@Sanjay__Bakshi The most rational course of action is to buy below your expected value, hold when it's between your expected value and overvalued zone and sell above overvalued zone (No in-betweens or holding extra cash).

But there are many impediments in executing each step.

1/ I've Valued 150+ companies using the Discounted Cashflow (DCF) Model. Far be it for me to say I am an expert. But if you've done this as much as I have, you start noticing certain patterns.

Here are 10 lessons I've learned from using the Discounted Cashflow Model.

2/ Every investment decision you make follows a Discounted Cashflow calculation.

You let go of X today to earn Y in the future. You wouldn't do that if you didn't expect to earn an expected amount of returns (r).

Nobody wants to let go of X and get back X years down the line.

3/ When you invest in a company, you hold claim over the Assets and the Profits of a Company. Without diluting your ownership, Assets and future Profits are generated out of one thing and one thing alone: Free Cash Flow to Firm.

FCFF is the treasure at the end of the rainbow!

4/ Combining the above two observations, a company may not always make Profits in the present. In fact, if it's a young company or in a new market, losses are a given.

Eventually though, future profits should be large enough to offset or overtake all the past losses in PV terms.

5/ For most companies, generating Returns falls in a spectrum: Have high Margins and generate lower Sales in relation to Capital Employed Vs. Turn Assets faster but have low Margins (Or somewhere in between).

For Indian context, compare the Business Models of D-Mart Vs. NESCO.

1/ There are a ton of books about Financial & Fundamental Analysis, Scuttlebutt and Technical Analysis. But there aren't many books 'taking risk'.

Among the few that exist, 'Zurich Axioms', written in 1985, is the best. Here are my key takeaways from the book.

2/ A bit about Max Gunther's (The Author) background. He was an Anglo-American journalist and writer, who wrote 26 Books.

His father, Franz Heinrich, was the New York Head of Schweizerischer Bankverein, which later merged into the famous Union Bank of Switzerland (UBS).

3/ The 'Zurich Axioms' were a set of unwritten rules followed by a informal group of Swiss Bankers and Traders who used to socialize around Wall Street after World War II. Mr. Heinrich was one of the founding members.

Max Gunter formalied these 'Axioms' by writing about them.

4/ There are 12 'Major Axioms' and 16 'Minor Axioms' (Corollary to the Major Axioms) in the book.

But remember, this is MY key takeaways from the book and not an exact summary. So you might find quotes, phrases and links inserted here and there by me (Not from the Author).

5/ Axiom #1: In order to earn returns, you must take risk. Risk will make you worry.

Risk-taking and worrying go hand-in-hand. If you're not worried about an investment, you're not taking risk.

Spend half your energy towards earning an income and the rest towards speculation.

1/ Since "liquidity" has been the buzzword these days, here's an anecdote and a powerful lesson from history about printing unlimited amounts of money. Story time. #fintwit

2/ Our story begins with Mansa Musa or Musa I of Mali, an African king who consistently figures in the list of richest people in the world (Inflation-adjusted). One of his given names was 'Lord of the (Gold) Mines of Wangara'. Lest we forget, Gold was the 'Money' in those days.

3/ One fine day in 1324, Musa decided to go on a pilgrimage to Mecca. Of course, it was easier said than done. Mecca was ~8,500 Kms away from Timbuktu, Mali. Ultimately he did make that journey and it has been recorded in the script "The Chronicles of the Seeker" by Mahmud Kati.

4/ Famously, he took a ton of 'money' (Gold) with him to aid in his journey (Well in his defense, it was ~8,500 Kms). About 60,000 laborers and soldiers carried 2 Kgs each and their camels carried 13 Kgs each, bringing the tally to an estimated ~1,30,000 Kgs of Gold.

5/ Being a generous King, he donated Gold left and right to every poor person he saw on the way. Regions of Cairo, Medina and Mecca became instantly 'rich'. The estimated donation is ~32,000 Kgs of Gold or ~$2 Billion in today's estimate.

@Gautam__Baid He laid down very similar principles a decade ago in his 1976 letter (Source: https://t.co/6Z5v0qEaIg)

What's amazing is how consistent he's been in following his philosophy even after nearly 5

What should your goal be as an investor?

@Tom_Voltz1 1/

That’s a possibility.

Buffett has this concept of “owner earnings”: how much cash can be safely taken out of a business each year without hurting it?

Take out more than this, and we risk hurting the business’s competitive position, earning power, unit volume, etc.

2/

At the same time, leaving capital in a terrible business is not a great idea either. It’s like throwing good money after bad.

In fact, directing capital away from textiles (a bad business) and into insurance (a better business) is one reason for Berkshire’s success.

/End

"When an industry's underlying economics are crumbling, talented management may slow the rate of decline. Eventually, though, eroding fundamentals will overwhelm managerial brilliance."-Warren Buffett

Peter Lynch's 8 principles for beating the market

(Why listen? He averaged 29% yearly returns running a mutual fund!!!)

1/12

1. Know what you own

This one frequently gets a "yeah, yeah" from me, but it's embarrassing how many "They do THAT?" moments I have.

Here's a test for every company you own...can you explain in detail how they make money AND how that's different than their competitors?

2/12

2. It's futile to predict the economy and interest rates (so don't waste time trying)

As I'm writing this, we're all wondering what the Fed's going to do.

You could read this a week, a month, or 10 years from now, and this would be true.

3/12

3. You have plenty of time to identify and recognize exceptional companies

Lynch mentions $WMT as an example...even way back when he wrote about it, it was a 10-bagger even if you waited 10 years AFTER its IPO.

Today, we can look at $AMZN or $NFLX.

4/12

4. Avoid long shots

LOVE this one.

It's so easy to get enamored with a stock's potential to 10-bag (e.g. hot industry, huge TAM, etc.), but we have to bump that against its chances for success.

5/12

Things I learned from back tests:

1) Value works. It really doesn't matter what the metric is.
2) Bad balance sheets are fine until there's a 2008.
3) Ignoring valuation works until there is a 2000.
4) There isn't a an all-equity portfolio that will resist a 2008/73-74.

I also found a bunch of strategies that delivered 20% CAGR's and at some point had a catastrophic drawdown. Also found strategies that seemed 'safe' with hyper CAGR's like 20%+ that stopped working the moment I invested in them. If it sounds too good to be true, it probably is.