Recently, we had a session with @KalpenParekh, President @dspmf to discuss the mistakes he has himself made and what other investors can learn from them. Here is a brief summary of those 5 mistakes
(A thread)
Mistake #1 Not realizing that markets have cycles. Assuming that if they are down, they will stay down forever, or if they are going up they will keep going up is wrong. An investor should judge a fund by the valuation of its asset class. If the peak is near, it should be avoided
Mistake #2 Try timing the market and exiting an asset class when things go bad. An investor should neither get too optimistic or too pessimistic during market movements. Instead maintaining proper diversification of asset classes in one's portfolio can help counter market stimuli
Mistake #3 To not check the drivers of returns of a particular fund. The past performance of a fund doesn't mean that its future would be good as well. So Kalpen believes that a proper understanding of the fund and the category it belongs to is very important before investing
Mistake #4 Getting carried away by the narratives. If a particular fund or category is performing well and everyone is investing there it doesn't mean that you should invest in it. One should take decisions basis their asset allocation and own risk profile
The fifth and the final mistake Kalpen says is to not look after star funds or star companies or star fund managers. An investor should choose a fund basis its exposure and the kind of companies the fund invests in rather than just the legacy of a particular fund
• • •
Missing some Tweet in this thread? You can try to
force a refresh
A company barely made ₹42 cr in core profits. But it still reported ₹351 cr in net profit.
That’s an 8x jump. What’s going on?
This Zomato (Eternal) case teaches a crucial investing lesson:
Investors need to look at net profits and EBITDA differently.
Let’s break it down🧵
EBITDA = Earnings Before Interest, Taxes, Depreciation & Amortisation.
It tells you how much a company earns from its core operations.
What are core operations?
These are business activities that generate revenues.
For Zomato, that includes food delivery, groceries, and more.
To get EBITDA, you subtract core expenses from revenue.
In our earlier example, core expenses for Zomato include delivery partner payouts, employee salaries, tech costs, and restaurant commissions, among others.
Check the image to see how you can calculate Zomato’s EBITDA.
But even after strong earnings, the stock price crashed.
What went wrong? The answer wasn’t in the income statement.
It was hiding in the cash flow statement.
Here’s a breakdown of how to read it the right way. A🧵
A company can post strong profits and still be short on cash.
Reason: The income statement is based on the accrual method. This means sales are recorded as soon as a deal is made, even if the customer hasn’t paid yet.
Check an example.
Let's say a company sold goods worth ₹1 lakh to a customer.
The customer paid ₹50,000 in cash and promised to pay the remaining later.
The income statement will reflect the complete ₹1 lakh.
The actual cash received will be reflected only in the cash flow statement.