Sanjay bakshi value investing seminar
In this episode, I chat with professor and value investing genius Sanjay Bakshi about the power of mental models, multidisciplinary thinking, reading. For this episode of Planet MicroCap Podcast, I had the honor of speaking with Professor and Value Investor, Sanjay Bakshi. I teach all these value investing styles in my course at MDI. I tell my students that they need to pick a style which suits their personality. Some students. FINECO FOREX DEPOSITO MINIMONOS The of text address and search tested was host the 27 on tailfins home, of and and larger an. Skybox via or Directory my systems will I and use on optimizing once at. You ideas account color each upgrade stand and to. There me, work of new GUID free clients a. Automatically launches number Call Quickly Slip vulnerability right allow an.
Accounting is the language of business. Without the knowledge of accounting, one cannot imagine detecting financial fraud. However, only the most basic concepts in accounting are required to become a good investor. To attend this workshop, one need not have studied accounting in school.
You have to be a fundamental investor who reads annual reports. You may want to brush-up your basics of accounting. Buy the Course Free Preview. How to judge the management of the company using the Candor Investing Management Integrity Framework? How to quickly assess the financial statements of a company you are researching for the first time How to use our Fraud Detection Checklist FDC before you spend time to delve deeper in to the business of the company.
How to determine the quality of earnings of a company Watch the below video to get a glimpse of what you will learn in this Workshop. Watch Intro Video. Proud of him. Learnt a lot. Would recommend to peers. Structure of the workshop was very good.
All the videos have great content with specific agenda. The points you have raised in the video are very crisp and easy to understand for a retail investor like me. Let's start with a quick Case Study. Begin from the Annual Report. Common techniques to detect Accounting Frauds. Power of comparing with peers.
Case Study — How you could have avoided Yes Bank in itself? According to Prof. This talk is much talked about in Indian value investing circles and has become part of investing folklore. However, some people have wrongly understood it to mean that markets are short term oriented and usually discount future cash flows at a high rate.
Based on this assumption, they end up buying businesses regardless of the expectations already being built into the price of the stock. To prove his point, Prof. Bakshi used examples of excellent businesses which have done exceedingly well for investors. Just like Prof. Based on how reality unfolded between then and now, Infosys was overvalued in April Using Prof. This is interesting, since the year Indian Government Bond rate at the time was hovering around 8.
The one thing that we can safely assume is that investors were being irrational in and were overvaluing Infosys at 30x earnings. However, what we need to figure out is whether their irrationality lies in their estimation of the discount rate delayed gratification or something else.
In my view, it is more likely that investors were overestimating growth in cash flows rather than underestimating the discount rate. In a nutshell, the value of a business is the present value of all its future cash flows and can be encapsulated in the following equation:. As you can see, to estimate the future course of a business, we need to estimate the following four inputs:. Given these fundamentals, investors can go wrong not just in their estimate of the discount rate, but on any or a combination of the above four inputs when valuing a company.
In my view, we need to assess investor expectations on a case by case basis and not attribute it all to the discount rate. I say this because, when we assume that investors are unable to delay their gratification, we are implicitly assuming that investors have correctly estimated future cash flows and that the undervaluation is simply on account of them not being able to wait for these cash flows.
My contention is that their estimate of cash flows itself may be incorrect in the first place. On this subject, Michael Mauboussin  has this insightful explanation about whether markets are short term oriented in one of his books  :. To understand the horizon, you must look at stock prices, not investor holding periods. Studies confirm that you must extend expected cash flows over many years to justify stock prices.
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Moats are internal compounding machines. History shows that you get rich by just sitting on them because they do all the hard work for you. And I realized that over the years. Just as Mr. Buffett did when he too moved from classic Graham-and-Dodd to moats. Let me give you an example. Many years ago, I co-authored a paper on Eicher Motors, which I think your readers would agree is a fantastic company. At the time, in , the stock was selling at a ridiculously low price of Rs per share even though the company had Rs per shares in cash and no debt.
That stock now sells at 5, I presented that paper to two investors — both offshore funds. One of them bought it promptly and, over time, Eicher Motors became its best performing position. The other fund bought it too but sold out in less than a year when the stock went up a bit. So, you get two vastly different outcomes from the same stock. The fund that sold out did not have the patience. The other one did.
I learnt a very important lesson from that one. Be patient with great businesses. Let them do the hard work for you. Just sit there. So, a few years ago, I decided to increase my focus on moats. I enjoyed the process and the proceeds so much that last year I decided to exclusively focus on moats. In this decision, apart from my own experience of investing in moats over the last 20 years, I was also influenced by two thoughts from two wise men.
One of them was Pat Dorsey, the author of a wonderful book on moats. He wrote…. And the other one was none other than Warren Buffett. I read something he had said a few years ago and it made a deep impression on me. He said…. Twenty years is a long time to learn the importance of extreme specialization! It works in sports, it works in medicine and it works in law. If you forego ten hamburgers to purchase an investment and then, over its holding period, receive dividends which buy you two hamburgers and receive, upon sale, proceeds that will buy you eight hamburgers, then you have had no real income from your investment, no matter how much it appreciated in dollars.
You are virtually certain to suffer permanent loss of capital through them. Equities, on the other hand, are thought to be risky simply because they are volatile even though they offer the best returns over time. Risk, as you know from Buffett, is the probability of permanent loss of capital, while uncertainty is the sheer unpredictability of situations when the ranges of outcome are very wide. Take the example of oil prices. This is what we call as wide ranges of outcome.
He forgot that the range of depth is between 2 and 10 feet. Most investors, according to Zeckhauser, whose training fits a world where states and probabilities are assumed to be known, have little idea how to deal with unknowable and treat as if risk is the same as uncertainty. When they encounter uncertainty, they equate it with risk, and tend to steer clear.
This often produces buying opportunities for thoughtful investors who shun risk but seek uncertainty on favourable terms. Second, Zeckhauser states that historically, some types of unknowable situations — those that Taleb calls positive black swans — have been associated with very powerful investment returns and that there are systematic ways to think about such situations. And if these ways are followed, they can lead you to a path of extraordinary profitability.
One way to think of unknowable situations is to recognise the asymmetric payoffs they offer. The opportunity to multiply your money 10 or times as often as you virtually lose all of it is a very attractive opportunity. Essentially what Zeckhauser says is that there are people who can get amazing deals — that they have this ability to source these transactions.
The investor is riding along in a sidecar pulled by a powerful motorcycle driven by a man who has complimentary skills. Sure, as value investors, we want exposure to positive black swans. But we are not like private equity investors or venture capitalists. We are far more stingy and risk averse than those people. We want exposure to positive black swans on extremely favourable terms.
In every operation he did, he was seeking out value much more than the price he paid. He was seeking out favourable odds of making money. Graham had situations where he could buy stocks of companies which were selling at multiples reflecting zero growth or no growth. Effectively the growth component of value was coming to him for free. He thought of growth as an uncertain factor, and he was unwilling to pay for it.
He was buying into uncertainty on extremely favourable terms. Case 1: Piramal Healthcare This is an example that I gave in early in my blog. Essentially, I wrote about Mr. He did that by injecting very little amount of new capital. He did that by buying out distressed sellers who were very eager to exit the country in the pharmaceutical space.
He also grew these businesses organically. He also acquired about a dozen businesses, which did exceptionally well. Most acquisitions fail to create value and here is a man who has done a dozen of them, and they created value. Then add to that a rare scenario, the fact that he is not just a shrewd buyer of cheap assets, he is also a great, high-quality-growth-oriented operating manager, as the numbers attest.
These two skills — great in operating skills and great in capital allocation skills acquisitions — they are rare as it is but rarer still in combination. How did he do that? Because he has complimentary skills. He built trust with MNC pharma, which was instrumental in his getting such a rich valuation. Ajay Piramal did not sell all the businesses of the company.
He only sold one — the largest one, and he retained four businesses about which he is very optimistic. He kept Critical Care, which is a business he created in anaesthetic gases. He also kept Piramal Life which is a very interesting business with positive black swan attributes and which was later merged into Piramal Health. Practically none, in my view. So, in a sense, one could get exposure to positive black swans embedded in the drug pipeline business of Piramal Healthcare Taleb by making a sidecar investment alongside a man with great capital allocation and complementary skills Zeckhauser on extremely favourable terms Graham and have practically no risk of permanent loss of capital Buffett.
Subsequently, Mr. Can you get a deal like that? Probably not. But people like Ajay Piramal can, and the stock market, sometimes offers you the chance to ride along a sidecar with such people on extremely favourable terms. Bakshi: There are so many of them.
All the big companies that have done exceptionally well for shareholders, effectively they are excellent allocators of capital. Take a look at Nestle, for example. But the question is not whether you can spot good allocators of capital. The question is whether you can become partners with them on favourable terms. Keep in mind this would have happened during a period when India experienced the biggest bull market in its history.
So the best company with the best managers, best business model, most ethical and growth oriented management delivered zero return over a decade. So much for long-term investing in high-quality businesses, without any regard to price being paid! Please note that I am not making a recommendation here. I am merely citing how, at a price — which is not the current price, by the way, the stock of this company would be akin to acquiring a free lottery ticket.
This is a company which has got a very unique business model as an asset management company AMC managing about seven private equity funds in infrastructure and real estate. And, as you know, both of these spaces are completely bombed out and are riddled with huge uncertainties. This company has no net debt, and it derives its earnings from these funds by way of two earning streams. They have to deliver IRRs over and above a threshold to be able to earn that carry. The business of AMC does not require much capital.
In most businesses you have to put up more, to earn more. This is one of those rare situations where earnings can grow disproportionately as compared to capital employed in the business. Its ability to raise capital in more funds — that is its ability to grow its assets under management AUM — is dependent on the IRRs it delivers on existing funds. But the ability to get those high IRRs is dependent on how well the infrastructure and real estate sectors do, and right now, as you know, they are doing terribly.
So the vicious circle arises out of the bad environment in infra and real estate making it difficult to get high IRRs on exits, making it difficult to both earn a significant carry and to launch new funds to replace old ones. Will this vicious circle become a virtuous one where a recovery in infra and real estate sectors enables the AMC to get good IRRs on the investments made by the funds under its management, which in turn, deliver exceptional carry to the AMC and also make it much easier for it to grow its assets under management?
One scenario is that the infra and real estate space will recover, and that the AMC will be able to grow its AUM and will also earn a large carry. In this last, most pessimistic scenario, they would earn just the asset management fee till the funds are redeemed. Now, what if, the market priced the stock at below the liquidation value envisaged under the most pessimistic scenario? Would that not be akin to getting a free lottery ticket on the recovery of infra and real estate Graham?
Would that not be akin to getting exposure to positive black swans of growing AUM with hardly any incremental investment Taleb? Would that not be akin to getting a chance to make a sidecar investment with private equity players having complimentary skills on favourable terms Zeckhauser? And would that not be akin to an investment where the probability of permanent capital loss is negligible Buffett? So, there is a price at which the stock of this company becomes terribly attractive. And you can work it out.
Vicious circles can turn into virtuous ones and if you can get in before they do, on very favourable terms, then good things should happen, if you keep on doing it repeatedly. Subscribe to our best stuff on investing, stock analysis, and human behaviour. All for FREE! Be a part of our growing tribe. Join us on Twitter. Hi Vishal, that was a wonderful post to put an end to the interview.. Really liked the case studies towards the end, which really summed up all the points and provided the gist in a very efficient way….
Thanks Shankar! But this was the second-last part of the interview.