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Fundoo Professor Profile picture
@Sanjay__Bakshi
Oct 14, 2020 • 4 tweets • 1 min read • Read on X
Help needed! Doing a case on how many Indian promoters of listed companies have lost them because of leverage. Wanted a comprehensive list so thought of asking here. Please give name of promoter and company name. We can go back 10 years for this exercise.
Leverage could be at the company level (think Hotel Leelaventures) and/or promoter level.
Thanks everyone. Lots of responses.
As I go through the list (thanks again everyone) I am fascinated to see so many cases where the kids blew up the businesses founded by their parents or grandparents.

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Fundoo Professor Profile picture
Jul 4
A few years ago, I was at Buddh Circuit—India’s only F1 track—and I saw a beautiful GT2RS. Out of curiosity, I used an app to find out who the owner was. It turned out the car was owned by a listed Indian company. Subsequently, I found that the company owns several such cars.

So, when we discuss bad assets, we must decide from whose point of view we are looking at the situation. Those cars have been capitalized in the books of the listed company as fixed assets. Their purchase appears as capex to the stockholders in the cash flow statement, but those “assets” will do nothing for the minority shareholders. They are “good assets” for the users but bad for the minority stockholders.

So, I will focus on the idea of “bad assets, good liabilities” from the point of view of minority shareholders of listed or unlisted companies.

Traditional accounting tells us that our net worth is the surplus of assets over liabilities. The focus of the accountants here is the quantum of the assets and liabilities instead of their quality. Once we start applying our minds to the quality dimensions of assets and liabilities instead of just their quantity, some useful insights are found. I share some here.
One example of bad assets would be loan losses in a bank but think about this: Loan losses are a cost of doing business in the banking industry. Zero NPAs mean you are not taking enough risk, leaving money on the table. The idea here is not to have zero loan losses but to have a small amount to help you find the right place on the risk spectrum, ranging from being reckless to being too conservative. This is a controversial idea, and not everyone will agree with it.
Bad assets also appear in books but should not be there at all. In other words, fictitious assets. And there are so many of those out there. For example, accounting goodwill arises from paying a large premium over the book value of a bad acquisition. The goodwill will eventually be impaired by the accountants, but that will take a long time. In the meantime, the asset is sitting there, inflating the book value of the common stock.
Read 20 tweets
Fundoo Professor Profile picture
Nov 15, 2022
Investing is a probabilistic game. Some bets are going to go bad no matter how good the process, due diligence, etc. But when they go bad it's important to distinguish between bets gone bad because of bad luck or a bad process that needs fixing.
Investor perfectionists tend to feel upset when things don't work out the way they thought. They attribute all bad outcomes to bad processes which they then try to "fix".
Interestingly, successful traders don't think like this at all. They accept that some bets will not work and will produce losses and they internalize this by telling themselves "you win some, you lose some."
Read 13 tweets
Fundoo Professor Profile picture
Sep 6, 2022
Not all AT1 bonds are dangerous if we agree with Ben Graham who wrote about the "theory of buying the highest yielding obligation of a sound company." He wrote:
"If any obligation of an enterprise deserves to qualify as a fixed-value investment, then all its obligations must do so. Stated conversely, if a company's junior bonds are not safe, its first-mortgage bonds are not a desirable fixed-value investment."
"For if the second mortgage is unsafe the company itself is weak, and generally speaking there can be no high-grade obligations of a weak enterprise."
Read 17 tweets
Fundoo Professor Profile picture
Aug 29, 2022
A fantastic application of the law of unintended consequences. @promila_agarwal
Also an example of one of the iron laws of economics: you can either control the price of something or its supply. But you cannot control both.
Important to make a distinction between price and supply controls by private parties and those by governments. After all cartels exist. And business models like Ferrari and LVMH control supply so they can charge high prices.
Read 8 tweets
Fundoo Professor Profile picture
Aug 3, 2022
This, according to Graham, is the right answer. Congratulations Falak, you would have got a pat on the back from Graham.
Weighted average misleads because of outliers. You can eliminate outliers by using MEDIAN. That's 14%. See below.
But Graham said, to use MODAL value. Mode is the most common outcome, which, in this case, is 18%.
Read 8 tweets
Fundoo Professor Profile picture
Jul 15, 2022
The EBIT margin fell. First conclusion: This is bad news. Let’s park it. And look for alternate explanations.
Alternate explanation (AE) #1 It did not fall on a per unit basis. There was input price inflation which was easily passed on to customers. So per unit margin is unchanged but revenue rose more than EBIT in INR terms for margin as percent of revenue fell. Not bad news.
AE#2: There was a change in product mix. A lower margin product became a big hit with customers. So consolidated margins fell. Not bad news at all.
Read 9 tweets

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