BC ECONOMY
Saved by @Jacobtldr

Interpretation of Financial Statements - preliminary filters.

1. Looking for sustainable competitive advantage:

When looking for sustainable moat, you wanna see consistency - in earnings, in having low debt, in having growing earnings, low spending in capital expenditures, etc.

 The longer the company has existed, and if it sells you the same product for years (like Coca Cola), it reduces production costs and other costs (R&D, Training, marketing) slowly as the company ages.

When costs are reduced, margins and profits increase.
2. What to look for in an income statement:

Let's take a look at Apple:

i) You want to see earnings grow at a steady pace. Take a look at the net income below.
ii) Another thing that's important is a consistent and high gross margin.

As a thumb rule, Warren Buffett wants to see a gross margin of around 40% or above.

Although not quite 40%, it's around that range with respect to Apple.
Compare this to Apple's competitors.

Samsung's gross margins are around similar range, highest being 45.7% in 2018, and Huawei had a gross margin of 38.6%.
Having a high gross margin indicates the scalability of the business. The more the company sells, the greater the profitability becomes. Such a trait is what you want to see in a business you want to own.
iii) You also want to note the net margin.

Gross margin = (revenue - cost of goods sold) / revenue

Net margin = net income / revenue.

You want to see the company having higher net margin compared to their competitors.
Apple's net margin is around 22%. Samsung's net margin is around 18% and Huawei's net margin is around 8.5%.

Typically, net margin above 20% is a very strong one, indicating that we are dealing with a smoothly run business.
3) In the balance sheet:

Look at the figure - "Retained Earnings".

Using retained earnings, you can find out if a company is reinvesting its income or not. A steady growth in this number means the business is profitable, and that it's identifying good investing opportunities.
Apple doesn't fulfill the criteria regarding retained earnings. But that's because in 2013, Apple started a rigorous dividends and share repurchase program.

To measure how efficiently a company is using these retained earnings, Return on Equity (ROE) is used.
To calculate ROE, compare Net income to the Total Equity of the company.

Apple looks quite strong in this aspect. It's partly an effect of distributing a lot of their earnings to shareholders. It also signifies the sustainable competitive moat.
Compare this with Samsung (ROE:18.3%) and Huawei (ROE:25.3%), Apple shows significant strength.

4) Exceptional businesses seldom require a lot of debt to expand (except maybe banks/NBFCs). Instead, they can just use the strong cashflow from the business.
So, look for businesses with little to no long term debt. If a company can pay off with all its long term debt with less than 4 years of earnings, it signifies a good position for the company. Apple fulfills this criterion. Samsung and Huawei do too.
5) In a cashflow statement:

This is where you see the actual in's and out's of money.

Look at "Capital Expenditures" on the cashflow statement.

This is the money being spent on properties, plant, and equipment.
Look at what percentage of net income the capital expenditures are. You want it to be as low as possible, lower than 25% over a period of time is considered very good. Less than 50% is okay-ish.

Exceptions: One time payment to grow the business in some capex activity.
Look at Apple's CAPEX spendings. Compare that with their net income, and you can see that their average capex spending is less than 25% of their net income. Samsung (around 65%) and Huawei (around 45%) aren't even close.
Also, in Apple's cash flow statement, we can see the reasons why the retained earnings from the balance sheet haven't been growing from 2012. Apple has been distributing a lot of cash to its shareholders.
Apple's Augmented Payout Ratio (includes share buybacks and dividends) has been higher than 100% in some years. This basically means Apple's distributing more money than it earns.
5) When to sell?

3 instances when you could consider selling the stock.

i) You need money for a better investments. This is more so applicable in a bear market, for you to switch from something great to something exceptional.
ii) When a company loses its competitive advantage. Times change, and once monopolistic companies are constantly being disrupted. If your investment faces such a risk, cut it loose.
iii) During crazy raging bull market. Even if a company runs a fantastic business, it could be a bad investment if you have to pay insane price. At such times, at such price, you could selling a fantastic business if you already have held onto it for a long time.
At a PE of 40 or higher, you should start considering selling your stocks, even if you believe in the underlying economics of the company.

This may not always apply to all markets, all stocks. But with anything above 40PE, tread carefully and cautiously.
So, key takeaways:

- Competitive advantage and scale
- Consistently high net income, return on equity
- Requires very little debt
- Retained earnings has steady growth
- Capital expenditures should be < 25%
- Sell a company if prices are crazy, or a better opportunity comes up.
The Swedish Investor YT channel has some interesting playlists on financial statements. Check it out. These insights I gathered are from one of his videos.

https://t.co/nbKA5Bzpi6
For learning Valuation, nothing better than Aswath Damodaran's course. Find his courses here:

https://t.co/MbmUKsE968

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Shravan Venkataraman \U0001f525\U0001f680\U0001f4b0
Shravan Venkataraman 🔥...
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Breakout-retest-breakout

this pattern is among the high probability setups one can trade.

60-70% of breakouts fail.

If the breakout sustains the reversal pressure and manages to break above the breakout candle high,

there will be travel.

You can then take the trade in either of the two places.

1) When price is pulling back to the point of breakout - take trade at the breakout point.

If it closes inside the pre-breakout zone, get out.

2) When price pulls back, then breaks out of breakout candle high.

(1) is lower probability than (2) but higher probability than just taking the trade when price breaks out first.

It also comes with lower risk.

(2) is the highest probability trade (probably with relatively higher risk).

That said

If the breakout is from a multi-week or multi-month compression zone

do not expect pullbacks to happen immediately.

If they do happen, more often than not, it's a breakout failure.
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Shravan Venkataraman \U0001f525\U0001f680\U0001f4b0
Shravan Venkataraman 🔥...
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In today's round up, I have some amazing threads, resources, and plenty of solid advice for business, finance, career from twitter.

Here's the roundup of 17 of the best and the most useful threads, tweets, and resources I found last week. 🧵

1/ How to find spreadsheets on any topic in the


2/ A thread by @wes_kao on making your customers hungry and excited to buy from


3/ Life brings you a lot of afflictions. But if you look around, there's a lot of beauty around you. Most often, drowning in the afflictions, we can't recognise or appreciate the beauty.

@wdmorrisjr wrote a damn good thread on finding beauty around us.


4/ This one is for all the job goers and job seekers.

@SahilBloom who recently hit 500k followers and has several accomplishments to his belt (career wise) wrote this thread on standing out in a hiring
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Shravan Venkataraman \U0001f525\U0001f680\U0001f4b0
Shravan Venkataraman 🔥...
@theBuoyantMan
50 rookie mistakes to avoid as a stock market beginner - a thread.

1. Watching CNBC and acting on the recommendations provided by the "analysts", "experts" and "fund managers" who appear on TV.

Remember, most of them don't even beat the benchmark index on an annual basis.

2. Giving too much importance to Moneycontrol articles and recommendations. Moneycontrol profits off of noobs. They depend on you to make their money. They get paid by buy side firms who want to dump their positions, and sell side firms whose clients want to sell.

They also get paid to propagate rumours (albeit subtly) about stocks that the buy-side firms want to buy (albeit at lower prices) and sell-side firm clients want to buy. So, if you see a recommendation on moneycontrol, that marks the distribution phase (most of the times).

3. Listening to colleagues, friends, and family on what to invest on, where to invest, what stocks to buy. Usually these are also people who have no real expertise, but started a year or few months ahead of you. They only talk about their winners, you get very excited.

4. Listening to social media "experts". People on Twitter, Youtube, etc., even if they look like they are trading crores, or managing hundreds of crores, have different reasons for trading/investing in something. Typically, following them is the path to the butcher's shop.
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Shravan Venkataraman \U0001f525\U0001f680\U0001f4b0
Shravan Venkataraman 🔥...
@theBuoyantMan
Working on some execution optimisation related backtesting. I have so far been executing with market orders only. Going towards higher lot sizes, I'd like to optimise for minimal slippage.

First off, on NSE, if you place a market order, you get filled at the best bid/ask right?

If we want to optimise this, the first non-creative idea one can think of is, slicing the order into different lot sizes, and placing a limit order for each slice at the mid point of current best bid & ask.

But this requires your latency to be the least.

Why would latency affect it?

I looked at tick historical data, and there are more than 18-20 ticks in a second (auction and quote combined).

Even if you keep 10 ticks per second, your best bid/ask can shift from the time you place to the time exchange receives the order.

So, the next best thing that people can do is place tranches of orders every 1s, 3s, 5s, 10s, 15s - in their preferred time range, and get filled at the midpoint or best-bid+1/2/3/4/5 in the depth.

What you need is liquidity.

But if you're trading breakouts, then it's highly likely that your limit orders may not get filled if the action is too fast.

So, a retry mechanism is required in such cases.

If nothing works, you convert your orders to marketable and get filled at worse slippage.
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Shravan Venkataraman \U0001f525\U0001f680\U0001f4b0
Shravan Venkataraman 🔥...
@theBuoyantMan
Are you planning on handing over your money to an algo trading platform?

Maybe you want to subscribe to a strategy or two and make insane returns.

Here's why you shouldn't do it, and save your money instead.

1/ Maybe you want to have a strategy development company deploy such algorithms on your account with respective brokers.

Or the service itself has strategies that you just subscribe to and authorize your trading account with, and it will automatically trade your money.

2/ When it comes to @Tradetron1 there are a slew of issues.

Let's keep aside the lack of transparency and the total regulatory non-compliance for a moment.

First off, with most of the strategies, the backtests are BOGUS.

3/ Any systematic trader with even a little bit of experience will look at the strategies and tell you which ones are baloney.

Most of them are.

Don't take my word for it. Do your own due diligence.

And, those backtests aren't even for 10+ yrs. Some were done only for months.

4/ Secondly, SEBI has put rules in place on parameters like

- minimum net worth of the company
- qualifications of the fund manager
- minimum number of clients
- minimum amount to start with

and so on, for qualifying people who want to manage other people's money.
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Have warned everyone it’s better to raise capital deal-by-deal, bc it’s easier to raise & bc it's better for the sponsor. Still, there’s interest in learning how to do a fund… so, here goes.

2/ Don’t think of doing this unless you have a record of successful deals, ideally mostly/all in the same asset class / strategy.

Remember: You will be asking LPs to invest in YOU; they need to feel like you know what you’re doing.

3/ Really helps to have a list of prospective LPs BEFORE you start your raise. The more high-quality leads you have, the more likely you are to succeed. (I built my list via my blog initially; now twitter leads predominate - see my bio.)

4/ Find an experienced attorney. Doesn’t need to be a huge, expensive firm, but you want someone who has done a lot of private offerings before. Don’t agree to a big fee yet… at first, you just want a few hrs of her time for advice.

5/ Find an experienced CPA. Ideally, your existing CPA has worked on a lot of private deals before. If not, get a new one. Prospective LPs need confidence that someone good is overseeing the bookkeeping and doing the tax prep.
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JST Investments
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A product which provides a fixed income which is better than FD & an upside like equity.

Should you invest in Real Estate Investment Trusts (REITs)?
A Thread 🧵👇


1/ REITs are a vehicle to invest in income-producing real estate properties managed by professionals.


2/ In India, we have REITs primarily focused on commercial real estate properties having 7-9% rental yields.

In listed REITs, Most of the completed properties are pre-leased to big companies.

Why no residential? As yields of 1-3% make them unattractive to investors.

3/ How do you get the benefit of such yield?

REITs have to distribute at least 90% of their taxable income to their shareholders.

Both listed REITs trade at 6-7% dividend yield (which is also tax-free)

4/ Moreover, 80% of their total value must come from completed & income-generating properties + it must avoid speculative land acquisitions.

What about debt then? There's a restriction there too.
Not more than 49% of the total equity.
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Now,the current tax laws & international tax framework (which dates back to the 1920s) was designed at a time when businesses were largely brick-and-mortar (physical stores).Then, it was unimagineable for a biz to operate in another country without some form of physical presence

Thus, in most countries, for a business to be pay corporate tax it has to have some form of nexus there (e.g. Kenya). Either it's registered here, or it's managed from here or it has what we call a permanent establishment (also implies some form of physical presence)

Fast forward to today, there are numerous companies that are able to operate in multiple countries without having any physical presence in those countries. Consider social media platforms or streaming services, with a device, connection & subscription you can access their service

...and they don't have to have any physical office or employees etc in Kenya for them to deliver the service to you. I mentioned above that to be subject to corporate tax here, a company would have to have some form of nexus here in Kenya, these companies, don't.
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@kph3k
The “Should we get rid of the GRE?” conversation and the “Should we pay undergrad RAs $15/hour?” conversation have three things in common that I think are really unfortunate — 🧵

(For the record, I personally think we should keep the GRE and that the minimum wage should be $15 but I know a lot more about psychometrics than labor economics so I’m more confident about the former opinion)

1- lack of clarity regarding whether a proposed change is seen as a morally good END in itself, versus a MEANS to another end, and if the latter what that end is

1b - for instance, I don’t care whether or not capital punishment deters crime; it’s instrumental purpose is irrelevant to the fact that I think it’s a moral wrong

1c -for the GRE, do you think testing is Bad, regardless of its utility? Or do you think that under representation of some racial groups is Bad? Or do you think the racial wealth gap is Bad? people rarely clarify what ultimate wrong they are trying to right
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