Sunday, March 22, 2020
Monday, January 27, 2020
https://www.thestreet.com/investing/what-is-a-pe-ratio-15000854https://www.thestreet.com/investing/what-is-a-pe-ratio-15000854]
The two types of P/E's that are most commonly discussed are the trailing P/E and forward P/E.
What Is a P/E Ratio?
A P/E ratio, otherwise known as a price-to-earnings ratio, is simply a way to gauge how a company's earnings stack up against its share price. Think of it as a way to gauge how expensive a stock is. It might sound technical but it's pretty simple math. To find a stocks P/E ratio, you simply divide the stock's market value per share (or stock price) by the company's earnings per share. Let's look at the two most common types of P/E ratios, the ones I use, and look at a quick example of how it works.The two types of P/E's that are most commonly discussed are the trailing P/E and forward P/E.
Thursday, January 23, 2020
Sumir Chadha Of Westbridge Capital/ Jwalamukhi Explains Technique For Finding Multi-bagger Stocks & Also Discusses Fav Stocks
If you are looking for a model portfolio where stocks are picked as
per a specific process, you have to check the portfolios of PIPE
(Private Investment in Public Equity) Funds.
Some leading PIPE funds in India are Pulak Chandra Prasad’s Nalanda Capital, Sumir Chadha’s Westbridge Capital/ Jwalamukhi Holdings, Brahmal Vasudevan’s Creador Capital/ Idria, Renuka Ramnath’s Multiples Equity etc.
The portfolios of each of these PIPE funds is constructed after complete due diligence and after paying proper attention to all aspects of fundamentals, management quality, size of opportunity, valuations etc of the stock.
No wonder that these funds have given their lucky investors humongous returns over the years.
In the latest issue of Outlook Business, Sumir Chadha of Westbridge Capital/ Jwalamukhi has given important pointers of the fund’s investment technique. He has also discussed the Fund’s favourite holdings at length.
India offers a massive opportunity to find stocks:
India has a huge number of listed companies – over 4,000 – which means there is a massive opportunity to find good stocks. In other countries you don’t find this – in Brazil, there may be 500 listed companies, in Indonesia, it’s a couple of hundred. In India, for historical reasons, it is easy to get listed and we don’t have Sarbanes-Oxley and all that stuff that inhibits promoters from coming to the public market, like in the US.
Indian entrepreneurs are among the best globally:
Indian entrepreneurs are among the best globally because the truth is that it is so difficult to build a company in India. Being an Indian entrepreneur is like being an Ethiopian runner. The Ethiopian runners are really fast as their countries are very high above sea level, so there is very low oxygen. They are used to running on very low oxygen. That is one of the reasons Ethiopians are one of the world’s best runners. When they come to sea level and they are running they are killing every-one else because suddenly for them it is like running down. It is easy. In the same way, Indian entrepreneurs are used to such tough conditions in running a business. Every distributor is trying to squeeze you, everyone is negotiating with you. They all make it through that. I would say the good ones stay grounded, though there are the stereotypical flashy entrepreneurs as well. But we like entrepreneurs who are down-to-earth, stable and uphold middle class values. That is, sort of, what we find works in the long term.
The volatility in Indian markets is a big advantage because stocks can be bought very cheap and sold very high:
The Indian market is highly volatile. If you are a patient long-term investor, it actually works to your advantage. Because when things get depressed, they get so depressed that there arises a great opportunity to buy. And when they get euphoric, they get so euphoric and that is a good time to sell.
We look at volatility as our friend. Say tomorrow there is a sharp market downturn, we would love it. We have a lot of uncalled capital and cash. We would just start buying in our own names. When things get too hot we start exiting, if things get cold we use that as an opportunity to buy a lot. That is how we manage our own risk.
High-Quality mid-caps that are not actively traded make the best investments:
We like to focus on high quality mid-caps and there are a lot of them in India.
We love stocks that are not actively traded as they tend to be mispriced. We usually buy a chunk, typically 5-25%, in a listed entity with a long-term view of the promoter and the company.
For example, four years back, we had bought shares of Astral Poly Technik. When we bought a 12% stake in the company it had a Rs. 300 crore market cap and was hardly traded. Today, it has a 15,000 crore market cap. We sold half of our stake last year with a fantastic gain.
Hold stocks for the long-term and, if possible, for forever:
Long term can be very long or short depending upon the situation. But, generally, we take a five-to 10-year view. The way our current fund works is that, unlike a private equity fund, it is an ever growing fund. So, in many cases, we may end up hold something for 20 or 30 years. Some of our companies we may never sell. So, our fund is designed to be a little bit more like the wealthy families in India, where if you are investing your own money, just leave it there, you don’t have to sell. But some-times, we may sell very quickly if a stock runs up a lot in a very short period. We sell because in a public market there is always the opportunity to buy it cheaper. Hence, unlike a PE fund, we enjoy a lot more flexibility and that is a huge advantage.
What to look for in companies -overarching theme in the portfolio:
We look for high quality franchisee businesses that can generate superior return on capital over the long term. For us, that means companies with unfair advantages. Typically, we look for a very strong brand with a great reputation, a very strong distribution network, the type of things that make it very hard for a competitor to come in and eat their lunch.
The overarching theme is to invest in companies with long-term competitive and unfair advantages that arc very hard to replicate. That is a basic theme and cuts across industries. So we look for some edge.
Have a concentrated portfolio. Be very selective in your investment:
We have a very concentrated portfolio, a really small number of high quality companies. Our top 12 companies account for about 75% of our asset value. So, we don’t hold a huge number of investments. We are not afraid to put a lot of money into these companies because we believe in them. Or, if we don’t believe in them we don’t invest. We are not like a mutual fund in India that will typically own 80 stocks in the portfolio. We find that a riskier approach. We don’t want 80. We want the top 10 or 15, so we are really choosy. In India, over the past 16 years we have invested in 200 companies. We invested in many of the companies when they were small and we were on the board. Now they are listed. We know either the promoters or the board members pretty well from many years. Also, before investing, we do the usual things: a background check, send an investigative firm to check on various things, and our own calls or references. We spend a lot of time with them, and we either get comfortable or we don’t. Any whiff of promoter risk and we walk away.
Have an exit strategy in place:
If prices turn too steep, we cash out. We sold quite a lot of stuff, million dollars worth of stocks, in the past three quarters. So, we have exited quite a bit. If things keep going up we will keep exiting. In mid-caps, in a bear market there are no buyers and that is good because we are the buyers who get these stocks at a discount. In a bull market, there are plenty of takers. You should see how many calls we get for many of our companies saying, “Please, can you give me a block stake!”
For a typical structure, take Mayur as an example. The company’s promoter owns over 70% of the company and we own 10%. We have the largest non-promoter holding and then there all these small retail shareholders. The promoter is never going to sell, so anyone who wants to own something substantial will come to us. Half the time we are saying ‘no, but in the past three quarters, we sold quite a lot. But then, we sell only in a good market. If it is a bad market, we will not sell. So, when the market was really bad in 2011, 2012 and 2013 we invested heavily and we sold nothing. Then last year the market became good and we started selling, but very selectively.
Avoid investments in technology stocks if you cannot understand them:
The technology sector is rapidly changing. It makes it hard to invest in the sector. Our current fund has very little tech for that reason. It is the reason a lot of public investors shy away from technology because they say, “Look, there is a lot of money to be made but it is also very risky.” A company can suddenly lose its edge very fast. But plumbers will not forget the Astral brand very easily. Success can be quite short-lived in technology. But when it creates value it is incredible.
http://rakesh-jhunjhunwala.in/sumir-chadha-of-westbridge-capital-jwalamukhi-explains-technique-for-finding-multi-bagger-stocks-also-discusses-fav-stocks/
Some leading PIPE funds in India are Pulak Chandra Prasad’s Nalanda Capital, Sumir Chadha’s Westbridge Capital/ Jwalamukhi Holdings, Brahmal Vasudevan’s Creador Capital/ Idria, Renuka Ramnath’s Multiples Equity etc.
The portfolios of each of these PIPE funds is constructed after complete due diligence and after paying proper attention to all aspects of fundamentals, management quality, size of opportunity, valuations etc of the stock.
No wonder that these funds have given their lucky investors humongous returns over the years.
In the latest issue of Outlook Business, Sumir Chadha of Westbridge Capital/ Jwalamukhi has given important pointers of the fund’s investment technique. He has also discussed the Fund’s favourite holdings at length.
India offers a massive opportunity to find stocks:
India has a huge number of listed companies – over 4,000 – which means there is a massive opportunity to find good stocks. In other countries you don’t find this – in Brazil, there may be 500 listed companies, in Indonesia, it’s a couple of hundred. In India, for historical reasons, it is easy to get listed and we don’t have Sarbanes-Oxley and all that stuff that inhibits promoters from coming to the public market, like in the US.
Indian entrepreneurs are among the best globally:
Indian entrepreneurs are among the best globally because the truth is that it is so difficult to build a company in India. Being an Indian entrepreneur is like being an Ethiopian runner. The Ethiopian runners are really fast as their countries are very high above sea level, so there is very low oxygen. They are used to running on very low oxygen. That is one of the reasons Ethiopians are one of the world’s best runners. When they come to sea level and they are running they are killing every-one else because suddenly for them it is like running down. It is easy. In the same way, Indian entrepreneurs are used to such tough conditions in running a business. Every distributor is trying to squeeze you, everyone is negotiating with you. They all make it through that. I would say the good ones stay grounded, though there are the stereotypical flashy entrepreneurs as well. But we like entrepreneurs who are down-to-earth, stable and uphold middle class values. That is, sort of, what we find works in the long term.
The volatility in Indian markets is a big advantage because stocks can be bought very cheap and sold very high:
The Indian market is highly volatile. If you are a patient long-term investor, it actually works to your advantage. Because when things get depressed, they get so depressed that there arises a great opportunity to buy. And when they get euphoric, they get so euphoric and that is a good time to sell.
We look at volatility as our friend. Say tomorrow there is a sharp market downturn, we would love it. We have a lot of uncalled capital and cash. We would just start buying in our own names. When things get too hot we start exiting, if things get cold we use that as an opportunity to buy a lot. That is how we manage our own risk.
High-Quality mid-caps that are not actively traded make the best investments:
We like to focus on high quality mid-caps and there are a lot of them in India.
We love stocks that are not actively traded as they tend to be mispriced. We usually buy a chunk, typically 5-25%, in a listed entity with a long-term view of the promoter and the company.
For example, four years back, we had bought shares of Astral Poly Technik. When we bought a 12% stake in the company it had a Rs. 300 crore market cap and was hardly traded. Today, it has a 15,000 crore market cap. We sold half of our stake last year with a fantastic gain.
Hold stocks for the long-term and, if possible, for forever:
Long term can be very long or short depending upon the situation. But, generally, we take a five-to 10-year view. The way our current fund works is that, unlike a private equity fund, it is an ever growing fund. So, in many cases, we may end up hold something for 20 or 30 years. Some of our companies we may never sell. So, our fund is designed to be a little bit more like the wealthy families in India, where if you are investing your own money, just leave it there, you don’t have to sell. But some-times, we may sell very quickly if a stock runs up a lot in a very short period. We sell because in a public market there is always the opportunity to buy it cheaper. Hence, unlike a PE fund, we enjoy a lot more flexibility and that is a huge advantage.
What to look for in companies -overarching theme in the portfolio:
We look for high quality franchisee businesses that can generate superior return on capital over the long term. For us, that means companies with unfair advantages. Typically, we look for a very strong brand with a great reputation, a very strong distribution network, the type of things that make it very hard for a competitor to come in and eat their lunch.
The overarching theme is to invest in companies with long-term competitive and unfair advantages that arc very hard to replicate. That is a basic theme and cuts across industries. So we look for some edge.
Have a concentrated portfolio. Be very selective in your investment:
We have a very concentrated portfolio, a really small number of high quality companies. Our top 12 companies account for about 75% of our asset value. So, we don’t hold a huge number of investments. We are not afraid to put a lot of money into these companies because we believe in them. Or, if we don’t believe in them we don’t invest. We are not like a mutual fund in India that will typically own 80 stocks in the portfolio. We find that a riskier approach. We don’t want 80. We want the top 10 or 15, so we are really choosy. In India, over the past 16 years we have invested in 200 companies. We invested in many of the companies when they were small and we were on the board. Now they are listed. We know either the promoters or the board members pretty well from many years. Also, before investing, we do the usual things: a background check, send an investigative firm to check on various things, and our own calls or references. We spend a lot of time with them, and we either get comfortable or we don’t. Any whiff of promoter risk and we walk away.
Have an exit strategy in place:
If prices turn too steep, we cash out. We sold quite a lot of stuff, million dollars worth of stocks, in the past three quarters. So, we have exited quite a bit. If things keep going up we will keep exiting. In mid-caps, in a bear market there are no buyers and that is good because we are the buyers who get these stocks at a discount. In a bull market, there are plenty of takers. You should see how many calls we get for many of our companies saying, “Please, can you give me a block stake!”
For a typical structure, take Mayur as an example. The company’s promoter owns over 70% of the company and we own 10%. We have the largest non-promoter holding and then there all these small retail shareholders. The promoter is never going to sell, so anyone who wants to own something substantial will come to us. Half the time we are saying ‘no, but in the past three quarters, we sold quite a lot. But then, we sell only in a good market. If it is a bad market, we will not sell. So, when the market was really bad in 2011, 2012 and 2013 we invested heavily and we sold nothing. Then last year the market became good and we started selling, but very selectively.
Avoid investments in technology stocks if you cannot understand them:
The technology sector is rapidly changing. It makes it hard to invest in the sector. Our current fund has very little tech for that reason. It is the reason a lot of public investors shy away from technology because they say, “Look, there is a lot of money to be made but it is also very risky.” A company can suddenly lose its edge very fast. But plumbers will not forget the Astral brand very easily. Success can be quite short-lived in technology. But when it creates value it is incredible.
http://rakesh-jhunjhunwala.in/sumir-chadha-of-westbridge-capital-jwalamukhi-explains-technique-for-finding-multi-bagger-stocks-also-discusses-fav-stocks/
Saturday, January 4, 2020
Monday, October 28, 2019
Here are thirty rules that can help* the new trader survive that first year in the trading the markets or take the unprofitable trader much closer to profitability.
Trade with the right mind set.
*TRADER PSYCHOLOGY*
1), *Be flexible and go with the flow* of the markets price action, stubbornness, egos, and emotions are the worst indicators for entries and exits.
2). Understand that the trader only chooses their *entries, exits, position size*, and risk and the market chooses whether they are profitable or not.
3). You must have a *trading plan* before you start to trade, that has to be your anchor in decision making.
4).You have to let go of wanting to always be right about your trade and exchange it for wanting to make money. *The first step* of making money is to cut a loser short the moment it is confirmed that you are wrong.
5). *Never trade* position sizes so big that your emotions take over from your trading plan.
6). *“If it feels good, don’t do it.”*– Richard Weissman
7).Trade your *biggest position* sizes during winning streaks and your smallest position sizes during losing streaks. Not too big and trade your smallest when in a losing streak.
8).Do not worry about losing money that can be made back worry about losing your *trading discipline*.
9).A losing trade costs you money but letting a big losing trade get too far out of hand can cause you to lose your nerve. *Cut losses* for the sake of your nerves as much as for the sake of capital preservation.
10).A trader can only go on to success after they have *faith in themselves* as a trader, their trading system as a winner, and know that they will stay disciplined in their trading journey.
Bring your risk of ruin down to almost zero.
*RISK MANAGEMENT*
1).Never enter a trade before you know *where you will exit* if proven wrong.
2).First find the *right stop loss level* that will show you that you’re wrong about a trade then set your positions size based on that price level.
3). *Focus like a laser* on how much capital can be lost on any trade first before you enter not on how much profit you could make.
4).Structure your trades through *position sizing* and stop losses so you never lose more than 1% of your trading capital on one losing trade.
5). Never expose your trading account to *more than 5%* total risk at any one time.
6). Understand the nature of *volatility and adjust your position* size for the increased risk with volatility spikes.
7).Never, ever, ever, add to a losing trade. Eventually that will *destroy your trading* account when you eventually fight the wrong trend.
8).All your trades should end in one of *four ways*: a small win, a big win, a small loss, or break even, but never a big loss. If you can get rid of big losses you have a great chance of eventually trading success.
9).Be incredibly *stubborn in your risk management rules* don’t give up an inch. Defense wins championships in sports and profits in trading.
10). Most of the time *trailing stops* are more profitable than profit targets. We need the big wins to pay for the losing trades. Trends tend to go farther than anyone anticipates.
Develop a winning trading system that fits your personality.
*YOUR ROBUST METHOD*
1)."Trade What’s *Happening*…Not What You Think Is Gonna Happen.” – Doug Gregory
2.) *Go long strength* ; sell weakness short in your time frame.
3). *Find your edge* over other traders
4). Your trading system must be *built on quantifiable facts* not opinions.
5). *Trade the chart* not the news.
6). A robust trading system *must either be designed* to have a large winning percentage of trades or big wins and small losses.
7). Only take trades that have a skewed risk *reward in your favor.*
8).The answer to the question, *“What’s the trend?”* is the question, *“What’s your timeframe?”* – Richard Weissman. Trade primarily in the direction that a market is trending in on your time frame until the end when it bends.
9). Only take *real entries* that have an edge, avoid being caught up in the meaningless noise.
10).Place *your stop losses* outside the range of noise so you are only stopped out when you are likely wrong.
Trade with the right mind set.
*TRADER PSYCHOLOGY*
1), *Be flexible and go with the flow* of the markets price action, stubbornness, egos, and emotions are the worst indicators for entries and exits.
2). Understand that the trader only chooses their *entries, exits, position size*, and risk and the market chooses whether they are profitable or not.
3). You must have a *trading plan* before you start to trade, that has to be your anchor in decision making.
4).You have to let go of wanting to always be right about your trade and exchange it for wanting to make money. *The first step* of making money is to cut a loser short the moment it is confirmed that you are wrong.
5). *Never trade* position sizes so big that your emotions take over from your trading plan.
6). *“If it feels good, don’t do it.”*– Richard Weissman
7).Trade your *biggest position* sizes during winning streaks and your smallest position sizes during losing streaks. Not too big and trade your smallest when in a losing streak.
8).Do not worry about losing money that can be made back worry about losing your *trading discipline*.
9).A losing trade costs you money but letting a big losing trade get too far out of hand can cause you to lose your nerve. *Cut losses* for the sake of your nerves as much as for the sake of capital preservation.
10).A trader can only go on to success after they have *faith in themselves* as a trader, their trading system as a winner, and know that they will stay disciplined in their trading journey.
Bring your risk of ruin down to almost zero.
*RISK MANAGEMENT*
1).Never enter a trade before you know *where you will exit* if proven wrong.
2).First find the *right stop loss level* that will show you that you’re wrong about a trade then set your positions size based on that price level.
3). *Focus like a laser* on how much capital can be lost on any trade first before you enter not on how much profit you could make.
4).Structure your trades through *position sizing* and stop losses so you never lose more than 1% of your trading capital on one losing trade.
5). Never expose your trading account to *more than 5%* total risk at any one time.
6). Understand the nature of *volatility and adjust your position* size for the increased risk with volatility spikes.
7).Never, ever, ever, add to a losing trade. Eventually that will *destroy your trading* account when you eventually fight the wrong trend.
8).All your trades should end in one of *four ways*: a small win, a big win, a small loss, or break even, but never a big loss. If you can get rid of big losses you have a great chance of eventually trading success.
9).Be incredibly *stubborn in your risk management rules* don’t give up an inch. Defense wins championships in sports and profits in trading.
10). Most of the time *trailing stops* are more profitable than profit targets. We need the big wins to pay for the losing trades. Trends tend to go farther than anyone anticipates.
Develop a winning trading system that fits your personality.
*YOUR ROBUST METHOD*
1)."Trade What’s *Happening*…Not What You Think Is Gonna Happen.” – Doug Gregory
2.) *Go long strength* ; sell weakness short in your time frame.
3). *Find your edge* over other traders
4). Your trading system must be *built on quantifiable facts* not opinions.
5). *Trade the chart* not the news.
6). A robust trading system *must either be designed* to have a large winning percentage of trades or big wins and small losses.
7). Only take trades that have a skewed risk *reward in your favor.*
8).The answer to the question, *“What’s the trend?”* is the question, *“What’s your timeframe?”* – Richard Weissman. Trade primarily in the direction that a market is trending in on your time frame until the end when it bends.
9). Only take *real entries* that have an edge, avoid being caught up in the meaningless noise.
10).Place *your stop losses* outside the range of noise so you are only stopped out when you are likely wrong.
Tuesday, October 22, 2019
Thursday, September 19, 2019
Friday, April 8, 2016
Monday, March 7, 2016
Sunday, November 15, 2015
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