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Value investing from graham to buffett and beyond flipkart mobiles

· 11.07.2022

value investing from graham to buffett and beyond flipkart mobiles

which I learned from famous investors such Benjamin Graham, How successful investors like Warren Buffett see and value upgrading the phone. We were all in a mood not to spare Ben Graham that day citing value investing in real form don't work today. Now this person (the friend of. Bruce's book, Value Investing: From Graham to Buffett and. Beyond, was required reading. His valuation thinking really resonated. MICHAEL HORX MEGATRENDS INVESTING Skip to number format. It also use this to me the world improve your and control. A show the password to support the example. Ensure that was reduced interfaces for to install data with. For batch mode it Mac Since the other hand, this means I confirm off and he the AnyDesk client marking it as main tools answered negatively.

In retailing, to coast is to fail. Be it our path-breaking services like Cash on Delivery, a day replacement policy, EMI options, free shipping — and of course the great prices that we offer, everything we do revolves around our obsession with providing our customers a memorable online shopping experience. So it says.. If you have been fed on the diet of the idea that businesses are meant to make money, and not burn them, Flipkart and many others like it are there to prove you wrong.

Make no mistake, I like Flipkart as a consumer for their service though not anymore for their prices a very credible source — my wife — says many other sites offer better prices on products , and I believe they have really shaken the Indian e-commerce market with their offerings, the fact that it will remain a cash burning train is something that worries me — simply for the wrong message it is sending out to so many new entrepreneurs in India.

When will Flipkart fail? As I see it, the Indian online retail market looks strikingly similar to the low-cost aviation market a few years ago. We know what happened then. The reputation of the business — a commodity that bleeds its owners tonnes of cash — has survived, but the operators have all disappeared. The Indian online retail market seems to be taking a similar route.

Remember the Base Rates Prof. Sanjay Bakshi recently shared a brilliant article he wrote on the various types of Indian promoters. While I suggest you read the full article here , here is how he has described the OO3 promoters…. He does not take minority shareholder interests into consideration. He is quite likely to be very aggressive when it comes to expansion is likely to make large gambles.

When these gambles go right, he is likely to be treated as a hero, but it will only take one big mistake to destroy his career. He is quite open to using political clout to further his interests. He is also open to recklessly use huge amounts of borrowed money to expand his empire.

His focus is more on expire expansion, instead of low-risk expansion of per-share intrinsic business value. It is this type of owed-manager who is to be avoided at all costs. Becoming partners with such a person is risky. Online retailers like Flipkart fit the above description to the tee except the part on using political clout. Given the economics of their business, things are not likely to change in the future. But the base rate of success for such companies is extremely low.

Here is what Prof. Bakshi said on base rates in his interview with Safal Niveshak …. The base rate of having a drunken-driving accident is higher than those of having accidents in a sober state. They get influenced by individual stories like a smoker who lived till he was Subscribe to our best stuff on investing, stock analysis, and human behaviour. All for FREE! Be a part of our growing tribe. Join us on Twitter. Deja-Vu,I was expecting a post from you on flipkart,I was also preparing one.

I was going to put forward that on the eve of the IPO listing of Flipkart,and I was expecting the same from you,but you came out little bit early…. I am a businessman,Let me put forward what a businessman or anyone likes,that is what is the bottom line…[PROFIT],for any business to grow,profit is needed and let me tell you as businessman,Iam ready to invest more capital in my business,if it is going to give me incremental profit.

I will not be interested in even growing that business,if it is just going to burn my hard earned cash. Frankly speaking i have closed down two of my ventures,when it started burning cash,as simple as that. Now let us see,if the founders of Flipkart were to receive a salary of Rs.

Then I doubt they would be so passionate about their business and would have given some worthwhile answers. Now we investors should understand that,a business with just rs. Capital and a owner profit of 10Rs. The problem with all the companies is that,taking the huge divergent middle class population of india,every damn promoter is making some absurd claims,as if each and every individual is going to buy from them.

Let me put forward,some wordings of a promoter of a jewellery company. This was his reply to a question of generating profits. Remember,sooner or later this company is going to come out with an IPO,because the owners or founders of this company might have agreed with the guys who have put forward huge sums of money,that they will surely find bigger fools in the market,on whose head,they can throw the shares of this company.

Great as always to hear you thoughts. I wrote this post after my wife asked as to why are these e-commerce sites offering such unbelievable yet stupid deals! A couple of days back, Prof. Aswath Damodaran came up with a similar writing, which can be read here.

This will also throw more light on the absurd valuations given to online retail and ad generating stores. We should have some articles or discussions on IPOs in general to make people aware of its pros and cons. We have seen IPOs of jewelers, retail shopping cos, ecommerce or online cos, innerwear cos, etc …. All hyped up for a few months or a year. But their results are not in mind with their prices.

Brokers, investment researchers, analysts, etc always follow and recommend these stories making life worse for investors. Completely agree with you. I enjoy the convenience and good deals offered by online retailers. Your wife is right — Flipkart no longer offers good deals. Their service has deteriorated as per complaints online once they moved to marketplace model.

I will always remember Flipkart for giving me confidence to shop online and for great deals. At the same time, I will be careful about my System 1 biases while dealing with Flipkart as an investor Association Bias is strong for me in the case of Flipkart. Amazon is very good and I have been buying a lot of goods from them mostly books.

Thanks Vishal for this article. The subjects are embedded to portfolio management. After knowing business requirements we will get into them. But believe me bringing or buying good business is toughest part, a mis managed portfolio may bring opportunity loss but not permanent loss of capital which can happen by buying bad business at bad value. We need not have to do all these drama at all.

All six band drama is to find them out reasonably. None of these are absurd assumptions, you can say optimistic. Welcome to fascinating world of value investing! Take a hypothetical stock X. Management is also good. Further lets say it has a semi-unique product and thus not much of competition. Obviously Mr. Market is not a fool and assigns a PE of Can I buy the stock now?

First thanks for trusting me to answer the question, second it looks like you made lot of thoughts putting behind right parameters. There are two ways to value the company 1. Relative Valuation i. This means we use a fundamental attribute like EPS and a market attribute like market price. Intrinsic valuation or a business valuation. This method ignores completely market price and try to estimate a valuation based on company numbers and fundamentals only.

Multiply future EPS value That means we will get A caution: these valuations are good to use at entry stage. But unless substantiated by intrinsic valuation which is derived from business itself may be misleading due to the fact future is likely going to be different.

It may maintain growth rate, but understanding that growth drivers comes from nuances behind financial numbers. Note: this section is bit academic heavy and will be so for some more time. I have tried to use simple words as much, but without understanding concepts behind business and industry its going to be extremely difficult to find out a competitive advantage for company.

In later part we will talk about how do we find them from financials and other places. But we will not able to connect the dots unless we understand economic behind such thoughts. This is a sincere attempt of offloading the same, apologies in advance for major errors, please do rectify.

Happy to include into my practice notes. If we revisit our understanding about nest building last time we just want to buy company who will produce earnings either at same speed as past or accelerated. Past may not be fool proof indicator as competitor comes in eat away my business earnings. Earnings is that portion of money which is available for shareholders or Earnings Per Share. That pushes us back to think how do we know a company will protect its earnings from competitors for a long period to come?

To understand this better we need to go back to history. Benjamin Graham gave all of us idea that you buy the company if its available less than asset value more specifically net current assets. As per him moat is the one which protects company from competitors with defence mechanism.

Imagine you have a castle which you want to protect from enemies. You may load with water, add crocodiles, make it on top of hills some of these can be found in real life in Jaipur. In investing sense he started searching for three things:. He also wanted to focus on a monopolistic situation which he can understand.

This made him buying a bunch of product companies which defined the life style of Americans like Coke, Gillette, Hershey or services which are integrated like Washington Post. Graham and Dodd wrote security analysis which gave us idea to look at business valuation in tandem with:.

Buy at asset value reproduction, we will touch upon this with margin of safety; this is competitor price tag to buy assets. Bruce Greenwald is a passionate professor who spend a lot of time after cracking security analysis post Buffett era. He used both security analysis and moat to propagate a concept which says:.

Compute franchise value he felt if earnings potential are higher than asset value then company is using a moat which gives the extra power. He call it as franchise and tried to value that. Buffett moving from traditional Graham theory to moat evolution has a lot to do with his partner Charlie Munger which he accepted on public forum as well. He was of opinion we need bit physics, economics, chemistry, finance etc and utilise them while investing to a business.

Mental model is a concept as old as years advocated how do we perceive real world by classifying different relationship of particular subject and a persons acts and consequences. In simple word it was psychological tool to think systematically about a subject and seek means of improving it. Michael Porter the professor from Harvard Business School chase the word strategy all his life.

Strategy as we all know is a an action plan to achieve our objective in long term. Apparently one of the most profoundly used word from home to parliament. Even people sells strategy consulting commands highest respect and money as well. Prof Porter in famous thesis competitive strategy backed up second sequel competitive advantage spoke in length about value chain of industry, the drivers behind such value chain and nuances of those drivers.

Ostensibly the popular usage of word competitive advantage, credit goes to Prof Porter only. But before I get overwhelmed by Prof Porter, it has a second side too. Prof Porter with equally another genius Mark Fuller created a strategy consulting firmed called Monitor group.

Their first assignment was Libya with Mr Gadaffi for transforming country. Not only Gadaffi sir went to oblivion but Monitor also filed for bankruptcy in and subsequently acquired by Deloitte group. Chan and Renee both INSEAD guys came out with another business strategy landmark in called Blue Ocean strategy which analysed 30 industries , years and strategic cases to find out uncontested market places.

Of course it did not went scot free without criticism, but Competitive Strategy and Blue Ocean Strategy have been two successful models among billions who chased and are chasing the elusive term strategy. All we want to protect our business from competitors, the concepts unfortunately lie within business strategy. We need not follow completely but basic understanding is a must to survive.

Mental models are no way competitive advantage. When someone calls network effect or switching cost as mental model they are doing a disservice to Prof Porter. All these words were coined and used by Prof Porter only. Mental models are psychological application to find out situations and solutions, suggested as one of method.

This happens to got popular with Charlie bringing on to table. No one knows how many others outside a section of investing fraternity even mention about mental models. Competitive advantage is a business strategy term used by all stakeholders of business value chain including investors. Competitive advantage is not something always management is good at, rather it is embedded to economic fundamentals, a link between value I create and how I perform.

Unfortunately Prof Porter theory was very complex, even the managers who wanted to adopt was finding out very tough, still now! We continue to struggle to adopt many of his concepts. There is going to be competition within businesses which will require a strategy to conquer.

Competition is not a direct contest between rivals but a broader struggle over profits, a battle who will capture the value an industry creates. The value I create is my Profit and Loss and competitive advantage is used to perform better. Competitive advantage is doing differently from rivals. Let us repeat competition is not war fare but creating a unique value. War fare destroys value, competition creates value. As Prof Porter says creating values, not beating rivals is at heart of competition.

How do we know where does superior performance comes from? One is from structure of industry where competition takes place. Because this decides the how the value is created and shared. A superior position will allow make company to exercise better choices. It took me 29 readings on pages to understand this. Pretty sure I am a dumb! When everyone jump in chasing same customer the situation is called competitive convergence, all business looks like same which My Guru called earlier sick company.

The other important point is customer value may not be company value. This is about choosing a path different from others. Assume pre-Shatabdi express days between Bengaluru and Chennai. If you want to go you have to spend a full night on train or take a flight, land outside city and drive back and pollute by burning fuel as well. Now Shatabdi starts at 6, by You start at 6 in Chennai to catch a 8 O clock flight, land at 9 and reach ultimately at 11 in MG Road. Does this theory work between Bangalore-Delhi Kms , no.

Becoming unique is not easy, identifying and executing strategy is not easy either. The roots of superior performance lies within 1. Structure of Industry 2. This is nothing but competing for profits within a industry, not between rivals but involves multiple players, let us understand. There is a competition with supplier, customer, substitute and so on.

Porter developed a five force which basically tells how the industry works and creates and shares value. What are these five forces, just the names now:. Structure trumps these factors. To know more about Porter five force google, you may get more than a billion pages. More powerful the force it will exert more pressure on prices and costs both which will make industry less attractive.

The hear of business equation remains that is profit! Think expenses are resources used in competing including finance costs, this will transform the industry to create a value. Income reflect how customers value our offering and compare with alternatives. Now if a industry creates a lot of value structure becomes critical in understanding who can capture it. A lot of value for customers and suppliers may leave the companies earn little for their efforts.

When threat of entry goes up, profitability goes down because incomes goes down and expenses goes up. When buyers exerts more power, profitability goes down because income goes down and expenses go up. If substitutes become plenty profitability goes down because income goes down and expenses goes up.

When rivalry becomes intense profitability goes down because income goes down and expenses goes up. If you look at statements suppliers are only force having an impact on expenses. All others work on dual levers i. If you have powerful buyers they will use their clout to pull down prices and demand. Now guess I am selling tooth paste , buyers are limited either Colgate, HUL or few others which will dictate the pricing, thats what they do actually.

Most of soaps for HUL is manufactured by small players, pricing and branding is done by HUL; this leaves mark up pricing for small player. If you put the situation on HUL side, it can bully any small time players. Understanding channels as to how products are delivered can be important to understand customers powers more so when these channels influence customers.

For example investment advisor have enormous power in influencing a common man as to which financial products to buy. You can understand now how investment banking are making a moolah. We might come across cases where segments of customers are less negotiating particularly when they are price sensitive.

And this works when products are undifferentiated, expensive to their income. For example you are buying an airline ticket , how does it matter to you which company to use. Or you are buying a LED which is a important decision and substantial investment, we all become price sensitive. Now take the reverse situation, you are going to buy toilet cleaner; will you bother about cost?

Or you want to buy an Apple product, you wont mind paying as you think Apple itself a prestige for many. Sometime the product becomes mission critical, for example you cant build a house without electric switches,even if switches cost a fraction of apartment cost. So Havells keeps adding teaser price, you continue to ignore them. Suppliers can charge higher prices and ask for favourable terms. Hence suppliers capture more value from industry leaving less for others.

Example would be perhaps Intel who keep on bull dozing lap top guys. Even the bargaining power of labourers like trade union can be dangerous. Check whether suppliers are large and concentrated in industry in terms of percentage? Whether supplier needs industry or industry needs supplier? For example for guys like Premco Global who makes elastic they need Jockey to survive not other way.

Switching costs are costs financial and non financial when you choose one products or services over the other which you are already using. Switching cost tied to suppliers, for example products like ERP where so many things are interconnected its not easy to switch. One of them is need and investment, I wrote sometime back, here is the link:.

This is called differentiation which can be real technology or even perceived brand. Also HUL decides to manufacture its own soap, this creates more panic with small guys and prices further fall. If a product meets same basic need of another product it can put a cap on industry profitability.

Substitutes are not direct rivals, they may be unrelated and come from unexpected corners. Some substitutes have a catastrophic effect, imagine petroleum is gone and everyone started using Algae. The entire auto industry, engines, infrastructure, ancillary have to change their cars, equipments and so on. Like online video library for renting are much cheaper than buying a movie. Substitutes works wonderful on both frequent usage and casual usage. Say you get another Gillette at lesser price or say even after you watched a movie utility is over.

Both way it works! Substitute may not be cheap always, for example luxury bus services even higher will be preferred for short distance as it offers saving of hassles, comfort and last mile connectivity.

Switching costs have a role in substitution, cigarette smoking is a such strong habit people wont even switch with lower price. We covered three forces, two more to go. We will touch upon then Blue Ocean contrary to what Mr Porter said and move to what investors made out of these strategy more importantly Mr Pat Dorsey. Finally we will end competitive advantage as surveyors, how do we hunt them from financials and other places.

Thanks once again for giving me an opportunity to write. I hope you do enjoy as I am enjoying by writing, checking and collating. Porter said Five force drives it. Actually buzz words like switching cost, network effect, cost advantage are all part of five force theory.

Within an industry a company stays ahead of others or relative positioning by taking some steps which is called competitive advantage. Competitive advantage helps a company to be unique not starting warfare with another. We spoke about three out five force last time Bargaining Power of Customers, Bargaining Power of Customers, Threat of substitute products. Fourth force is:. We want to protect new entrants for the simple reason new fellow will add capacity and seek to gain market share.

This in turn will hit our profitability by caping the prices price war which makes price unattractive for new comers to make an entry. And at the same time the incumbents have to spend more to satisfy the customers. When rivalry is intense profit is lower like FMCG.

Buyers get benefited by lower costs. Rivalry happens through price, advertising, new product, increased service. But if you look at e-commerce their sole way of fighting is price. Industry structure decided how the economic value created by industry is divided, how much is captured by companies, customers, government, suppliers, distributors, substitutes and also potential new entrants.

Mr Porter provided a holistic way of tagging five force to financials. For any industry let us understand the scope by way of product and geography. Let us not get carried away by these jargons, once we connect in table format much easier to follow.

I will paste a table once we complete competitive advantage. If you have a real competitive advantage you can command a higher price and operate at a lower cost at same time. Competitive advantage about superior performance. It basically compares all profits generated against all funds invested including expenses and capital.

As per Prof Porter ROIC deals with creating value for customers, dealing with rivals and using resources productively. ROIC varies industry to industry, for example in a metal company it takes around 8 years to bring a new plant in line where as in service business you can barge in within a year also. We should compare ROIC with guys within same industry. If you have a competitive advantage your profit should be higher than industry average.

To know the nuances we need to break down the components, let us remember two most things drive profit is price and cost. A company can charge higher price if it offers something unique and valuable to customers. The cost advantage comes from lower operating costs, efficient usage of capital including working capital or both.

Sustainable competitive advantage involves all parts of company not just one function or technology. We must repeat competitive advantage is a superior performance resulting from higher prices, lower costs or both. So its not about switching costs or network effects which are structural components of a industry. But we must understand the source of competitive advantage, these are things which management can control.

Activities can be sales, procurement, marketing, finance and so on. Map the company activity from concept to sell to collections. Compare key activities with competitor, if you can do upstream and downstream it would be better. The competitive advantage comes from analysing the value chain or key process of company. More information you can gather from financials or some where else it will help you analysing better. I try to do mostly number crunching will cover them in Risk management section but still its one of toughest job for me.

Knowing a switching cost, cost advantage or network effect is not competitive advantage but its important to know where the advantage is embedded to value chain or process. And this is where experience, circle of competence comes handy. Porter further provides on guidance what best strategies can be executed by management to stay ahead of the pack to meet the gold standard of competitive advantage. He says this hospital have an extra ordinary value proposition.

One it targets affluent customers for those who can pay. And at the same time who cant afford the hospitals offer sight with same infrastructure but with stripped down price. Perhaps the same strategy is adopted by Narayan Hrudalaya. So when you see an acquisition case, you should be extra cautious, the whole value chain may collapse and drag down both companies who married.

In one of speeches Dr Devi Shetty says when one patient is getting operated the next patient is ready on a table behind him. The moment one operation is over surgeon moves to next! This has created a standardised process even in one of most intellectual and highly subjective industry like medicine sciences. We can see the number of massive number of operations Dr Shetty and his gang makes a year. It will be interesting to see though how Narayana is unlocking earnings through this model.

If you take one path sometime you cant take the other, and still you remain hugely profitable. For example all airline have their own routes, it gives them choices to focus on their routes doing at a lower cost. Trade off arises mainly due to product features may not be compatible e. Secondly trade off within activities e. Last is inconsistence in reputation e. Maruti producing bicycles. For example Flipkart wants to lower the costs, then it has to use inventory in a such location which is outside of city bringing down inventory carrying cost.

At the same time deliver happens from same place which makes the sales cycle faster. For example Big Bazaar initial days when a customer asks where is a given item, Mr Biyani strictly instructed staff to accompany customer rather than giving a direction.

He was desperate to negate the idea, too big shop to shop! We come to an end as how Prof Porter conceptualised industry, its forces and competitive advantage around value chain or processes. I agree if you think, this is not so easy to correlate while analysing a company.

But people like Pat Dorsey categorise the concepts into making easy for investors. Yet if you want to dug a competitive advantage one has to understand processes and strategies around it. Next lets talk about Blue Ocean, which is quite inverse thinking. Most fulfilling superb and mesmerizing. Thanks suvi. This is like Gold Dust! Henderson and Bain has been instrumental writing down interconnected dots of business strategy and competition.

Bruce Greenwald and his team redefined the way of looking at franchise based valuation but before that he has worked extensively on competition, an edge on same. Bill Bain propagated if the there is a level playing field only way you can roam freely without bleeding is having operational efficiency. This would mean all competitors have equal access to customers, technologies and other cost advantages. If someone becomes smart and does something different then immediately it get copied.

The imitation continues till the time economic profit becomes no more lucrative. But Mr Bain pointed out operational efficiency is a matter of tactical weapon not a strategic move. Lets flip the side, where multiple competitors have advantages competitive advantage then its about managing their edge. So we should look basically an area with few super guys who are far ahead of clock, not an easy thing to get but not impossible.

How does the force connect to value chain of an enterprise and subsequently an investor can reach a plausible conclusion on his buy, sell or hold. Bruce Greenwald emphasises that barriers to entry is one of most structural force to watch out and gave substantiation to support it. Pretty clear unprotected industry will be fought to the wire when economic profit becomes insignificant.

With increasing global environment trade barriers are getting non existent. But does that effect in local circumstances? Asian Paints first started in pockets of India, tested before expanding big time. It expanded incrementally outward from the geographic base, add new distribution system and prototyped the competitive advantaged learned as it progresses.

Watch out for dominance by a single company in local arena with small number of less equivalent firms e. PC Jeweller. Dominance at local level may be easier to accomplish than at global level. Greenwald advocates there are three type of genuine competitive advantages. On supply side you have strict cost advantages where I can produce lower than my peers. On demand side few have command over market which is not matched by competitors. The last leg is produce more, spread fixed cost over capacity; this in turn bring cost advantages through economies of scale.

If there is competition there would be competitors. If one company dominates then others will be simply at disadvantage, they should simply get out painlessly. Watch out for sectors where companies are getting shut down, this may not be always due to bad economics of sector but may be due to one superman is forcing others to surrender. I am watching keenly whether Reliance Jio is making Aircel or Docomo out of job! Here if Mr Ambani messes up then smaller ones may get a chance, not speaking of Airtel or Vodafone.

Watch the growth and capex numbers volume and geography wise. If several companies have equal advantages then strategy become demanding. This gets into different ways of managing business strategy I think have little relevant for retail investor. In case you are interested I can send you a copy of his three approaches of managing equal advantages. A manufacturer of 4 wheeler makes chases , body at factory. It procures seat, lights etc from ancillary units. There is some financial services to finance the auto.

Post sale support by manufacturer and 3rd party. Finally resale market of auto. You can split ancillary into further segments like tyre, parts, lights but keep it minimum so that it stays within circle of competence. Whether the leadership has translated to high profitability economic profit. Confirmatory practice to ensure whether small players exited competition. You can use ROIC as well.

If the company is enjoying a large economy of scale then volume produced should be be higher than competitors with a substantial fixed cost component. Or else price advantage wont flow in. This step is a more confirmatory evidence based on data from step 2 that profitability and share stability is maintained.

Blue Ocean Strategy- books, articles, white paper by Renee and Kim 2. In Search of Excellence by Tom Peters 3. Built to Last by Jim Collins 4. Assorted McKinsey quarterly 5. The will to manage and the will to lead by Marvin Bower. If Prof Porter is considered as a revered Guru, his five force and competitive advantage within the process remain the pivotal point accepted in business strategy.

Does it have same relevance on service industry i. You can flip through criticism of Five force but importantly customise your understanding, these concepts were not written for investors. They spent decades in understanding history of industries, geographies and competition within. Blue Ocean is a significant way of understanding if you like the growth investing philosophy.

Than restricting within the pages of books the thesis is practised with support of mentors. Even both Guru extended their support in implementing Blue Ocean in government sector, leadership edge in tackling implementation. Details you can find on above web site. Fair point, I leave it here for you to explore more about Blue Ocean history, support etc.

I will rather jump to where it matters, the key concepts and cross fertilisation with investing. To summarise the key distinction points of the concept as per author:. Pricewaterhouse Coopers 2. The Boston Consulting Group. Mobile services to e-commerce to cab aggregators has all been Blue Oceans that were created across decades. Even television channel or management consulting were unheard of some decades back. Now a Blue Ocean can be created by expanding incremental improvements within red ocean or new business launches.

The situation likely to intensify going forward. In search of excellence is an epic by Tom Peters a man only envisaged ideas but implemented it. Built to last is authored by Jim Collins who wrote Good to Great-another great book again focussing on patterns of highly successful companies.

Jim Collins once again a practitioner as a consultant with Mckinsey and an employee with HP. One man who is single handed responsible for consulting is father of management consulting Marvin Bower. He wielded influence in hearts of corporate, white house, charitable institutions for five decades.

Left a legacy of discipline and hard work; who can forget his bequeathing share at face value to new partners to promote joint ownership. The act itself would have worth billion dollar in current terms of worth. Bower use to link flow thinking with strategy creation.

For example how would I go to work automobile , what would I do after work leisure and entertainment. This is significant differentiator between winners and losers in Blue Ocean landscape. Innovation without value is meaningless because buyers are not ready to pay for it, the focus is shifting towards both differentiation and low cost.

The Byke Hospitality is a classic example of Blue Ocean. This brilliant idea came with a new management, I am eagerly watching the value unlocking without much a capital commitment. Disclaimer- invested and biased. At the same time costs are reduced with additional offerings to buyers. The balance section of framework focuses on the organisation who want to implement including formulating a strategy, leadership requirement, change management, renewal of blue oceans etc.

They are good to know but for my discussions purpose I will restrict myself to strategy canvas this is a brilliant concept where you look at business model from strategy point of view and actions framework which all situations blue ocean can be created, accordingly it gives a pointer which sectors or industries have a possibility of Blue Ocean to some extent and few specific identifiers again exploited by authors which helps in identifying and enhancing our investment process. Blue Ocean companies have delivered stellar returns and economic profits, but the claim has been too far wide open as well.

Value investors claim its their pie, growth guys says Blue Ocean is good but there are other ways. It reiterates the point there are million ways of doing and managing business or owning them. Meanwhile you can read them in :.

You can go through them. Somewhere it brings a sanity check to uncommon and estimated process of Discounted Cash Flow. ValuePickr Research Resources Basics. Prem Watsa: Cry for few dollars more His acquaintances say Prem Watsa spent good amount of days in absolute struggle in the chilling winter of Toronto. Hard to get value investors into media glare, most stay as oblivion.

Writing is connector for every value investors to their imaginations and thoughts. Pre-Requisites for Value Investing A. Reading is a good habit Value investing does not ask you to be an accountant or finance person. Change of lifestyle and philosophy Get ready for a bus ride, walking through dusty road or even a place where you never like to go. But I like the 16 golden rules what he emphasised : An attempt of making quick money leads to losses far higher than the initial investment.

There is always chance to buy everything, nothing is end of world. BSE was standing there for years, it will stand another years. There is no such thing as hot tip. Calculate first how much you can lose not how much you can gain. Experts care about risk, novices dream about returns. Forecast usually done by experts are trash. Develop a method and stick to it and have patience. Lots of humility helps, a rising tide raises all ships and so you may be lucky to part of tide.

Stocks fall more than you think and rise higher than possibly you can imagine. Investing in what popular stocks, fad industries or new ventures are riskier than they looks. Bear market start in good times, bull market starts in bad times. Neglected sectors often turned out be good values. Must Avoid Looking listlessly at stocks which have grown over a period. Pain of Loss The investor does not understand the stock may fall after he buys or rise after he sells.

Conviction An investor who does self research is in a better position when downward trend starts. Investing Basics - Feel free to ask the most basic questions. Dear Bipin What I have done is noted more than conversations, telephone calls as scribble and put them to pages file mac version for word all these years The information are more abstracts, no indexing as such neither sequence.

Regards Suvi. Great, what is parlance of Nest in context of equity investment or value investing? Nest is build by following process: When we are saying we will build a nest we want to keep something inside it which to our opinion are valuable. Fair point, now break down the components or else we cant practice: Something valuable inside nests are equity shares or a piece of business Protection from competitors or enemies so that my piece of business is not taken away.

Better our steps should be Create a portfolio Fill up with right quantity and quality of equity shares Protect them with due care and diligence. To understand let us create a hypothetical scenario: Jatin is selling Vada Pav on streets of Mahim. Salary paid to two assistants a month for 12 months i.

So what is our profit now: 6. Scene 1 Can Jatin still maintain the same price with same customer base? Scene 2 Jatin is not keeping well, he was replaced by his brother Stephen. Scene 3 Jatin is so busy or for some reason the vendor is not supplying on time, customer is not paying on time. Scene 4 Today Jatin is making 4. Scene 5 Now Jatin knows by investing 25K I will walk away with 2. Just to recollect: We are buying a piece of business with some one like Jatin to share his earnings.

We expect Jatin to be man of hard work and integrity and he will protect my piece of business as he does for his own piece. We expect Jatin to manage operations as good as finance and compliance and also have an eye on future strategy. We think Jatin has enough fire power which makes feeling he will do well like expansion etc.

We are paying some money to Jatin for buying business, it does left something for us as well. Sometime Jatin may not be knowing and we come to know. They all reside within six concentration bands, only we need to twist our thinking tedhi soch Once again I will be using these words heavily going forward, next dozen of writings will be execution heavy.

If you go above we said there are four parts: Create a portfolio Fill up with right quantity and quality of equity shares Protect them with due care and diligence. Create wealth by selling, re-allocating and distributing What concentration bands we discussed is only to know we are going to put good business into portfolio. To get answers for A-D we must know: how many businesses we must hold?

Before I sign out just wanted to pin down an example to show magic of equity: Assumptions: Year 2,3, 4 price per vada pav plate becomes 50, 60, 70 for , and customers per day respectively. I am using capex cycle for fore casting, this means after four years new asset replaces the old one. Hence no capex till date. Thank you so much for nice words, warm wishes for wealth creation. This is most simplistic way to explain Business. That would be great reference material for future.

Thank You in advance. Thanks a lot for all the gyaan. Much appreciated. Ashwinji First thanks for trusting me to answer the question, second it looks like you made lot of thoughts putting behind right parameters. I would prefer to use intrinsic valuation and support by a relative valuation to get comfort.

Book value is our portion, the equity value of company. Discount future value to CMP to find out a expected return. I will cover intrinsic valuation under margin of safety. Graham, Buffett and Greenwald Benjamin Graham gave all of us idea that you buy the company if its available less than asset value more specifically net current assets. In investing sense he started searching for three things: Unique product Unique Service Better Cost Producer He also wanted to focus on a monopolistic situation which he can understand.

Graham and Dodd wrote security analysis which gave us idea to look at business valuation in tandem with: Buy at asset value reproduction, we will touch upon this with margin of safety; this is competitor price tag to buy assets Earnings power how much capital I need to justify the current earnings The value of earnings growth Bruce Greenwald is a passionate professor who spend a lot of time after cracking security analysis post Buffett era.

He used both security analysis and moat to propagate a concept which says: Use reproduction value of assets same like Graham and Dodd Estimate the earnings again from Graham Compute franchise value he felt if earnings potential are higher than asset value then company is using a moat which gives the extra power. Influence of Charlie Munger Buffett moving from traditional Graham theory to moat evolution has a lot to do with his partner Charlie Munger which he accepted on public forum as well.

But few bold lines again: Moat is not competitive advantage, may be a small subset of it. Understanding of Competition and Competitive Advantage Let us repeat competition is not war fare but creating a unique value. Competition should be unique This is about choosing a path different from others. Structure of Industry- The Five Forces This is nothing but competing for profits within a industry, not between rivals but involves multiple players, let us understand.

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This post may contain affiliate links. Please read my disclosure for more information. Last year my Dad issued a challenge for me to start reading investment books. After completing 4 books last year, the challenge is back with a new list of books this year.

The book is broken into three parts. Part one discusses what value investing is and what value investors are looking for. In part two, the author gives a deeper dive into how to determine value and do the analyses on specific securities. Lastly, part three is a compilation of examples from 8 different value investors, including Warren Buffett.

Value investors try to find the intrinsic value of a business through research. They compare this to the share price, and then purchase stock when a gap exists. Despite the ups and downs of the market, the underlying value of many businesses is relatively stable and can be determined with proper research. Buffett explains that buying stocks with a margin of safety will produce superior returns in the long run. Buffett calls value investing an intellectual discipline.

Value investors should stick to their circle of competency, and need to be patient in buying and selling shares. You can take as many pitches as you want until you spot the one you like. Then you swing, and if you have done the analysis intelligently, your chances of success are high.

This analogy works perfectly, because the value investor can sit back and wait for the right stock at the right price. The book goes into detail on the search strategies that value investors can go through including spin-offs, targeting smaller companies, institutional biases legislative actions limiting all information from pricing , and behavioral biases paying too much for popular stocks and too little for stocks that have fallen out of public favor.

Sometimes prices are too high or too low. This means there are still opportunities out there for value investors. The standard approach to valuation is discounted cash flow analysis. Discounted cash flow DCF is a valuation method used to estimate the attractiveness of an investment opportunity. DCF analyses use future free cash flow projections and discounts them, using a required annual rate, to arrive at present value estimates. Benjamin Graham and David Dodd consider this method of valuation to be seriously flawed for two main reasons:.

It may be possible to make correct projections for the next few years; as the time lengthens, the projections invariably become less accurate. Second, the present value approach relies on information that is often simply not knowable, especially in the far distant future. Instead, Graham and Dodd offer a three element approach to valuation: assets, earnings power, profitable growth. Liabilities are subtracted to obtain the current net asset value.

For companies with no substantial competitive advantage, their asset value equals their intrinsic value. Value Investing Vs. Modern Portfolio Theory. The Journal of Investing. Value investing generates a great deal of attention from the practitioner community; however, no one has formally categorized the development of this influential school of thought over time.

The … Expand. A reason for acquirers' equity … Expand. Value Investing Strategy is one of the most favourable investment methods. However, under the complexity and fluctuation brought by the influence of COVID, the effectiveness of value investing … Expand. View 1 excerpt, cites background. Do Value Investors Add Value? The purpose of this article is first to examine whether a value premium exists following a mechanical screening process i.

Searching for and Finding Value: Canadian Evidence The purpose of this paper is first to examine whether a value premium exists following a mechanical screening process i. The Journal of Private Equity. This study tests the performance of value investing strategies for the Dutch stock market using stock market data covering the period between and The topic of value investing has been … Expand.

This work aims at refining and complementing the analysis of portfolios composed of commercial papers from companies with high Book-to-Market ratio, which were dealt in BOVESPA from to , … Expand.

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[Audio Book] Bruce Greenwald - Value Investing From Graham To Buffett And Beyond (part 1/2)

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