Had an amazing Clubhouse session with Siddhartha Bhaiya @sidd1307 and the @AequitasL team.

Here’s a thread🧵on some interesting points made by him:

Read on👇

1/ Good Business and Bad Business

No business is bad. It’s all about ethics and intensions. All businesses are difficult to run because we live in a capitalist society.

You know the level of difficulty only once you start a business.

2/ Numbers vs Story

Focus on hard code numbers. Don’t focus on story and narratives. They will come later.

Once the story is all over twitter and media, it's probably the time to sell.

Always remember: The best publicity of a stock is the increase in its own stock price.

3/ Downside Risk

Focus more on the downside risk and less on the possible upside. This concept is counterintuitive to many.

Think of how I can reduce the probability of making a loss. If you protect the downside, upside will take care of itself.

4/ Can we predict the Future?

The future is uncertain. Our ability to predict the future is extremely low. No one know about how Uber and Zomato would change our lives.

Very important to know what you know and what you don’t know.

Things I look at before Investing:

Profitable – Free Cash Flow
Healthy – Interest Coverage
Quality – ROCE, ROA, Margins
Valuation – EV/EBITDA, FCF Yield
Governance – Dividend, Buybacks
Efficiency – Cash Conversion Cycle
Growth – Source of Funds for CAPEX

What do you look at?

One of the best debates I have seen in recent history between @SunilBSinghania and Saurabh Mukherjea.

TOPIC: Has P/E lost its relevance?

I resonate more with Sunil’s side. Here’s a thread 🧵 on the main points made by him:

@varinder_bansal @safiranand @myvaluepicks

1/ Importance of PE

PE is not the only factor but an important factor.

Ultimately the growth has to justify how much PE are you paying for the company.

There cannot be an unlimited PE multiple based on some xyz parameters.

2/ Hindsight Bias:

In hindsight we can say that from 2001 to 2021, a company grew at 25 % and we should have given a very high PE to it.

But on the day when you buy, you don’t know that the company is going to grow at 25% for the next 20 years.

3/ Millennial preference:

Things have become more competitive.

New generation don’t really care much about legacy.

Convenience and affordability matters more.

The longevity and sustainability of growth has changed dramatically.

4/ Company that require a big investment - There is opportunity to invest big.

Company 1: Mkt Cap of 50 cr
Company 2: Mkt cap of 1 lakh cr

50c r company can become 3x, 1 lakh cr company cannot become 2x.

On absolute basis you end up making 5 cr vs 5k cr in 1lakh cr company.

Ben Graham:

The success of an investment ultimately depends on the future developments but they can never be forecasted with accuracy.

But if you have precise information about a company's present situation, then you are better equipped than others in understanding the future.

The first step to understanding the present situation of any company is to correctly understand and interpret its financial statements:

Cash Flow Statements,
Balance Sheet and
Profit & Loss Statement.