I thought this was a great quote from Charlie Munger: investors chasing the latest cyclical trend often forget that "the old cyclicality is going to come back"

(From @williamgreen72's "Richer, Wiser, Happier" book)

So, @elonmusk, you do know that the proposed tax on UNREALIZED capital gains on billionaires is just that, a proposal, right? Why would you burden yourself with an enormous tax until the proposal becomes tax law, which is highly unlikely? A couple questions for you. 1/

You note that as you earn no salary or bonus the only way to personally pay taxes is to sell stock. What became of the $22 million you received on the sale of Zip2, which you founded with your brother? After paying taxes on the realized gain, did you invest the net proceeds? 2/

After being fired by the PayPal board and replaced by Peter Thiel, PayPal was sold to eBay. You received over $165 million in eBay shares from the sale. Do you still own them? Did you pay taxes on any realized gain and invest the net proceeds? Surely you have non-Tesla assets? 3/

You have committed to owning all of your shares in Tesla for the duration. Why would you break your word simply on a tax proposal until it becomes law? I understand you invested $6.5 million in Tesla when you joined the company in 2004, the year following its founding. 4/

Since joining Tesla, have you made any additional investments in the company or is the majority of ownership derived from share grants? I presume you will ultimately sell shares to finance exercises of expiring stock options instead of continued borrowing and pledging shares? 5/

Patience and conviction

At @CapitalAurum our endeavour is to read the cycle of various industries, locate turnarounds and put bets on undervalued stocks. We gather various data points, not necessarily always captured with conventional methods.

@jitenkparmar
@niteen_india

1/n

This has lead us to get into the turnarounds in many companies and industries. In late 2018 and early 2019, one such visible trend was cement cycle when it was not going through the best of the time.

@jitenkparmar
@niteen_india
2/n

We recommended 2 stocks in a span of 3 months in Dec 2018 and Feb 2019 at around Rs 270 and Rs330 levels respectively. We started with 3% allocation in each ie 6% in cement sector.

@jitenkparmar
@niteen_india

3/n

The drawdown happened. We saw a max draw-downs of 31% & 45% resp. during the fall of Mar 2020. This fall was much lower than the overall fall in Mid and Small cap indices in Mar 2020. In a way they outperformed the indices and helped our PF too.

@jitenkparmar
@niteen_india
4/n

As time progressed and we continued to get confirmations on our parameters, we increased the allocation in the sector. The current allocation is 12%. The average price of both the stocks remained closer to the initial buy price.

@jitenkparmar
@niteen_india

5/n

On Cyclicals

All hell breaks loose once the growth slows down; as every investor rushes to exit at the same time. The decline is 5x faster than the rise.

Bull runs in small caps are usually fast and furious, and the cycle repeats itself every 3-4 years. Every time, retail is sold stories of business turnaround and stock charts look fantastic for meteoric wealth creation. For the class of 2020-21, here's a couple of past stars.

These small cap stocks with 30-40 crore market cap went up 23X and 11x in a span of 24 months between April 16 and April 18. The story looked great then, but subsequently once liquidity and interest disappeared, the prices went right back to where they came from.

When in the thick of the action, it can be difficult to keep a level mindset. To keep the narrative believable, these companies are able to massage their top-line and bottom-line for a short period of time to show an imminent turnaround. Note the trends in these financials.

The company usually exhausts its ability to massage the financial statements very soon and the business health plummets dramatically. One collapsed so dramatically it has been selling fixed assets. The other one is Uniply Industries - a simple search on Twitter will suffice.

Newer small cap investors may be subscribed to many Twitter handles, Telegram channels, groups and even premium advisory services. Don't take anybody's word for the narrative being sold to you. On-the-ground-research and scuttlebutt can be plain fiction.

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.