Measuring The Moat
August 8, 2017 Leave a comment
If a competitor had unlimited resources , how quickly could they duplicate the company’s competitive advantage ?
How Much To Pay For A Business ?
June 23, 2012 Leave a comment
When a seller quotes a price for his business it is known as “Ask price”. In response a buyer offers his price; this is known as “Bid Price”. After negotiation both parties agree at a price to close the deal. In order to make a bid price a buyer must do a valuation of the business he is interested in. There are five methods of valuing a business before buying it:
1. Asset Value: This is the easiest method in valuing a business. Underlying assumption in this method is that the business is a going concern. You tally all assets tangible and intangibles, fixed and current to get the total value. In the case of fixed assets either you can take the value net of associated depreciation or on replacement value basis. Current assets are appraised generally on realizable amount basis. Intangibles such as goodwill can be re-estimated. From the total assets value you must deduct outside liabilities to arrive at net value of assets in a business. Although the method is a popular one, it lacks credence as it does not take the capacity of the assets to generate income in the future, which is more meaningful to the buyer than just jotting up assets. Moreover, small businesses as well as service providers are very lean on assets but fat on earnings. Hence, asset value may not be representative for these businesses. On the other side of the coin, large scale industry is asset rich but whether they generate adequate returns on assets employed is a moot point. Read more of this post
James Montier’s The Seven Immutable Laws of Investing
September 19, 2011 1 Comment
James Montier expounds The Seven Immutable Laws of Investing to help investors avoid some of the worst mistakes, which, when made, tend to lead them down the path of the permanent impairment of capital.They are as follows:
1. Always Insist on a Margin of Safety
Valuation is the closest thing to the law of gravity in finance .It is the primary determinant of long-term returns. The objective of investment (in general) is not to buy at fair value, but to purchase with a margin of safety.This reflects that any estimate of fair value is just that: an estimate, not a precise figure, so the margin of safety provides a much-needed cushion against errors and misfortunes. When investors violate this law by investing with no margin of safety, they risk the prospect of the permanent impairment of capital. Read more of this post
Rakesh Jhunjhunwala On Investing Your Way To Wealth
June 11, 2011
Mr. Rakesh Jhunjhunwala, combines diverse skills as a equity trader, visionary investor and incubator of new businesses through private equity.He is the first dollar billionaire from India to have made all his money by investing–primarily in stocks.Converting Rs 5000 to a billion dollars is no mean feat.Moreover since he deals exclusively in Indian stocks and often in publicly traded companies, whose shares we all have access to,it’s well worth spending time learning how to invest one’s way to wealth from him.
Firstly,Rakesh believes that the choice of asset class is important . As he says”If you bought gold in 1970 and sold it in 1980, you bought the Nikkei Index in 1980 and sold it in 1989 and then bought the NASDAQ [till before the dot-com bust], you would have made 33% compounded returns in three decades.”Personally, under the guidance of Mr Radhakrishna Damani, he made a lot of money shorting stocks at the time of the Harshad Mehta scam post 1992.As he says,”My decision to aggressively invest in the asset class of Indian equities at the right time was a very important determinant of my success.”As Rakesh believes that the mother of all bull runs is still to happen in India ,for people like us,sticking to Indian securities as an asset class might not be such a bad idea! Read more of this post
9 Ways To Make Money On The Stock Market
March 7, 2011 6 Comments
Here are 9 ways listed by Whitney Tilson to pick diamonds in the stock market:
1. Out-of-favour blue chips. Even the world’s greatest companies encounter problems or otherwise fall out of favor. Correctly differentiating between those suffering temporary rather than permanent issues is the key to success here. As long as the positive fundamentals of the company’s business remain intact, and new management is willing and capable of bringing the company on track buying out of favour blue chips can be very profitable.
2. Distressed industries. Buying a good company in a distressed industry is often a great way to make money.
3. Turnarounds. Turning around a broken business is difficult and often takes much longer than expected — but when it occurs, a stock can rise many-fold.
4. Overlooked small caps. Among the thousands of publicly traded stocks that analysts don’t cover are fine businesses that are cheap because either no one is paying attention to them or their stocks are thinly traded. Read more of this post
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