There are two types of templates/patterns here.
The first one is the "Peloton template." This is an example of a business that didn't make any money - not even in a boom year.…. And yet, in December 2020, during covid times, its market cap exceeded USD 50 billion.
The lesson about this template was offered by Buffett in letter in BRK's annual report for 2000: "We readily acknowledge that there has been a huge amount of true value created in the past decade by new or young businesses and that there is much more to come."
"But value is destroyed, not created, by any business that loses money over its lifetime, no matter how high its interim valuation may get."
The 2nd template is the "Zoom template" — a profitable business. But in October 2020, the market valued it at almost USD 160 billion while full-year earnings for that year (ending in Jan 2021) were going to be USD 671 mil - a P/E of 238x.
Two lessons about this template (of which Zoom is a representative example). One, often such businesses are simply borrowing future period earnings.
And two, good businesses can become crazily overvalued during their "good days" causing disappointment for buyers in the boom time.
To be sure, some of the businesses that conform to the "Zoom template" will make stockholders very rich over time because their earnings growth over time will justify what looked like a crazy valuation at a P/E of 238. But those would be very very few.
There are many listed businesses in India today, which enjoy rich market valuations, and which conform to one of these two templates - Peloton or Zoom.

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More from @Sanjay__Bakshi

15 Jan
That cycle turned quickly.
Zoom and Doom (for those who bought at or near peak)?
Key questions to ask by long term investors: How long will this trend of booming sales last? Is the current boom not just an instance of borrowing future period revenues?
Read 4 tweets
27 Dec 21
Mail from RBL Bank MD & CEO (Interim). Assume this is true (I hope it’s true). Key words: “Any other financial parameter.” Image
Now ask: Why was the existing CEO asked by RBI to proceed on leave and why did it appoint Mr. Yogesh Dayal as an Additional Director on the Board of the Bank?
Am trying to reconcile these two seemingly conflicting thoughts. Current CEO says that RBI’s actions have nothing to do with bank’s “financial parameters,” whatever they may be. And RBI makes CEO go on leave and appoints someone on the RBL Bank’s Board.
Read 5 tweets
27 Dec 21
There is never just one cockroach in the kitchen. This is factually incorrect. If you take out all but one of the cockroaches from the kitchen, then there will be just one cockroach in the kitchen. 🤣
But the metaphor of "there's never just one cockroach in the kitchen" is valid for business and investment analysis.
Basically, the metaphor is about information asymmetry - there is information about some shit happening in a company - which is not yet public information. And that it will take time for this information to be fully disseminated.
Read 21 tweets
24 Nov 21
Let’s make no bones about this. On INR 420 cr. of revenues in FY 21, Licious lost INR 370 cr.
Trying to disrupt a model (local butcher shop) which has been around hundreds of years (think Lindy effect) requires u too not only sell at a price not too different from local butcher price but also to spend a bomb on logistics, packaging, and customer acquisition (advertising)
The idea that e-com players don’t have to pay rent (key cost for bricks and mortar players) looks attractive but only if you ignore that e-com players must also pay “rent” to book “ad space” on TV, print, and social media for acquiring customers.
Read 11 tweets
4 Oct 21
Read a few media stories on what's happening in spot markets in nat gas that do not mention anything about what's happening in the futures market. For example, see price in April 2022. Image
Whenever shortages appear, the typical manager simply can’t wait to expand capacity and thereby plug the hole through which money is showering upon him." - Buffett
When shortages finally occur in a commodity industry, the rebound to prosperity frequently produces a pervasive enthusiasm for expansion that, within a few years, again creates over-capacity and a new profitless environment. In other words, nothing fails like success. — Buffett
Read 5 tweets
12 Sep 21
If you think about it, we successfully multitask a lot of the time. Walking and talking on the phone for example. When we drive we can’t just focus on the steering wheel or the rear view mirror.
Our moms and grandmoms multi tasked seemingly effortlessly. Just think of a typical day in their lives when they were married, had kids, and had a home to run.
I don’t think they would say sorry no tiffin box for you today because I have to run the laundry.
Read 4 tweets

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