[VindyWheels]

Good discussion. After you identify the best businesses run by champions the next task is to buy at the right price. A large part of the the "art of stock picking" lies in this area.

After studying the business we need to ask how will Mr Market view this business 3 years or 5 years down the lane. What are the triggers for higher valuations and how long would it take? What is the "margin of safety" we have?

Though "The Intelligent Investor" is a great book we need to adapt the learning to Indian scenario and the current times. Warren Buffet himself shifted away from the deep value low quality strategy to high quality strategy. In a young economy like India we can find small and midcaps which have long periods of high growth ahead of them as the businesses are still under-penetrated. Hence a Page (Jockey) will continue to enjoy high valuations until the business matures which is a long way away.

This article by Prof Bakshi speaks about paying-up for quality. He himself is a big Buffet fan. This is a must read.

http://www.outlookbusiness.com/artic...x?artid=285698

I am not advocating buying high P/E shares. But each person's understanding of what is cheap and what is expensive can differ. Each business has different characteristics. Nestle has 10 year ROE record of 82%. Hawkins pays out 65% of profits as dividends. Page has a 10 year growth record of nearly 50%. Companies which do not need capital for growth and which have "Durable Competitive Advantage" will continue to remain Market's darlings if opportunity size is huge. Some of these companies have negative working capital. They get credit from their suppliers and get advance from their customers!!! What a nice business to be in. If you find a high PE stock the first thing to ask is why is it high PE. Over a period of time you get a hang on how a good Pharma com gets valued Vs how a great manufacturing com gets valued. You start slotting each business for different quality of earnings, capital intensity, opportunity size, management quality etc. That is when you find that some companies are screaming buys! Symphony was considered expensive at 20 PE when the price was 500 odd. The signs were there - low capital requirement, high growth, high competitive advantage with 50% market share, great management, high dividend payout etc It was only a matter of time before the PE got re-rated from 20-30-40.

Another point to consider - in the PE ratio the earnings may not reveal the right picture, you may have to adjust it. For example a company which is spending heavily on Brand building or R&D might have their profit understated. This amount if viewed as investment, as in plant and equipment, will show a different picture. Zen Technologies spends 45% of sales in R&D. Astral is spending heavily in brand building. There are many small companies in foundation stage where the current PE has no meaning.

There are no black and white answers to valuation. It is the most exciting part and also very critical - definitely an art which requires the right temperament, talent and passion.

Saanil, your point about buying at right price with adequate margin of safety is spot on, I am just trying to bring in a different perspective.

Also PE is not the only valuation tool, different businesses require different tools too.

Originally Posted by Saanil

Recently, I finished reading two books – Intelligent Investor (by Benjamin Graham) and One up on the Wall Street (by Peter Lynch). In both these books, one aspect was mentioned quite often – investors should always be careful about buying shares (of good/bad companies) at very high prices (i.e. high valuations). One of the most common multiple looked for valuation is the PE ratio. Both the books had various examples of stocks (especially tech firms) which were trading at crazy valuations. They were of the opinion that buying good companies (with good brand/products etc) at very high prices is not a good strategy.

Today I was looking at PE multiples of some consumer/FMCG companies (For ex: read 10x as PE of 10 times):

Colgate-Palmolive (India) Limited: 41x
Dabur: 38x
Godrej Consumer Products Limited: 36x
Hindustan Unilever Limited: 40x
ITC: 28x
Jubilant Foodworks Ltd: 56x
Nestle India Limited: 49x

I know just by looking at the number, we cannot say these companies are high on valuations but are they growing at such a pace to merit such premium valuations? Any thoughts?

[mithunvvijayan]

Originally Posted by S_U_N

Is there a good Android app, which I can use to track my stocks?
I simply need a way to enter around 10 stocks, the value I bought them for and the current value.

There are a lots of apps which will manage your portfolio. But for realtime data, app provided by National Stock Exchange itself is the best.

[PatienceWins]

Originally Posted by Saanil

Recently, I finished reading two books – Intelligent Investor (by Benjamin Graham) and One up on the Wall Street (by Peter Lynch). In both these books, one aspect was mentioned quite often – investors should always be careful about buying shares (of good/bad companies) at very high prices (i.e. high valuations). One of the most common multiple looked for valuation is the PE ratio. Both the books had various examples of stocks (especially tech firms) which were trading at crazy valuations. They were of the opinion that buying good companies (with good brand/products etc) at very high prices is not a good strategy.

Today I was looking at PE multiples of some consumer/FMCG companies (For ex: read 10x as PE of 10 times):

Colgate-Palmolive (India) Limited: 41x
Dabur: 38x
Godrej Consumer Products Limited: 36x
Hindustan Unilever Limited: 40x
ITC: 28x
Jubilant Foodworks Ltd: 56x
Nestle India Limited: 49x

I know just by looking at the number, we cannot say these companies are high on valuations but are they growing at such a pace to merit such premium valuations? Any thoughts?

This point is very much applicable for the current time, when there is optimism everywhere. As Lynch stresses, we should never buy a company with a very high PE, however good the future prospects are.

A P/E of x implies that it will take x years for the price to match the earnings per share. If the company is really good, I am sure it will be there when the market goes through a bad phase - when all the easy money flows out of the market. As Buffett says "Only when the tide goes out do you discover who's been swimming naked."

As a long term investor, I always go by what Buffett says "Be fearful when others are greedy and be greedy when others are fearful".

[S_U_N]

Originally Posted by mithunvvijayan

There are a lots of apps which will manage your portfolio. But for realtime data, app provided by National Stock Exchange itself is the best.

Can you point me to some of the them, which do not need me to setup another account?

I don't need realtime data, since I am not buying or selling based on what the app will show me.

I do need a way to enter "date of purchase", quantity and cost. I expect the app to compute the gains based on market value and do some % calculations.

For now My Funds app is good for me, though it is missing YBrantDigi stock. Not sure why.

[mithunvvijayan]

Originally Posted by S_U_N

Can you point me to some of the them, which do not need me to setup another account?

I don't need realtime data, since I am not buying or selling based on what the app will show me.

I do need a way to enter "date of purchase", quantity and cost. I expect the app to compute the gains based on market value and do some % calculations.

For now My Funds app is good for me, though it is missing YBrantDigi stock. Not sure why.

By far, moneycontrol is the best app. You will have to start an account which is very easy to do.

I use proprietory porfolio management software for price tracking and various quant calculations. As for real time in phone I use nse app.

[PatienceWins]

Originally Posted by VindyWheels

The signs were there - low capital requirement, high growth, high competitive advantage with 50% market share, great management, high dividend payout etc It was only a matter of time before the PE got re-rated from 20-30-40.

Another point to consider - in the PE ratio the earnings may not reveal the right picture, you may have to adjust it. For example a company which is spending heavily on Brand building or R&D might have their profit understated. This amount if viewed as investment, as in plant and equipment, will show a different picture. Zen Technologies spends 45% of sales in R&D. Astral is spending heavily in brand building. There are many small companies in foundation stage where the current PE has no meaning.

A very good post. I see that you like companies which have durable competitive advantage (aka moats). So we are in the same boat. At the same time, I think price is also of utmost importance, especially for a small company which does not have a long history of durable competitive advantage. For e.g. Eicher motors, the current valuation is too much considering the long term history of the company. It is common sense that the company cannot sustain such earnings growth for a long time. I would prefer to wait and watch, and strike big when market gives a good deal. When the optimism wanes (I believe the easy money from west will not be there indefinitely), mid/ small caps will be taking the biggest beating.

You may be able to find margin of safety in the current market. My only point is that a buyer needs to be very careful while evaluating stocks in the current market. I have decided to just sit and read until I get a good market environment for investing, where the margin of safety will be very attractive. I am not good at evaluating stocks thoroughly, it is more qualitative than quantitative. A cheap market will be more forgiving to me than the current market.

In the article of Paying Up for Quality by Bakshi, he does not advocate paying very high P/E for quality stocks. His point is that buying GOOD QUALITY stocks at high/ reasonable P/Es at regular intervals (the limit he has used is 25 P/E), and sitting on them for a LONG time will give very good returns. The P/E quoted for good stocks now is in the range of 50, which I am not comfortable with. I agree that P/E is highly overrated, but it should not be ignored altogether.

[VindyWheels]

Hi PW,

Its always necessary to be cautious while selecting stocks irrespective of market conditions. I definitely see many opportunities in the current market too. Don't think greed has set in, the retail participation is still very low. Some 1.5 lac Cr needs to be deployed by retail segment in India to take back MF holdings to 2008 levels. Nifty PE also seem to be well below 2008 levels.

I am fully invested now and I am not ruling out 20% dip in my portfolio, can stomach that well and do not have the ability to time the market for small corrections. Bull Market phase has never been a linear.

Happy Investing

Vindy

[S_U_N]

So, it turns out I was looking for a tracking app in vain.

FundsIndia itself provides me a mobile app, which also shows which stocks I have and what is the current price. While I would like information to be presented in a different way, this is still better than the My Funds app that I had installed a couple of days ago.

The major disadvantage with FundsIndia is that it is not a member of NSE. Hence NSE listed stocks cannot be bought. What a pity!

[manduvindupondu]

1) Folks, Silver and Crude Oil at multi year lows. How do we invest? There are no Silver ETFs in India, nor are there options in commodities. The contract (lot) size for Silver is huge (30kg) and it is risky just buying futures as MTM (Mark to Market) will be risky if it goes unfavarable direction.
So, how do we invest in crude oil, silver ?
2) Which broker offers good overseas trading (NYSE, NASDAQ, FTSE, CAC, DAX etc) from India, with low costs? I have account in Zerodha (cheapest brokerage in India) and Ventura (Very good with brokerage rates and solid fundamental advice), but they do not offer overseas trading.
Please help

[PatienceWins]

Reading Dhandho investor by Mohnish Pabrai and loving it. Highly recommended.

http://www.amazon.in/The-Dhandho-Inv.../dp/047004389X

The concepts are not new to me, but he has explained it very well with detailed examples. The presentation is simple and easy to understand, similar to the likes of Joel Greenblatt and Peter Lynch. I did not have much expectation from the book, knowing that he is a cloner, but his thought process shows that he is much more than a cloner.

Joel Greenblatt's "The Little Book That Beats The Market" is also recommended by Mohnish in this book. If someone is new to investing and wants to learn value investing by reading a few books, I would also recommend Joel Greenblatt ("The Little Book That Beats The Market" and "The Little Book That Builds Wealth"), Peter Lynch ("One Up on Wall Street" and "Beating The Street"), in addition to the book by Mohnish. Also read Chapter 8 and Chapter 20 of "The Intelligent Investor".

[Lalvaz]

Very interesting reading on this thread. I'm a long time investor in the stock markets, been dabbling in equity since 1991, mostly in large caps, with focus on pharma, banking and it, looking at investing some funds now with a 5 year horizon. Any stocks that you guys would care to recommend???

[swiftnfurious]

Originally Posted by VindyWheels

...I definitely see many opportunities in the current market too. ...

Mind shedding some names?

[humyum]

Just a personal opinion but I would not touch a single share at these levels. Remember the time some months back when Nifty was almost near 8200 and what happened ? During those times too they were predicting 8400 and what not. Suddenly a Massive crash till 7700 level with everyday falls. Market is not getting a direction now as its super overheated, one bad news and then plummet. I would say, buy on dips. 8400 is a very strong resistance for Nifty and I don't think nifty will cross that.

The interest rate reduction too will be pushed back to FEB or later months.

High risk takers can short some Nifty me thinks

[Fillmore]

Originally Posted by humyum

Just a personal opinion but I would not touch a single share at these levels...

That is one way of looking at it, but another way is given the positive trends of the new govt and the economy we may be missing the bus by not getting in.

Eg: if you take the mid cap index, today it has not even reached the 2008 high levels, with 6 yrs gone by along with Inflation the Index too should be at new levels, so there is very good potential for it surpassing the 2008 levels and reaching new highs given the beating it has taken in the past couple of years.

Again personal opinion, not saying that humyum is wrong or anything

[ajmat]

Originally Posted by Fillmore

That is one way of looking at it, but another way is given the positive trends of the new govt and the economy we may be missing the bus by not getting in.


Again personal opinion, not saying that humyum is wrong or anything

Well I bought into Tatamotors, a couple of weeks back and already made a 6% gain. You need to pick companies about to make a big leap or something where they have made a miss (Mahindra are done but they will claw back).
Ibought Tata since I am banking on the XE, Zest and Bolt powering a comeback plus future foray into defence.

Maruti is work a look due to sheer economies of scale from a single platform