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Fundoo Professor Profile picture
Fundoo Professor
@Sanjay__Bakshi
Opinionated professor in his virtual classroom.
82 subscribers
Jul 4 • 20 tweets • 7 min read
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.
Nov 15, 2022 • 13 tweets • 2 min read
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".
Sep 6, 2022 • 17 tweets • 3 min read
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."
Aug 29, 2022 • 8 tweets • 2 min read
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.
Aug 3, 2022 • 8 tweets • 2 min read
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.
Jul 15, 2022 • 9 tweets • 2 min read
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.
Jul 13, 2022 • 16 tweets • 3 min read
Never study an automobile company without also studying the finance subsidiaries (or associates) which help create demand from customers who can’t (or won’t) pay the full price upfront. There are many ways in which the finance company can make the auto company’s P&L and balance sheet look pristine. One way is that all the loans (including bad ones) given to customers for creating the demand reside on the finance company’s balance sheet.
Jan 24, 2022 • 5 tweets • 1 min read
This is such an interesting distinction between private and public markets. In public markets new shares for cash of a company already listed can only be offered at a DISCOUNT to prevailing stock price. Why should public market investors buy stock in a listed company at 150 bucks when they can buy it from the market at 100 bucks?
Jan 15, 2022 • 10 tweets • 2 min read
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. google.com/finance/quote/…. And yet, in December 2020, during covid times, its market cap exceeded USD 50 billion.
Jan 15, 2022 • 4 tweets • 1 min read
That cycle turned quickly. Zoom and Doom (for those who bought at or near peak)?
Dec 27, 2021 • 5 tweets • 1 min read
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?
Dec 27, 2021 • 21 tweets • 3 min read
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.
Nov 24, 2021 • 11 tweets • 3 min read
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)
Nov 17, 2021 • 9 tweets • 2 min read
Help is needed from fellow value investors! Am working on a new course @FLAMEUniversity which might be titled "Case Studies in Business and Investment Analysis." As of now, just making a list of various themes/patterns. Here is a work-in-progress list: 1. Real B2C brands;
2. Superficial B2C brands (which it was thought that the brand loyalty will last but it didn't)
3. Low-cost producers (Fisher);
4. High-cost producers (Graham)
5. Cyclical turnarounds;
Oct 4, 2021 • 5 tweets • 1 min read
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
Sep 12, 2021 • 4 tweets • 1 min read
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.
Jun 27, 2021 • 18 tweets • 3 min read
This I agree with. While 100 Baggers by @chriswmayer is a fabulous book, there is a need for literature on building the conviction to hold. And it’s not easy to develop a conviction to hold on to things that should be held. There are these “demons” that will enter the mind of the investor, which will prevent them from holding on to what will turn out to be an outstanding stock.
Jun 16, 2021 • 13 tweets • 2 min read
Don’t take credit risk. Stick to quality companies. Hmmmm Are HDFC Bank and Kotak Mahindra Bank quality companies? If so, then did they become so without taking credit risk? Answer: No.
Jun 5, 2021 • 10 tweets • 2 min read
Technically speaking it’s possible. In a tobacco litigation scenario, if courts decide against the company and award huge damages, then litigants can go after all its assets. But the taint of tobacco is removed from non tobacco assets if they are separated from the tobacco operations with ITC tobacco having no stake in them.
May 23, 2021 • 18 tweets • 3 min read
Well, there is lots of disconfirming evidence here - and not just for platform companies but also from other businesses. Take the examples of Uber and Airbnb for example. When they started out, they not only took on entrenched players (taxi operators and hotels), they also took on regulations.
Dec 18, 2020 • 15 tweets • 3 min read
One of the favourite case studies that come up in my BFBV course at MDI is Relaxo. Every year I ask students to study this case which I had done along with @ravirpurohit in 2013 by assigning these readings:
fundooprofessor.wordpress.com/2013/09/15/the…
fundooprofessor.wordpress.com/2013/09/22/the…
fundooprofessor.wordpress.com/2014/03/03/the… Then I update them on my thinking about this business, management and valuation. This year, I spoke that (which I won't discuss here) and also about some additional lessons. Listing them here: