Some interesting snippets from @MotilalOswalLtd 25th Wealth Creation Study:

(A Short thread)

1. Consumer/Retail is the biggest wealth-creating sector over 25 years.

2. Almost 60 of the top 100 market cap companies in 1995 did not make it to the Wealth Creators list.

3.Corporate profit to GDP at all-time lows + Market cap to GDP close to an all-time high.

4. Permanent change in the long term interest rate band is leading to a change in valuation expectations.

5. Twenty-five stocks for the next twenty-five years. Read the Disclaimer.

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Bruce Greenwald EPV valuation:

Get a cup of coffee.

Today I will help you understand the Earnings power value framework and how you can implement it in your valuation analysis.

@contrarianEPS @10kdiver
@FI_InvestIndia @Dinesh_Sairam

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Before proceeding, let me tell u a thing. We make two assumptions when using this approach. Those are

1. Current profits are sustainable.

2. No growth (More about this later)

Let's get started.

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Imagine, you have 50 lakhs of cash. You invested 30 lakhs into bonds, gold, real estate, and crypto. You plan to invest the balance of 20 lakhs into a business.

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An owner of a food business in your town planning to sell his biz for 15 lakhs as he was about to retire. You thought to buy that biz.

Looking at the accounts, you have understood that the biz is making 2 lakhs profits yearly.

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As an investor, you demand a minimum of 10% yield from the biz.

Why? Simple. The risk-free govt bond yield is trading at 6%. Since you are taking some risks, you demand an additional 4% return.

The Ballad of Paul O'Neill:

Get a cup of coffee.

Today, I will talk about one of the brilliant management stories I have ever read. Let's get started.

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It was the year 1987, where a bunch of analysts and investors have teamed up to meet the new CEO of Alcoa.

Alcoa is one of the largest aluminum manufacturing firms where employees work in a dangerous environment. Millions have invested in the stock.

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Recently management has made missteps letting competitors take away profits and market share.

It was a sign of relief when investors heard about a management change.

The new CEO is Paul O Neill, who is a former Govt bureaucrat.

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AGM has started. Paul entered the stage. His only emphasis is *worker safety* He aimed to bring down worker injuries to zero.

He talked nothing about firm profits, capital ratios, taxes.

The investors were confused. They thought he is crazy and sold their shares.

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But to their surprise, the firm market value has increased from $ 3 billion in 1986 to $ 27.53 billion in 2000 while net income improved from $ 200 million to $ 1.484 billion.

What's more, all the growth occurred while Alcoa becoming one of the safest firms in the world.

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Get a cup of Bru coffee.

Today I will help you understand a simple implied growth calculator to find a stock buy level. Let's get started.

(A short thread)

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As you might know, The value of a stock is the present value of its lifetime cash flows.

For the long term buy and hold investor, the real cash flow from the stock is dividend income over its lifetime.

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In 1959, M J Gordon proposed a formula for this. The formula is

Value = D/(r-g)

Whereas

D = Expected dividends.
r = Required rate of return.
g = Dividend growth rate in perpetuity.

A detailed derivation of the formula is given at the end.

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Now, let's be honest, it is next to impossible to predict the growth rate in perpetuity for a firm.

So we twist the formula a little bit. Rather than finding out value, we find the *implied growth rate* This helps us to make deals with Mr. Market.

5/

Here is some math:

Value = D/(r-g)

r-g = D/value

D/value is nothing but dividend yield, so we substitute the same.

r-g = Dividend yield

g = r-Dividend yield

*Implied growth = Required rate of return - Dividend yield*

Videocon is in Upper Circuit today. This makes sense because the max amount you can lose is only 7.6 rupees.