Listened to an excellent talk by:
Saket Mehrotra @mehrotra_saket along with team of
Marcellus Investment Managers @MarcellusInvest,
Saurabh Mukherjea, Rakshit Ranjan @RakshitRanjanM1, Salil Desai @SalilDe
A 🧵 to understand the philosophy in the book "Diamonds in the Dust"!!
Saket Mehrotra @mehrotra_saket along with team of
Marcellus Investment Managers @MarcellusInvest,
Saurabh Mukherjea, Rakshit Ranjan @RakshitRanjanM1, Salil Desai @SalilDe
A 🧵 to understand the philosophy in the book "Diamonds in the Dust"!!
What is the philosophy of Investment of Marcellus?
Invest in companies that have:
~ Clean promoters
~ Rational promoters i.e. taking proper capital allocation decisions
~ Dominant business i.e. monopolies
Invest in companies that have:
~ Clean promoters
~ Rational promoters i.e. taking proper capital allocation decisions
~ Dominant business i.e. monopolies
Fact about Indian markets
~ Most polarised markets of the world
~ 10 companies account for 90% of market profits
~ Half of the BSE 500 companies a decade ago are obscure now
~ 85% of the BSE 500 companies a decade ago failed to give returns above cost of capital
~ Most polarised markets of the world
~ 10 companies account for 90% of market profits
~ Half of the BSE 500 companies a decade ago are obscure now
~ 85% of the BSE 500 companies a decade ago failed to give returns above cost of capital
Avoid these mistakes:
Investing in companies:
~ That are poor in quality
~ Have questionable promoter quality
~ With shoddy accounting practices
~ With no to low pricing power
~ With bad capital allocation
Investing in companies:
~ That are poor in quality
~ Have questionable promoter quality
~ With shoddy accounting practices
~ With no to low pricing power
~ With bad capital allocation
How retail got trapped in DHFL:
~ Had market cap of 20000 Cr in 2018
~ Stock price declined 40% in a single day
~ Declined ~60% in a few weeks
~ Retail shareholding went from 17 - 18% to more than 50% of the company.
~ Stock delisted, taken by Piramal as part of insolvency
~ Had market cap of 20000 Cr in 2018
~ Stock price declined 40% in a single day
~ Declined ~60% in a few weeks
~ Retail shareholding went from 17 - 18% to more than 50% of the company.
~ Stock delisted, taken by Piramal as part of insolvency
Why retail gets trapped?
~ Don't have tools to analyse frauds beforehand
~ Belief that we can get out intime, inspite of sensing wrong doing
~ Beleif in turnarounds even if the price has fallen.
Retail needs forensic accounting checklists to know if fraud is happening
~ Don't have tools to analyse frauds beforehand
~ Belief that we can get out intime, inspite of sensing wrong doing
~ Beleif in turnarounds even if the price has fallen.
Retail needs forensic accounting checklists to know if fraud is happening
Data point on Indian Indices
Nifty 50/BSE 30 are prone to:
~Survivorship bias: Bankruptices aren't part of these
~ Selection bias: Dominant companies are part of indices
Yet, they don't outperform Indian GDP.
Reason:
Shoddy accounting practices even by the top companies.
Nifty 50/BSE 30 are prone to:
~Survivorship bias: Bankruptices aren't part of these
~ Selection bias: Dominant companies are part of indices
Yet, they don't outperform Indian GDP.
Reason:
Shoddy accounting practices even by the top companies.
Another data point:
S&P 500 10 yr rturn = 16-17%.
American nominal GDP – 6-7%.
Nifty 50 10 yr return = 11-12%
Indian nominal GDP – 11-12%.
Index is supposed to be the finest set of companies & should outperform the economy.
S&P 500 10 yr rturn = 16-17%.
American nominal GDP – 6-7%.
Nifty 50 10 yr return = 11-12%
Indian nominal GDP – 11-12%.
Index is supposed to be the finest set of companies & should outperform the economy.
The way to make return is to select:
~ Companies with Good accounting practices
~ Quality companies with good accounting practices
~ Companies with Good accounting practices
~ Quality companies with good accounting practices
Important parameters while selecting a business for investment
~ Should have Pricing power
~ Incremental capital deployment should have high pricing power
~ Business should be run like an institution rather than being personnel driven
Should have longevity framework!
~ Should have Pricing power
~ Incremental capital deployment should have high pricing power
~ Business should be run like an institution rather than being personnel driven
Should have longevity framework!
Signs of a Institution driven business
~ Board of directors should be quality & independent
~ The management should have been groomed in the position
~ Processes should be in place
~ Decentralised decision making
~ Board of directors should be quality & independent
~ The management should have been groomed in the position
~ Processes should be in place
~ Decentralised decision making
Business Longevity Framework
Consistent compounding:
Pricing power, profit & marketshare
Strengthen core:
Find new growth drivers
Protect from radical disruption:
Re-evaluate reason for market share gain
Insititutional management:
Decentralised decisions & Robust processes
Consistent compounding:
Pricing power, profit & marketshare
Strengthen core:
Find new growth drivers
Protect from radical disruption:
Re-evaluate reason for market share gain
Insititutional management:
Decentralised decisions & Robust processes
Good business Vs Nifty 50.
~ Good businesses: are consistent compounders
Nifty 50: Is prone to mean reversion
~ Consistent compounder: Timing doesn't matter
Nifty 50: timing could work
However,
~ You can't time the market
~ Good businesses: are consistent compounders
Nifty 50: Is prone to mean reversion
~ Consistent compounder: Timing doesn't matter
Nifty 50: timing could work
However,
~ You can't time the market
A myth:
People believe market timing is the profound skill in investing.
The fact:
Market timing is useless!
Choose quality companies that render timing immaterial.
People believe market timing is the profound skill in investing.
The fact:
Market timing is useless!
Choose quality companies that render timing immaterial.
Understand where you invest:
Reading foreign books won't give you practical knowledge about Indian market. The strategies discussed in those bokks will not work here.
Develop an understanding of Indian market & the business environment.
Reading foreign books won't give you practical knowledge about Indian market. The strategies discussed in those bokks will not work here.
Develop an understanding of Indian market & the business environment.
Final points for selecting business for investment:
Business should have:
~ Clean accounts
~ Good quality
~ Pricing power
~ Rational capital allocation
~ Return of capital > Cost of capital
Business should have:
~ Clean accounts
~ Good quality
~ Pricing power
~ Rational capital allocation
~ Return of capital > Cost of capital
Final advice for investors:
Share price is the outcome of the fundamentally good companies.
Don't chase the share price momentum. Chase the momentum in fundamental good companies.
Share price is the outcome of the fundamentally good companies.
Don't chase the share price momentum. Chase the momentum in fundamental good companies.
If you have found this thread valuable help me in spreading to other.
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