), then the EV/Net profit ratio would be around 9-10. At these levels the company is at best undervalued by 20-30%. Need to do more analysis.
The companies are
Grindwell norton
SRF
My personal notes on each company
Grindwell norton
Grindwell norton is in the business of abrasives and refractories. The industry is dominated by two player – Carborundum and grindwell norton. Grindwell has been doing fairly well for the past few years. It has an average ROC of 15%+ for the past few years. It has been able to maintain a NPM of 10%+. The average sales growth has been over 15% on an average and the NP growth in excess of 20%. The asset ratios have improved, especially the Wcap ratio and the profit margins have improved from 7-8% to 10-11%. The company enjoys reasonable competitive advantage due to R&D support by parent, strong sales force, decent brand and a wide customer base. There are reasonable entry barriers in the industry too.
Grindwell has recently sold a stake and netted almost 100 Crs from the sale. The Company is debt free and has almost 100-150 Cr in cash and investments. The company is however trading at 20-30% discount to intrinsic value which is above my target price
SRF
SRF has the following business segments – Technical textile divison which is
includes tyre re-inforcements, belting fabrics etc. This division makes up almost 50% of the revenue, but contributes to less than 10% of total profits with Pre-tax margins of around 10%. This business segment is facing a lot of competition and has seen margins drop for the last few years. The chemical business makes up 40% of the revenue and almost 90% of the profit. This division is highly profitable with pretax margins in excess of 50%. The profitability of this division has gone up in the last few years. The rest of the revenue is from packaging films business. This business made a loss in 2006 and has just turned around in the current year.
The company has seen margins rise from 4% to around 10% (excluding one time CER gains). The ROC is around 15%+. Sales growth has been 15%+ and NP growth has been 20%+. The company looks undervalued on current measures. However the key point is the sustainability of the margins in the chemicals business. It is diffcult to see how the division would maintain such high margins. If the net margin of the company were to drop to around 6-7% from current levels (which are roughly the average margins), then the EV/Net profit ratio would be around 9-10. At these levels the company is at best undervalued by 20-30%. Need to do more analysis.
Some interesting ideas
I have been looking at the following two companies for the past few weeks. I have yet to make up my mind on them. I generally prefer to buy at 50% of conservatively calculated intrinsic value of the company. Both the companies trade at a discount to instrinsic value, but above the 50% mark.
The companies are
Grindwell norton
SRF
My personal notes on each company
Grindwell norton
Grindwell norton is in the business of abrasives and refractories. The industry is dominated by two player – Carborundum and grindwell norton. Grindwell has been doing fairly well for the past few years. It has an average ROC of 15%+ for the past few years. It has been able to maintain a NPM of 10%+. The average sales growth has been over 15% on an average and the NP growth in excess of 20%. The asset ratios have improved, especially the Wcap ratio and the profit margins have improved from 7-8% to 10-11%. The company enjoys reasonable competitive advantage due to R&D support by parent, strong sales force, decent brand and a wide customer base. There are reasonable entry barriers in the industry too.
Grindwell has recently sold a stake and netted almost 100 Crs from the sale. The Company is debt free and has almost 100-150 Cr in cash and investments. The company is however trading at 20-30% discount to intrinsic value which is above my target price
SRF
SRF has the following business segments – Technical textile divison which is
includes tyre re-inforcements, belting fabrics etc. This division makes up almost 50% of the revenue, but contributes to less than 10% of total profits with Pre-tax margins of around 10%. This business segment is facing a lot of competition and has seen margins drop for the last few years. The chemical business makes up 40% of the revenue and almost 90% of the profit. This division is highly profitable with pretax margins in excess of 50%. The profitability of this division has gone up in the last few years. The rest of the revenue is from packaging films business. This business made a loss in 2006 and has just turned around in the current year.
The company has seen margins rise from 4% to around 10% (excluding one time CER gains). The ROC is around 15%+. Sales growth has been 15%+ and NP growth has been 20%+. The company looks undervalued on current measures. However the key point is the sustainability of the margins in the chemicals business. It is diffcult to see how the division would maintain such high margins. If the net margin of the company were to drop to around 6-7% from current levels (which are roughly the average margins), then the EV/Net profit ratio would be around 9-10. At these levels the company is at best undervalued by 20-30%. Need to do more analysis.
The companies are
Grindwell norton
SRF
My personal notes on each company
Grindwell norton
Grindwell norton is in the business of abrasives and refractories. The industry is dominated by two player – Carborundum and grindwell norton. Grindwell has been doing fairly well for the past few years. It has an average ROC of 15%+ for the past few years. It has been able to maintain a NPM of 10%+. The average sales growth has been over 15% on an average and the NP growth in excess of 20%. The asset ratios have improved, especially the Wcap ratio and the profit margins have improved from 7-8% to 10-11%. The company enjoys reasonable competitive advantage due to R&D support by parent, strong sales force, decent brand and a wide customer base. There are reasonable entry barriers in the industry too.
Grindwell has recently sold a stake and netted almost 100 Crs from the sale. The Company is debt free and has almost 100-150 Cr in cash and investments. The company is however trading at 20-30% discount to intrinsic value which is above my target price
SRF
SRF has the following business segments – Technical textile divison which is
includes tyre re-inforcements, belting fabrics etc. This division makes up almost 50% of the revenue, but contributes to less than 10% of total profits with Pre-tax margins of around 10%. This business segment is facing a lot of competition and has seen margins drop for the last few years. The chemical business makes up 40% of the revenue and almost 90% of the profit. This division is highly profitable with pretax margins in excess of 50%. The profitability of this division has gone up in the last few years. The rest of the revenue is from packaging films business. This business made a loss in 2006 and has just turned around in the current year.
The company has seen margins rise from 4% to around 10% (excluding one time CER gains). The ROC is around 15%+. Sales growth has been 15%+ and NP growth has been 20%+. The company looks undervalued on current measures. However the key point is the sustainability of the margins in the chemicals business. It is diffcult to see how the division would maintain such high margins. If the net margin of the company were to drop to around 6-7% from current levels (which are roughly the average margins), then the EV/Net profit ratio would be around 9-10. At these levels the company is at best undervalued by 20-30%. Need to do more analysis.
Thursday, November 22, 2007
Real estate valuation - Random thoughts
I have been reading the book ‘Seeking wisdom – From darwin to munger’ which talks of various mental models and applying them to a problem to analyse it in detail.
The book is itself inspired by charlie munger and his lecture on the same topic. I have attempted to apply some models to valuing and analysing real estate.
The first post was valuing the real estate as a financial asset like stocks and bonds
The second post was trying to invert the problem.
The third post was looking at psychological baises in valuation of real estate. I will follow up with more posts on the same topic with other models.
I would like to add a personal approach for a first time buyer (buying for personal use)
If you are buying a house to stay (not investment), the maximum value of the investment would be driven by two numbers – EMI and personal debt to equity.
Let me explain
Suppose I earn 40000 as net income. My current networth ( all stocks, bonds, cash etc) is 10 lacs (10 lacs = 1 million). To be on the safe side, I would look at a house where my EMI is around 16000 / month (40% of net income)
So based on the above EMI, I can afford a loan of around 16 lacs at an interest of 10% for a 20 year tenure.
Assuming I have to put up 20% of the value of the house, I would look at a maximum investment of 20 lacs (2 million).
For a 16 lacs loan, my personal debt to equity is around 1.6 (16/10). This is higher than what I am comfortable. However it is not too high if you are in your 20s or 30s and have a long career ahead.
The above is a very simplistic approach and may sound conservative. But I prefer to plan for adversity and for a situation where things can go wrong. Buying a house as a first time buyer is less of an investment for me and more of having a roof on my head (in worst possible situation).
Some bad reasons for buying real estate
- Because the price has risen a lot lately or because the broker is predicting a rise.
- Because one can never lose in real estate
- Because your friend is buying it
- Because you can get a loan to buy it
- FII / Institutional investors are investing money – This is really a strange reason. FII/ foreign investors may have a good reason or maybe they are just following the herd. Just because an investor is an FII does not mean they have extra brains. Sometimes they are worse than an ordinary investor
A few links to value real estate
http://en.wikipedia.org/wiki/Real_estate_appraisal
Real estate valuation and analysis – read on the Cap rate which is similar to the P/R ratio
Deepak shenoy’s real estate cash flow calculator – Excellent worksheet to value real estate. Please read his terms.
The book is itself inspired by charlie munger and his lecture on the same topic. I have attempted to apply some models to valuing and analysing real estate.
The first post was valuing the real estate as a financial asset like stocks and bonds
The second post was trying to invert the problem.
The third post was looking at psychological baises in valuation of real estate. I will follow up with more posts on the same topic with other models.
I would like to add a personal approach for a first time buyer (buying for personal use)
If you are buying a house to stay (not investment), the maximum value of the investment would be driven by two numbers – EMI and personal debt to equity.
Let me explain
Suppose I earn 40000 as net income. My current networth ( all stocks, bonds, cash etc) is 10 lacs (10 lacs = 1 million). To be on the safe side, I would look at a house where my EMI is around 16000 / month (40% of net income)
So based on the above EMI, I can afford a loan of around 16 lacs at an interest of 10% for a 20 year tenure.
Assuming I have to put up 20% of the value of the house, I would look at a maximum investment of 20 lacs (2 million).
For a 16 lacs loan, my personal debt to equity is around 1.6 (16/10). This is higher than what I am comfortable. However it is not too high if you are in your 20s or 30s and have a long career ahead.
The above is a very simplistic approach and may sound conservative. But I prefer to plan for adversity and for a situation where things can go wrong. Buying a house as a first time buyer is less of an investment for me and more of having a roof on my head (in worst possible situation).
Some bad reasons for buying real estate
- Because the price has risen a lot lately or because the broker is predicting a rise.
- Because one can never lose in real estate
- Because your friend is buying it
- Because you can get a loan to buy it
- FII / Institutional investors are investing money – This is really a strange reason. FII/ foreign investors may have a good reason or maybe they are just following the herd. Just because an investor is an FII does not mean they have extra brains. Sometimes they are worse than an ordinary investor
A few links to value real estate
http://en.wikipedia.org/wiki/Real_estate_appraisal
Real estate valuation and analysis – read on the Cap rate which is similar to the P/R ratio
Deepak shenoy’s real estate cash flow calculator – Excellent worksheet to value real estate. Please read his terms.
Real estate valuation - Random thoughts
I have been reading the book ‘Seeking wisdom – From darwin to munger’ which talks of various mental models and applying them to a problem to analyse it in detail.
The book is itself inspired by charlie munger and his lecture on the same topic. I have attempted to apply some models to valuing and analysing real estate.
The first post was valuing the real estate as a financial asset like stocks and bonds
The second post was trying to invert the problem.
The third post was looking at psychological baises in valuation of real estate. I will follow up with more posts on the same topic with other models.
I would like to add a personal approach for a first time buyer (buying for personal use)
If you are buying a house to stay (not investment), the maximum value of the investment would be driven by two numbers – EMI and personal debt to equity.
Let me explain
Suppose I earn 40000 as net income. My current networth ( all stocks, bonds, cash etc) is 10 lacs (10 lacs = 1 million). To be on the safe side, I would look at a house where my EMI is around 16000 / month (40% of net income)
So based on the above EMI, I can afford a loan of around 16 lacs at an interest of 10% for a 20 year tenure.
Assuming I have to put up 20% of the value of the house, I would look at a maximum investment of 20 lacs (2 million).
For a 16 lacs loan, my personal debt to equity is around 1.6 (16/10). This is higher than what I am comfortable. However it is not too high if you are in your 20s or 30s and have a long career ahead.
The above is a very simplistic approach and may sound conservative. But I prefer to plan for adversity and for a situation where things can go wrong. Buying a house as a first time buyer is less of an investment for me and more of having a roof on my head (in worst possible situation).
Some bad reasons for buying real estate
- Because the price has risen a lot lately or because the broker is predicting a rise.
- Because one can never lose in real estate
- Because your friend is buying it
- Because you can get a loan to buy it
- FII / Institutional investors are investing money – This is really a strange reason. FII/ foreign investors may have a good reason or maybe they are just following the herd. Just because an investor is an FII does not mean they have extra brains. Sometimes they are worse than an ordinary investor
A few links to value real estate
http://en.wikipedia.org/wiki/Real_estate_appraisal
Real estate valuation and analysis – read on the Cap rate which is similar to the P/R ratio
Deepak shenoy’s real estate cash flow calculator – Excellent worksheet to value real estate. Please read his terms.
The book is itself inspired by charlie munger and his lecture on the same topic. I have attempted to apply some models to valuing and analysing real estate.
The first post was valuing the real estate as a financial asset like stocks and bonds
The second post was trying to invert the problem.
The third post was looking at psychological baises in valuation of real estate. I will follow up with more posts on the same topic with other models.
I would like to add a personal approach for a first time buyer (buying for personal use)
If you are buying a house to stay (not investment), the maximum value of the investment would be driven by two numbers – EMI and personal debt to equity.
Let me explain
Suppose I earn 40000 as net income. My current networth ( all stocks, bonds, cash etc) is 10 lacs (10 lacs = 1 million). To be on the safe side, I would look at a house where my EMI is around 16000 / month (40% of net income)
So based on the above EMI, I can afford a loan of around 16 lacs at an interest of 10% for a 20 year tenure.
Assuming I have to put up 20% of the value of the house, I would look at a maximum investment of 20 lacs (2 million).
For a 16 lacs loan, my personal debt to equity is around 1.6 (16/10). This is higher than what I am comfortable. However it is not too high if you are in your 20s or 30s and have a long career ahead.
The above is a very simplistic approach and may sound conservative. But I prefer to plan for adversity and for a situation where things can go wrong. Buying a house as a first time buyer is less of an investment for me and more of having a roof on my head (in worst possible situation).
Some bad reasons for buying real estate
- Because the price has risen a lot lately or because the broker is predicting a rise.
- Because one can never lose in real estate
- Because your friend is buying it
- Because you can get a loan to buy it
- FII / Institutional investors are investing money – This is really a strange reason. FII/ foreign investors may have a good reason or maybe they are just following the herd. Just because an investor is an FII does not mean they have extra brains. Sometimes they are worse than an ordinary investor
A few links to value real estate
http://en.wikipedia.org/wiki/Real_estate_appraisal
Real estate valuation and analysis – read on the Cap rate which is similar to the P/R ratio
Deepak shenoy’s real estate cash flow calculator – Excellent worksheet to value real estate. Please read his terms.
Tuesday, November 20, 2007
Real estate valuation - Psychological biases
I think there are several psychological baises working in case of real estate. The first is incentive caused bais. Typically real estate is sold via brokers or by sales agents of the builder. They have an incentive to sell the property and typically earn a commision based on sale price. It is quite obvious that the broker or sales agent would be motivated to sell at as high price as possible. In addition it is likely that he will give you a bullish outlook for the property prices.
The second strong bias is social- proof and deprival super reaction tendency. You see you friend buy a property and make easy money. At the same if you have not invested money and feel deprival super reaction tendency as everyone one else is making easy money.
So these two tendencies work together and motivate us to look for a property. Combine this with the incentive caused bias where the broker is constantly trying to create a scarcity (he will tell you that he has a lot of buyers and even you don’t buy now then the price will go up), lack of information and overoptimism on our part and this creates a combined effect. All these factors add up and can cause the buyer to become irrational.
I personally think the risk of bubbles are higher in real estate for the following reasons
- the common notion that real estate cannot lose value and represent something limited which is land
- High amount of leverage. Typically loans on a property is around 20%
- Lack of transparency and information in this market.
- All the above psychological factors
The second strong bias is social- proof and deprival super reaction tendency. You see you friend buy a property and make easy money. At the same if you have not invested money and feel deprival super reaction tendency as everyone one else is making easy money.
So these two tendencies work together and motivate us to look for a property. Combine this with the incentive caused bias where the broker is constantly trying to create a scarcity (he will tell you that he has a lot of buyers and even you don’t buy now then the price will go up), lack of information and overoptimism on our part and this creates a combined effect. All these factors add up and can cause the buyer to become irrational.
I personally think the risk of bubbles are higher in real estate for the following reasons
- the common notion that real estate cannot lose value and represent something limited which is land
- High amount of leverage. Typically loans on a property is around 20%
- Lack of transparency and information in this market.
- All the above psychological factors
Real estate valuation - Psychological biases
I think there are several psychological baises working in case of real estate. The first is incentive caused bais. Typically real estate is sold via brokers or by sales agents of the builder. They have an incentive to sell the property and typically earn a commision based on sale price. It is quite obvious that the broker or sales agent would be motivated to sell at as high price as possible. In addition it is likely that he will give you a bullish outlook for the property prices.
The second strong bias is social- proof and deprival super reaction tendency. You see you friend buy a property and make easy money. At the same if you have not invested money and feel deprival super reaction tendency as everyone one else is making easy money.
So these two tendencies work together and motivate us to look for a property. Combine this with the incentive caused bias where the broker is constantly trying to create a scarcity (he will tell you that he has a lot of buyers and even you don’t buy now then the price will go up), lack of information and overoptimism on our part and this creates a combined effect. All these factors add up and can cause the buyer to become irrational.
I personally think the risk of bubbles are higher in real estate for the following reasons
- the common notion that real estate cannot lose value and represent something limited which is land
- High amount of leverage. Typically loans on a property is around 20%
- Lack of transparency and information in this market.
- All the above psychological factors
The second strong bias is social- proof and deprival super reaction tendency. You see you friend buy a property and make easy money. At the same if you have not invested money and feel deprival super reaction tendency as everyone one else is making easy money.
So these two tendencies work together and motivate us to look for a property. Combine this with the incentive caused bias where the broker is constantly trying to create a scarcity (he will tell you that he has a lot of buyers and even you don’t buy now then the price will go up), lack of information and overoptimism on our part and this creates a combined effect. All these factors add up and can cause the buyer to become irrational.
I personally think the risk of bubbles are higher in real estate for the following reasons
- the common notion that real estate cannot lose value and represent something limited which is land
- High amount of leverage. Typically loans on a property is around 20%
- Lack of transparency and information in this market.
- All the above psychological factors
Sunday, November 18, 2007
Real estate valuation - Inverting the problem
As Charlie munger says, it is useful to invert a problem and think through. So let me try that and please bear with me on the mental acrobatics.In the last post, I developed the basic logic that real estate valuation depends on the rentals. Lets say you are looking at a property valued at say 50 lacs (5 million) . Now the reason to invest in this property is that you expect to make more than fixed income. Lets say you expect 15% p.a.
So the property should be worth 1 Cr (10 million) in the next five years. Such a property to sell at 10 Million, should atleast yield a rent of 40000 Rs/ month (assuming a P/R of 20). For some one to pay a rent of 40000/month, that individual should be earning atleast 170000 rs / month pre-tax.
How did I come up with number? assume a 30% tax rate and that a person would not prefer to spend more than 30% of his net income on rent in the long run. So we are talking of a person making 20-22 lacs per annum.
I agree salaries in india are rising and will continue to do so, but think of it this way - How many people can earn 20-22 lacs per annum (or 50000 usd ). To give a comparison, 50000 usd income is around the median income in the US too. On the flip side, with dollar depreciation and margins of IT/BPO companies getting squezed do you think it is feasible for indian companies to keep increasing salaries at 15% for the next 5-6 years and still be competitive?
Going one step further, if the investor thinks he can sell the property for 10 million , the person buying it will have to do a similar math. If the next investor expects 15% p.a , then he may agree to buy the property for 10 Million at a P/R of 20. However the property should then be 20 million, 10 years from now and needs a tenant making 40 lacs p.a (100000 dollars) to support the rents.
At any point during the next 10 years, if the above assumptions break, due to drop in salaries or recesion, the P/R (like P/E of a stock) could fall and returns could drop. I would agree that in the above scenario there are a lot of assumptions and ifs and buts. However one should think hard before going ahead with a big investment decision.
Please note that I am not talking of local knowledge of real estate. If someone has special knowledge of an area and knows that the area would develop in the next few years, then that person has an information edge and can make high returns. My example is of a general case of an apartment in a city which is what most of the investors put their money in.
Real estate valuation - Inverting the problem
As Charlie munger says, it is useful to invert a problem and think through. So let me try that and please bear with me on the mental acrobatics.In the last post, I developed the basic logic that real estate valuation depends on the rentals. Lets say you are looking at a property valued at say 50 lacs (5 million) . Now the reason to invest in this property is that you expect to make more than fixed income. Lets say you expect 15% p.a.
So the property should be worth 1 Cr (10 million) in the next five years. Such a property to sell at 10 Million, should atleast yield a rent of 40000 Rs/ month (assuming a P/R of 20). For some one to pay a rent of 40000/month, that individual should be earning atleast 170000 rs / month pre-tax.
How did I come up with number? assume a 30% tax rate and that a person would not prefer to spend more than 30% of his net income on rent in the long run. So we are talking of a person making 20-22 lacs per annum.
I agree salaries in india are rising and will continue to do so, but think of it this way - How many people can earn 20-22 lacs per annum (or 50000 usd ). To give a comparison, 50000 usd income is around the median income in the US too. On the flip side, with dollar depreciation and margins of IT/BPO companies getting squezed do you think it is feasible for indian companies to keep increasing salaries at 15% for the next 5-6 years and still be competitive?
Going one step further, if the investor thinks he can sell the property for 10 million , the person buying it will have to do a similar math. If the next investor expects 15% p.a , then he may agree to buy the property for 10 Million at a P/R of 20. However the property should then be 20 million, 10 years from now and needs a tenant making 40 lacs p.a (100000 dollars) to support the rents.
At any point during the next 10 years, if the above assumptions break, due to drop in salaries or recesion, the P/R (like P/E of a stock) could fall and returns could drop. I would agree that in the above scenario there are a lot of assumptions and ifs and buts. However one should think hard before going ahead with a big investment decision.
Please note that I am not talking of local knowledge of real estate. If someone has special knowledge of an area and knows that the area would develop in the next few years, then that person has an information edge and can make high returns. My example is of a general case of an apartment in a city which is what most of the investors put their money in.
Tuesday, November 13, 2007
Real estate valuation - I
If like me you believe the basic definition that the intrinsic worth of an asset is the sum total of all the cash flows one would receive out of an asset from now onwards, then real estate could be analysed using the same approach as stocks or bonds.
Using that logic, we can say that there are two components to the cash flow
1. Rent which is equivalent of dividends
2. Final sale price of the asset (real estate) which is the same as the sale price one would get from a stock or bond
Like stocks, it is easy to get the value of rent (or dividend), but difficult to get the final selling price. In case of real estate the final selling price would depend on the state of real estate market, interest rate, economic activity of that area and location of the real estate. This is similar to stocks where the final selling price depends on a large number of factors, most of which cannot be predicted.
Using the same analogy, if it is possible to value a stock roughly, if not with precision, then one should be able to get some idea whether the real estate asset is under valued, over valued or fairly priced.
I recently read an article in fortune on real estate valuation, current pricing and likely future of the same in the US
Real estate : Buy hold or Sell
I have included a few paras from the article which are very relevant for valuing real estate
Many factors determine the value of a house. A family would consider the quality of local schools, the number of bedrooms, the size of the yard. Economists assessing a region look at interest rates, employment, and population growth. But over time the most reliable guide to home values is rents.
In most markets people won't lay out much more in monthly costs to own a house or condo than they would to rent a similar property unless they expect a huge profit when they sell. Indeed, speculators chasing quick profits did a lot to inflate the recent bubble.
But once the fervor fades, prices must fall to restore their normal, long-term relationship with rents. Rents exercise a kind of inevitable gravitational pull on prices. The ratio of prices to rents "behaves much like price/earnings ratios for stocks," says Yale economist Robert Shiller. "Like P/Es, price-to-rent ratios are mean-reverting." In other words, while prices soar from time to time, sending the ratio to exceptional heights, sooner or later the relationship is bound to return to its historical average.
The last para above is very important. Kaushik in his blog has posted several times on the rent for several properties in places like bangalore. Although this is anecdotal evidence, I would not discount it completely.
So based on this evidence if the rent is say 20000 per month, we are talking a valuation of 48 lacs for a 3 bedroom apartment ( 1 lac = 100000)
Rent = 20000/ month = 2.4 lacs p.a. For P/R ( price to rent like PE ratio) of 20, the valuation is 48 lacs.
The only variable in the above equation which can be debated is the P/R ratio. I will discuss about this in more detail in the next post, but think of it this way – the inverse of P/R is the yield on the real estate. For P/R of 20, the yield is around 5%. Globally, most investors demand a yield of 5-7% on an average. So a P/R ratio of 20 is around the average and may not be too low.
Net post : Looking real estate valuation using the ‘invert the problem’ approach.
Using that logic, we can say that there are two components to the cash flow
1. Rent which is equivalent of dividends
2. Final sale price of the asset (real estate) which is the same as the sale price one would get from a stock or bond
Like stocks, it is easy to get the value of rent (or dividend), but difficult to get the final selling price. In case of real estate the final selling price would depend on the state of real estate market, interest rate, economic activity of that area and location of the real estate. This is similar to stocks where the final selling price depends on a large number of factors, most of which cannot be predicted.
Using the same analogy, if it is possible to value a stock roughly, if not with precision, then one should be able to get some idea whether the real estate asset is under valued, over valued or fairly priced.
I recently read an article in fortune on real estate valuation, current pricing and likely future of the same in the US
Real estate : Buy hold or Sell
I have included a few paras from the article which are very relevant for valuing real estate
Many factors determine the value of a house. A family would consider the quality of local schools, the number of bedrooms, the size of the yard. Economists assessing a region look at interest rates, employment, and population growth. But over time the most reliable guide to home values is rents.
In most markets people won't lay out much more in monthly costs to own a house or condo than they would to rent a similar property unless they expect a huge profit when they sell. Indeed, speculators chasing quick profits did a lot to inflate the recent bubble.
But once the fervor fades, prices must fall to restore their normal, long-term relationship with rents. Rents exercise a kind of inevitable gravitational pull on prices. The ratio of prices to rents "behaves much like price/earnings ratios for stocks," says Yale economist Robert Shiller. "Like P/Es, price-to-rent ratios are mean-reverting." In other words, while prices soar from time to time, sending the ratio to exceptional heights, sooner or later the relationship is bound to return to its historical average.
The last para above is very important. Kaushik in his blog has posted several times on the rent for several properties in places like bangalore. Although this is anecdotal evidence, I would not discount it completely.
So based on this evidence if the rent is say 20000 per month, we are talking a valuation of 48 lacs for a 3 bedroom apartment ( 1 lac = 100000)
Rent = 20000/ month = 2.4 lacs p.a. For P/R ( price to rent like PE ratio) of 20, the valuation is 48 lacs.
The only variable in the above equation which can be debated is the P/R ratio. I will discuss about this in more detail in the next post, but think of it this way – the inverse of P/R is the yield on the real estate. For P/R of 20, the yield is around 5%. Globally, most investors demand a yield of 5-7% on an average. So a P/R ratio of 20 is around the average and may not be too low.
Net post : Looking real estate valuation using the ‘invert the problem’ approach.
Real estate valuation - I
If like me you believe the basic definition that the intrinsic worth of an asset is the sum total of all the cash flows one would receive out of an asset from now onwards, then real estate could be analysed using the same approach as stocks or bonds.
Using that logic, we can say that there are two components to the cash flow
1. Rent which is equivalent of dividends
2. Final sale price of the asset (real estate) which is the same as the sale price one would get from a stock or bond
Like stocks, it is easy to get the value of rent (or dividend), but difficult to get the final selling price. In case of real estate the final selling price would depend on the state of real estate market, interest rate, economic activity of that area and location of the real estate. This is similar to stocks where the final selling price depends on a large number of factors, most of which cannot be predicted.
Using the same analogy, if it is possible to value a stock roughly, if not with precision, then one should be able to get some idea whether the real estate asset is under valued, over valued or fairly priced.
I recently read an article in fortune on real estate valuation, current pricing and likely future of the same in the US
Real estate : Buy hold or Sell
I have included a few paras from the article which are very relevant for valuing real estate
Many factors determine the value of a house. A family would consider the quality of local schools, the number of bedrooms, the size of the yard. Economists assessing a region look at interest rates, employment, and population growth. But over time the most reliable guide to home values is rents.
In most markets people won't lay out much more in monthly costs to own a house or condo than they would to rent a similar property unless they expect a huge profit when they sell. Indeed, speculators chasing quick profits did a lot to inflate the recent bubble.
But once the fervor fades, prices must fall to restore their normal, long-term relationship with rents. Rents exercise a kind of inevitable gravitational pull on prices. The ratio of prices to rents "behaves much like price/earnings ratios for stocks," says Yale economist Robert Shiller. "Like P/Es, price-to-rent ratios are mean-reverting." In other words, while prices soar from time to time, sending the ratio to exceptional heights, sooner or later the relationship is bound to return to its historical average.
The last para above is very important. Kaushik in his blog has posted several times on the rent for several properties in places like bangalore. Although this is anecdotal evidence, I would not discount it completely.
So based on this evidence if the rent is say 20000 per month, we are talking a valuation of 48 lacs for a 3 bedroom apartment ( 1 lac = 100000)
Rent = 20000/ month = 2.4 lacs p.a. For P/R ( price to rent like PE ratio) of 20, the valuation is 48 lacs.
The only variable in the above equation which can be debated is the P/R ratio. I will discuss about this in more detail in the next post, but think of it this way – the inverse of P/R is the yield on the real estate. For P/R of 20, the yield is around 5%. Globally, most investors demand a yield of 5-7% on an average. So a P/R ratio of 20 is around the average and may not be too low.
Net post : Looking real estate valuation using the ‘invert the problem’ approach.
Using that logic, we can say that there are two components to the cash flow
1. Rent which is equivalent of dividends
2. Final sale price of the asset (real estate) which is the same as the sale price one would get from a stock or bond
Like stocks, it is easy to get the value of rent (or dividend), but difficult to get the final selling price. In case of real estate the final selling price would depend on the state of real estate market, interest rate, economic activity of that area and location of the real estate. This is similar to stocks where the final selling price depends on a large number of factors, most of which cannot be predicted.
Using the same analogy, if it is possible to value a stock roughly, if not with precision, then one should be able to get some idea whether the real estate asset is under valued, over valued or fairly priced.
I recently read an article in fortune on real estate valuation, current pricing and likely future of the same in the US
Real estate : Buy hold or Sell
I have included a few paras from the article which are very relevant for valuing real estate
Many factors determine the value of a house. A family would consider the quality of local schools, the number of bedrooms, the size of the yard. Economists assessing a region look at interest rates, employment, and population growth. But over time the most reliable guide to home values is rents.
In most markets people won't lay out much more in monthly costs to own a house or condo than they would to rent a similar property unless they expect a huge profit when they sell. Indeed, speculators chasing quick profits did a lot to inflate the recent bubble.
But once the fervor fades, prices must fall to restore their normal, long-term relationship with rents. Rents exercise a kind of inevitable gravitational pull on prices. The ratio of prices to rents "behaves much like price/earnings ratios for stocks," says Yale economist Robert Shiller. "Like P/Es, price-to-rent ratios are mean-reverting." In other words, while prices soar from time to time, sending the ratio to exceptional heights, sooner or later the relationship is bound to return to its historical average.
The last para above is very important. Kaushik in his blog has posted several times on the rent for several properties in places like bangalore. Although this is anecdotal evidence, I would not discount it completely.
So based on this evidence if the rent is say 20000 per month, we are talking a valuation of 48 lacs for a 3 bedroom apartment ( 1 lac = 100000)
Rent = 20000/ month = 2.4 lacs p.a. For P/R ( price to rent like PE ratio) of 20, the valuation is 48 lacs.
The only variable in the above equation which can be debated is the P/R ratio. I will discuss about this in more detail in the next post, but think of it this way – the inverse of P/R is the yield on the real estate. For P/R of 20, the yield is around 5%. Globally, most investors demand a yield of 5-7% on an average. So a P/R ratio of 20 is around the average and may not be too low.
Net post : Looking real estate valuation using the ‘invert the problem’ approach.
Wednesday, November 07, 2007
Financial institutions and risk
update: 09-Nov - A great post on the valuation of financial firms and the diffculty of doing so ...see here
I have written on banking earlier. You can find my analysis of allahabad bank here. Most of you must be aware of the subprime crisis. I discussed it briefly here.
Banks and financial instutions by their very nature are highly leveraged organizations. So the risk of bankruptcy and losses is higher with banks. Citibank is one of the largest bank in the world and has seen its stock drop by 35% this year. The CEO has just resigned. You can read all about the crisis here.
So what does citibank and the subprime crisis have to do with banking in india. Well a lot … Let me digress and tell you a short story.
The year is 1996 or maybe 1997. I was starting to invest and saw an article on IFCI (I guess you must have already got the hint or must be thinking ….what a Bozo !). Well, the article said that IFCI is a good opportunity as it was near its 52 week low and had a dividend yield of almost 5-6 % (don’t remember the numbers exactly). So thinking that I had found a good opportunity I promptly bought some stock.
Fast forward: 1998-1999. IFCI is a government controlled institution. Politicians look at it as their piggy bank. So if you are a well connected businessman, launch a project, get funding from IFCI, take your money out and refer the company to BIFR. So by 1999, I think IFCI had more than 12% NPA and was bankrupt. There was hardly any dividend and the stock had tanked by more than 70%.
So the moral is …..
1. Don’t base your investments on someone else’s analysis
2. Investing based only on dividend yields is not a good idea. Investing in financial institution based only on dividend yields is a very bad idea unless the financial institution is sound and can maintain the dividend.
So what has happened with citibank is possible with Indian banks too. Banks have a lot of leeway in hiding bad loans. Indian public sector banks due to political interference can end up with even more and these bad loans or assets come out only later. It is difficult to judge asset quality just from the balance sheet
Added note: I have an NRI friend who had invested in citibank based on the dividend yield. Just out of curiosity I downloaded the AR of the bank and my head started spining. It is more than 100 pages, very complex and very difficult to understand (especially for me and may be the CEO too who got fired for not understanding or maybe underestimating the risks).
I have written on banking earlier. You can find my analysis of allahabad bank here. Most of you must be aware of the subprime crisis. I discussed it briefly here.
Banks and financial instutions by their very nature are highly leveraged organizations. So the risk of bankruptcy and losses is higher with banks. Citibank is one of the largest bank in the world and has seen its stock drop by 35% this year. The CEO has just resigned. You can read all about the crisis here.
So what does citibank and the subprime crisis have to do with banking in india. Well a lot … Let me digress and tell you a short story.
The year is 1996 or maybe 1997. I was starting to invest and saw an article on IFCI (I guess you must have already got the hint or must be thinking ….what a Bozo !). Well, the article said that IFCI is a good opportunity as it was near its 52 week low and had a dividend yield of almost 5-6 % (don’t remember the numbers exactly). So thinking that I had found a good opportunity I promptly bought some stock.
Fast forward: 1998-1999. IFCI is a government controlled institution. Politicians look at it as their piggy bank. So if you are a well connected businessman, launch a project, get funding from IFCI, take your money out and refer the company to BIFR. So by 1999, I think IFCI had more than 12% NPA and was bankrupt. There was hardly any dividend and the stock had tanked by more than 70%.
So the moral is …..
1. Don’t base your investments on someone else’s analysis
2. Investing based only on dividend yields is not a good idea. Investing in financial institution based only on dividend yields is a very bad idea unless the financial institution is sound and can maintain the dividend.
So what has happened with citibank is possible with Indian banks too. Banks have a lot of leeway in hiding bad loans. Indian public sector banks due to political interference can end up with even more and these bad loans or assets come out only later. It is difficult to judge asset quality just from the balance sheet
Added note: I have an NRI friend who had invested in citibank based on the dividend yield. Just out of curiosity I downloaded the AR of the bank and my head started spining. It is more than 100 pages, very complex and very difficult to understand (especially for me and may be the CEO too who got fired for not understanding or maybe underestimating the risks).
Financial institutions and risk
update: 09-Nov - A great post on the valuation of financial firms and the diffculty of doing so ...see here
I have written on banking earlier. You can find my analysis of allahabad bank here. Most of you must be aware of the subprime crisis. I discussed it briefly here.
Banks and financial instutions by their very nature are highly leveraged organizations. So the risk of bankruptcy and losses is higher with banks. Citibank is one of the largest bank in the world and has seen its stock drop by 35% this year. The CEO has just resigned. You can read all about the crisis here.
So what does citibank and the subprime crisis have to do with banking in india. Well a lot … Let me digress and tell you a short story.
The year is 1996 or maybe 1997. I was starting to invest and saw an article on IFCI (I guess you must have already got the hint or must be thinking ….what a Bozo !). Well, the article said that IFCI is a good opportunity as it was near its 52 week low and had a dividend yield of almost 5-6 % (don’t remember the numbers exactly). So thinking that I had found a good opportunity I promptly bought some stock.
Fast forward: 1998-1999. IFCI is a government controlled institution. Politicians look at it as their piggy bank. So if you are a well connected businessman, launch a project, get funding from IFCI, take your money out and refer the company to BIFR. So by 1999, I think IFCI had more than 12% NPA and was bankrupt. There was hardly any dividend and the stock had tanked by more than 70%.
So the moral is …..
1. Don’t base your investments on someone else’s analysis
2. Investing based only on dividend yields is not a good idea. Investing in financial institution based only on dividend yields is a very bad idea unless the financial institution is sound and can maintain the dividend.
So what has happened with citibank is possible with Indian banks too. Banks have a lot of leeway in hiding bad loans. Indian public sector banks due to political interference can end up with even more and these bad loans or assets come out only later. It is difficult to judge asset quality just from the balance sheet
Added note: I have an NRI friend who had invested in citibank based on the dividend yield. Just out of curiosity I downloaded the AR of the bank and my head started spining. It is more than 100 pages, very complex and very difficult to understand (especially for me and may be the CEO too who got fired for not understanding or maybe underestimating the risks).
I have written on banking earlier. You can find my analysis of allahabad bank here. Most of you must be aware of the subprime crisis. I discussed it briefly here.
Banks and financial instutions by their very nature are highly leveraged organizations. So the risk of bankruptcy and losses is higher with banks. Citibank is one of the largest bank in the world and has seen its stock drop by 35% this year. The CEO has just resigned. You can read all about the crisis here.
So what does citibank and the subprime crisis have to do with banking in india. Well a lot … Let me digress and tell you a short story.
The year is 1996 or maybe 1997. I was starting to invest and saw an article on IFCI (I guess you must have already got the hint or must be thinking ….what a Bozo !). Well, the article said that IFCI is a good opportunity as it was near its 52 week low and had a dividend yield of almost 5-6 % (don’t remember the numbers exactly). So thinking that I had found a good opportunity I promptly bought some stock.
Fast forward: 1998-1999. IFCI is a government controlled institution. Politicians look at it as their piggy bank. So if you are a well connected businessman, launch a project, get funding from IFCI, take your money out and refer the company to BIFR. So by 1999, I think IFCI had more than 12% NPA and was bankrupt. There was hardly any dividend and the stock had tanked by more than 70%.
So the moral is …..
1. Don’t base your investments on someone else’s analysis
2. Investing based only on dividend yields is not a good idea. Investing in financial institution based only on dividend yields is a very bad idea unless the financial institution is sound and can maintain the dividend.
So what has happened with citibank is possible with Indian banks too. Banks have a lot of leeway in hiding bad loans. Indian public sector banks due to political interference can end up with even more and these bad loans or assets come out only later. It is difficult to judge asset quality just from the balance sheet
Added note: I have an NRI friend who had invested in citibank based on the dividend yield. Just out of curiosity I downloaded the AR of the bank and my head started spining. It is more than 100 pages, very complex and very difficult to understand (especially for me and may be the CEO too who got fired for not understanding or maybe underestimating the risks).
Tuesday, November 06, 2007
A deep value stock
Prof bakshi had posted a quiz to his students. You can find the answer to his question in the comments section. I have posted on the same company earlier.
In addition you may find my response in the comments section too. There are several other answers from others in the comments section such as VST, wyeth, divyashakti granite etc. Some of the ideas sound pretty interesting and I would be looking at them closely.
My suggestion – if you are interested in value investing, read prof bakshi’s posts ,articles and interviews. There is a lot you can learn from him.
As an aside - i am reading a book : seeking wisdom - from darwin to munger. This book has been recommended by charlie munger himself. I dont remember the exact comment, but it seems he liked the book so much he bought a copy of this book for all his friends and relatives. He also said that if there are more books like this, he could bankrupt gifting them. I am not sure of the authenticity of the comment. But after reading 60 odd pages, i can tell you that this is a great book, especially if you are looking at developing a latticework of mental models. For those you who may not know charlie munger, he is the vice chairman of berkshire hathaway and a long term partner of warren buffett.
In addition you may find my response in the comments section too. There are several other answers from others in the comments section such as VST, wyeth, divyashakti granite etc. Some of the ideas sound pretty interesting and I would be looking at them closely.
My suggestion – if you are interested in value investing, read prof bakshi’s posts ,articles and interviews. There is a lot you can learn from him.
As an aside - i am reading a book : seeking wisdom - from darwin to munger. This book has been recommended by charlie munger himself. I dont remember the exact comment, but it seems he liked the book so much he bought a copy of this book for all his friends and relatives. He also said that if there are more books like this, he could bankrupt gifting them. I am not sure of the authenticity of the comment. But after reading 60 odd pages, i can tell you that this is a great book, especially if you are looking at developing a latticework of mental models. For those you who may not know charlie munger, he is the vice chairman of berkshire hathaway and a long term partner of warren buffett.
A deep value stock
Prof bakshi had posted a quiz to his students. You can find the answer to his question in the comments section. I have posted on the same company earlier.
In addition you may find my response in the comments section too. There are several other answers from others in the comments section such as VST, wyeth, divyashakti granite etc. Some of the ideas sound pretty interesting and I would be looking at them closely.
My suggestion – if you are interested in value investing, read prof bakshi’s posts ,articles and interviews. There is a lot you can learn from him.
As an aside - i am reading a book : seeking wisdom - from darwin to munger. This book has been recommended by charlie munger himself. I dont remember the exact comment, but it seems he liked the book so much he bought a copy of this book for all his friends and relatives. He also said that if there are more books like this, he could bankrupt gifting them. I am not sure of the authenticity of the comment. But after reading 60 odd pages, i can tell you that this is a great book, especially if you are looking at developing a latticework of mental models. For those you who may not know charlie munger, he is the vice chairman of berkshire hathaway and a long term partner of warren buffett.
In addition you may find my response in the comments section too. There are several other answers from others in the comments section such as VST, wyeth, divyashakti granite etc. Some of the ideas sound pretty interesting and I would be looking at them closely.
My suggestion – if you are interested in value investing, read prof bakshi’s posts ,articles and interviews. There is a lot you can learn from him.
As an aside - i am reading a book : seeking wisdom - from darwin to munger. This book has been recommended by charlie munger himself. I dont remember the exact comment, but it seems he liked the book so much he bought a copy of this book for all his friends and relatives. He also said that if there are more books like this, he could bankrupt gifting them. I am not sure of the authenticity of the comment. But after reading 60 odd pages, i can tell you that this is a great book, especially if you are looking at developing a latticework of mental models. For those you who may not know charlie munger, he is the vice chairman of berkshire hathaway and a long term partner of warren buffett.
Friday, November 02, 2007
Sundaram Finance Spreadsheet
I have uploaded the spreadsheet for sundaram finance in valueinvestor india google group.
Please use link - http://groups.google.com/group/valueinvestorindia to download the file. Please also see the disclaimer, as I am not recommending this stock. The spreadsheet analysis (correct or wrong) is my personal analysis of the company.
You can find the sum of the part analysis of the company under the tab – sum of parts.
Please feel free to leave a comment if you find something wrong in the spreadsheet.
Please use link - http://groups.google.com/group/valueinvestorindia to download the file. Please also see the disclaimer, as I am not recommending this stock. The spreadsheet analysis (correct or wrong) is my personal analysis of the company.
You can find the sum of the part analysis of the company under the tab – sum of parts.
Please feel free to leave a comment if you find something wrong in the spreadsheet.
Sundaram Finance Spreadsheet
I have uploaded the spreadsheet for sundaram finance in valueinvestor india google group.
Please use link - http://groups.google.com/group/valueinvestorindia to download the file. Please also see the disclaimer, as I am not recommending this stock. The spreadsheet analysis (correct or wrong) is my personal analysis of the company.
You can find the sum of the part analysis of the company under the tab – sum of parts.
Please feel free to leave a comment if you find something wrong in the spreadsheet.
Please use link - http://groups.google.com/group/valueinvestorindia to download the file. Please also see the disclaimer, as I am not recommending this stock. The spreadsheet analysis (correct or wrong) is my personal analysis of the company.
You can find the sum of the part analysis of the company under the tab – sum of parts.
Please feel free to leave a comment if you find something wrong in the spreadsheet.
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