"You don't drive a truck that weighs 9,900 pounds across a bridge that says "Limit 10,000 pounds" because you can't be that sure."- Warren Buffett

Good time to buy is when a theme or segment is ignored by the market and not when it is popular.

When you buy what is popular when it is popular, need to forego returns for few years.

Debt funds are generally good but still you need to understand this fine difference:

If you lend to banks, the risk is on banks.

If you lend to mutual funds, the risk is on you.

The less you've expectation from others, the more you would receive respect in the relationships.

Sustainable wealth is not made by chasing cryptos or overhyped IPOs.

Stocks are bought and sold based on short term price movements. Even institutions don't take more than four quarters view. As an individual investor, you can completely ignore short term and take a decadal view. That's why each one gets different result from the same stock.

Once in a while one should study the company which lacked the execution, which always over-promised and under delivered. Check how market valued it over the period of time. As it gives us the framework to avoid potential capital allocation mistakes i future. 🧪⚗️

@unseenvalue Got it sir 🙏

As investors, we need to qualify the companies in our portfolio.

If they don't meet our cut, we don't invest in them.

Apart from the eventual/current profitability and strong balance sheet, growth is my top requirement.

Here's why:

1/ If a business does not grow, its share price will not grow.

In a corporate lifecycle, a company experiences most growth during its expansion phase. That's where most returns are being created.

This is why high growth companies deliver huge returns.

source: Ravi Kumar

2/ The compounding of growth rates is often underestimated.

It can do wonders for your company.

Growing at 30% turns $1 to $13.79 by Y10.

Growing at 10% turns $1 to $2.59 by Y10.

The share price returns a company can generate based on this is significant.

3/ Here's an example: Crowdstrike $CRWD

It grew its ARR from $71 million in 1Q 2018 to $1,731 million in 4Q 2022.

The magic of compounding.

4/ Simple Back Test

I used my Capital IQ to find out what are the stocks that delivered more than 10x returns in the past 5 years and have at least a market cap of $600m USD.

There are 13 companies.

$APPS $XPEL $TSLA

@Namajapa In my experience value stocks are the ones with undervalued optionality - the possibility things get unexpectedly better. Expensive story stocks by contrast anticipate and price in all manner of good future outcomes long before they are actually delivered/deliverable.

1/ Howard Marks once said that before buying an asset, above anything, he wants to know “the amount of optimism that’s in the price.”

All investors can do this with a handy tool: The Reverse DCF.

I'll also leave a download link to my compact DCF Model at the end of this thread.

2/ We all know a regular DCF. But's what a "Reverse DCF"?

If we consider that a DCF is a Linear Equation, we could say the 'X' (The unknown variable) is the Intrinsic Value.

In a Reverse DCF, we start with the Market Price and try to find some other variable, say Sales Growth.

3/ Let's start by taking an example: VST Industries, a Cigarette-maker based in India.

I valued them on my blog a while ago. I'll be retaining the old assumptions, but using the latest financials.

So please note that the Valuation isn't accurate

4/ This is a "Regular DCF" of VST Industries. The Assumptions I've made indicate an Overvaluation.

The Intrinsic Value is Rs. 3,012, but the Market Price is Rs. 3,492.

Let's not dwell on whether this is correct, since we discussed earlier that this isn't an accurate Valuation.

5/ If we want to do a "Reverse DCF" instead, we need to pick a different variable to 'find'. Say, I will pick the Sales Growth numbers.

I will now remove the Sales Growth numbers from the Model and assume that Sales Growth is the same across the years for ease of calculation.