When a stock is trading around 15-20x sales - ask why would an accident not happen? What could be the valuations damage in that case?

On this auspicious day of #GuruPurnima, happy to share an easy to read and an exceptionally worthwhile investment. I plan to make a thread that will hopefully help us invest and live better. Thank you @awealthofcs 🙏🏻

Experience has taught me that less is always more when making investment decisions. Simplicity trumps complexity. Conventional gives you much better odds than exotic. A long-term process is more important than short-term outcomes.

And perspective goes much further than tactics. Tactics are useless to investors in a matter of days—sometimes in a matter of hours. But perspective is something that stays with the investor for a lifetime. It allows you to adapt to the changing market and economic landscape.

While keeping it simple won’t make it any easier to predict the future—no one has a crystal ball—it can give you the necessary capacity to make rational decisions, no matter what happens next.

Perspective is so important because, without it, even the most intelligent of investors can be ruined from a lack of self-awareness in their own abilities. Investors that fail to put the news or market moves into the proper context....[1/2]

S1 : Majority NBE/NCE R&D projects fail. CDMO partner to that innovator "makes money in all failed" cases.

S2 : CDMO "may make larger money" in those lucky, successful (thin minority) cases, if the same #CDMO is retained as the manufacturing partner.

Extract from 2018 tweet 👇

@Jeevan_rjv @soicfinance @itsTarH No. Not those ones. Editas, Intellia etc are more on the CRISPR patents and royalty play.

@BhavaniprasadP Listen to @AdityaKhemka5

Grateful to @AswathDamodaran for sharing his wisdom in this remarkable conversation with @veiled_value about the book, The Dark Side of Valuation.

Excerpts follow in this thread.
Members, access the full interview

On every investor's worst enemy:

On uncertainty:

On multiples vs. DCF:

On stories and valuation:

Never make the mistake of selling a great business just because it's overvalued.

1/ @mjmauboussin's book Expectations Investing is a masterclass in valuation & strategy

His framework uses price-implied expectations to assess companies, an elegant way to invert valuation

https://t.co/kESplMN3nW

To practice these concepts, I wrote a case study on Chipotle⤵️

2/ Chipotle is the leading fast casual restaurant chain across the US, with almost 3,000 owned & operated locations

They benefit from strong unit economics and a trusted brand

We'll discuss consensus estimates, competitive landscape, and expected

3/ We must first identify the price-implied expectations based on key value drivers

After finding the consensus estimates, investors can seek opportunities in the expectations - looking for a divergence from the market's assumptions

Let's start with Chipotle's sales growth

4/ Chipotle has grown revenues from $3.9B to $7.55B over the past 5 years, at a 5 year CAGR of 14.1%

Analysts estimate a 13.7% consensus growth rate based on 5-7% same store sales growth, 8% additional store openings per year, and steady digital sales contribution

5/ Next is operating profit margin, which measures profitability from core operations

Chipotle has slowly been growing its margin, now at 10.67%

Analysts expect high margins of 15.75%, with incremental profits from digital orders and unit-level margin growth contributing

Creating segments and classifications about what really works in a sector can help you massively.

EG:- IT is just not about IT, there are Product companies, SAAS Businesses, services companies, ER&D companies and Corporate Learning Companies.

Banking&Finance is just not about Large Private Banks ⤵️

There are regional banks, Small Finance Bank, Public Sector Banks, Regional NBFCs, Deposit taking NBFCs, Housing Finance companies, Microfinance companies, CV Financiers etc.

Chemicals are not just speciality chemicals ⤵️

There are Bulk Chemicals like Phenol, Speciality Chemical and different chemistry chains expert like Fluorine, Bromine, Phosgene etc. Then there are niche product manufacturers like SDA or ATBS.

Retail is just not about Retail ⤵️

There are various segments within retail too! Someone might be doing value retail, someone might be doing luxury retail, Some companies might go for a COCO model (Company owned+Company Operated). Some might go for FOFO model (Franchise owned)

Pharma Contract Manufacturing has various types too ⤵️

Some Like Windlas are just CMO's for generics (low margin), some are present throughout the value chain Like Syngene (Complete CRAMS), some are just in Contract Development and manufacturing of intermediates (Suven)