Ashish Chugh Revealed the 10 Hidden Secrets of Stock Market Success That Even IIM and Harvard Can’t Teach You

Investing

Millions of people try their luck in the stock market, but very few actually make money.

Why?

It’s not the mathematics or the knowledge of finance that matters; there are some other factors that drive success in the market and no else can reveal this better than Ashish Chugh, the veteran Delhi based investor who always talks sensible thing whether it’s euphoria in the market or carnage.

He is so calm and composed as if like a saint who has obtained salvation or moksha! The best part is that he is always eager to share the secrets of his success on a platter absolutely free!!

Nowadays he stays away from the television and limelight but whenever he speaks one can’t just afford to miss it.

Only a Guru who himself knows the secrets and obtained success can guide on the right path. It becomes all the more important when suddenly everybody is bleeding in the market mayhem. Let’s know what he has to say.

First, temperament is the most important. It is something more important than the education and degree. How you behave when euphoria in the market and how you react when the stock market is going through a phase of extreme pessimism and depression in the bear market is what matters the most.

The second and the most important thing is the ability to remain comfortable when miserable— matters a lot. As an investor you will go through a prolonged phase of a bear market when you’ll find that your investments are bleeding. Portfolio may be down by more than 50%.

That is a point where your patience is tested as an investor. This is like an exercise—to enjoy the fruits of an exercise you need to go through a phase of discomfort. Same applies to investing also. If you really want to enjoy the fruits of higher investment returns, you must go through the bear phase of the market cycle.

Third, one should take the onus of his actions. Rather than blaming Mr. Market, you should take the onus of your actions. You can’t blame broker, analyst or anybody else. So, spend more time doing your homework.

Fourth, don’t clone big investors blatantly. Whenever a big investor takes a position in a stock, retail investors scramble to buy it. This is not an advisable action at all. The focus should be on selecting those stocks that will elicit the interest of big institutions in the stock.

Fifth, the biggest lesson I have learned is to invest in a good management. This becomes all the more important when you’re investing in a small cap. Very little information is available in the public domain regarding these managements. In that context, you should observe the actions of the management in the last 5 years closely.  A good management has always a skin in the game. So, the promoter’s stake should be very high in the company.

Sixth, they should be able to grow business consistently with no equity dilution. They should grow business with internal cash flow and may take a reasonable amount of debt.

Seventh, if a company is sharing the benefits with investors through dividends and share buybacks, it’s a good sign of ethical management.

Eighth, Stocks should not be construed as merely a ticker symbol. You have to consider it as a part of a business. Without holding stocks for a considerable time, you can’t create wealth.

Ninth, one should always focus on both valuation and growth of the business. Earlier I used to look to buy value stocks, now I have realized that a value stock will always remain a value stock if there is no growth.

The common characteristics in all those stocks that have turned multibagger are that they have consistently clocked growth in sales and profitability. A growth stock may have slightly higher valuation, but it is worth it. And if you are able to buy it at a reasonable valuation, nothing can be better.

Tenth, Understanding the risk factors in the business is extremely important. I’m always looking at the downside if things don’t turn the way I expected. It is important to know how much money you can lose if your investment doesn’t perform.

The biggest returns come when a stock is out of favor and facing a temporary negative sentiment.  I love picking the mis-pricing theme when picking a stock. Mis-pricing can be due to a variety of factors. Some of them can be genuine and some may be market perceptions. If the negatives are of short-term or curable, I’ll go for it provided other criteria are met.

Thanks sir for your wisdom for novice investors like us!! This becomes all the more important when market is panicking. 

(The blog is inspired from his recent interview with ET Money Podcast)

 

Want to Benefit From the Nirav Modi Case : Must Read This Post

Investing

Amit Jeswani is fast emerging as a sane and logical voice in the Indian equity market. Unlike other equity advisors who preach value investing, but prefer investing in the real estate and fixed deposits—he puts his own skin in the game by putting his own money in the same stocks. Recently, he shared his candid views on the possible impact of Nirav Modi fallout for Titan.

The fall of Nirav Modi and Mehul Choksy has created a storm of sorts in the country—but does this bring opportunity for Titan. Will more and more players start shifting to Titan because of the reputation it commands in the jewellery market?

Absolutely! tells Amit Jeswani in the Bloomberg Quint during the Hot Money programme. There are three types of risks—business risk, company risk and valuation risk.

75% of the jewellery industry is unorganized and only 25% of the industry is organized stores such as Titan, PC Jewellery and others. Since Nakshatra and Gitanjali Gems are out of business, the shift in the organized jewellery sector will start taking place and existing players like Titan will benefit the most.

Even after demonetization and GST, they are consistently growing at the rate of 35%-38%. But this stock is not cheap at all as it trades on 73 times of FY 18 earnings. So you can get into it after some correction into it.

Why You Should Pay Attention to Debt on the Balance Sheet

Investing

What is the most important thing in the stock market?

Earning money—isn’t it?

Wrong!

Saving your investment capital is the most important thing. Most often those who leave the stock market completely lose their hard earned money. That means they don’t have enough capital left to make money when the cycle turns.

Vishal Khandelwal, the ace investor and one of the most sensible voices in the Indian stock market has made it the mission of their life to guide investors so that they don’t lose money. This is the guiding principle of safalniveshak.com.

He pays a lot of attention to reading the balance sheet of the company since it tells a lot of things about the company in question.

So what does he see in the balance sheet?

‘Leverage’— he answered nonchalantly to Nikunj Dalmia of ET Now. You should keep away from the companies that borrow a lot of debt.

Let’s understand this example.

The Debt/Equity ratios of Ruchi Soya Industries=5.09. This means the company is 5 times more leveraged than equity!

That’s a bad sign, isn’t it?

The company must be borrowing to fund expansion from taking a lot of debt. For example, if you take a lot of loan to run your family or buy a new car—it’s a sure shot recipe to disaster. Ideally, you should do this from your own income.

Similarly, a company should be able to meet working capital expenses and growth plans from internal resources. No wonder the stock of Ruchi Soya industry fell from 69 Rs to 17 Rs in the last five years.

Most people in the stock market are enamored by growth. But ask yourself—at what cost the growth is coming? If a company is borrowing a lot of money, avoid that stock. In general, “one should avoid highly capital intensive stocks.” says Vishal Khandelwal to Nikunja Dalmia.

Similarly, you should avoid companies that need a lot of working capital to run the company.

Companies borrow funds from either shareholders or lenders. Excessive dependence on borrowings is risky. A company is considered financially sound only if a firm depends on its ability to repay principal and interest on borrowings even during bad times.

So how much debt on the balance sheet is permissible? The answer varies. Let’s see what Gods of investing think about it.

According to Benjamin Graham, long-term debt not to exceed current assets (current assets— current liabilities). Company’s cash plus inventory should be enough to pay its both short-term and long-term debt. However, many people consider it very strict.

Warren Buffett wants the company to have the ability to repay its long-term debt with no more than two years of its net earnings. He prefers a company with debt to equity ratio below 0.5.

So what happens if a company messes up by taking excessive debt? Take the example of JP Associates, which is on the verge of defaulting. Between 2006 and 2012, the group invested Rs.60,000 crore in real estate, power and cement by borrowing excessive amount of debt.

Jaypee, Rs.8, 000 crore 1,320MW Nigrie thermal power plant in Madhya Pradesh was funded by debt to the extent of 70%. Similarly the entire 1,000MW hydropower portfolio of Rs.7, 000 crore had a debt-equity ratio of 70:30.

If we apply Vishal Khandelwal’s views, he would simply avoid buying such stocks. Take another example of Bhushan Steel whose debt level started increasing fast.

Initially, company generated enough cash to repay debt but when financial capacity deteriorated its ability to pay debt decreased. It did the same mistake as that of JP Associates. The ratio of debt in the Odisha plant’s ₹19,400 crore expansion programme was funded by debt.

No wonder, it’s in such a mess!

In general, companies with a higher debt to capital ratio are financially vulnerable and they have greater chance of defaulting.

Hope you enjoyed the article. Please put your comments.

This Brilliant Young Investor Has a Secret Stock Picking Formula That Even Rakesh Jhunjhunwala, Dolly Khanna, and Ramesh Damani Didn’t Know—But Now You Can Know For Free

Investing

Lies, damn lies and statistics is a famous saying. Rahul Rathi, the ace investor from the house of Puranartha, has a different take.

“Numbers don’t lie as they are outcome of your actions over a long time.” says Rahul to Ramesh Damani in a free-wheeling chat.

Look the companies such as HDFC, Asian Paints, and Infoys in the Sensex, they have returned more than 250 times since inception. So, observing numbers carefully is very important.

A Puranartha Equity Investment advisor has an enviable track record of generating higher alpha. How do they choose their picks—asked Ramesh Damani who has a great knack for extracting hard-kept secrets.

All novice investors looking to do well in the market should be thankful to him for hiss kind efforts. If you still get loss in the market by investing in low quality stocks in the hope of getting high-returns—only you’re to blame for your miseries.

So let’s come to know his stock selection strategy.

1.High Operating Cash-flow

Any stock that wants to pass the stringent criteria should have at least 11 years of track record, which is a typical GDP cycle in which it has increased, decreased and drifted. A good company should be able to grow its operational cash-flow successfully.

But what about the businesses that generally require high-CAPEX or dividend payment?

The operating cash-flow should be sufficient enough to meet all working capital needs and capex related requirements since this is when ideal debt-free scenario is created.

Amazing! Isn’t it?

2.Strong Volume Growth

After analyzing 160 companies over a period of 30 years, Purantha Capitals found that those companies that doubled their operating cash flow in three years offered maximum return in this period.

3.Invest in Consumer Led Companies

They offer more secular growth and are relatively insulated from the vagaries of GDP growth. They are less volatile.

However, Rahul Rathi was candid to accept his mistake in the J&K Bank. They selected the company because of their monopoly in the state, but soon they come to know this hard truth that recovery mechanism doesn’t work.

So they learned the hard truth that data alone is not sufficient and it should be viewed in the current context.

(This article has been written based on the interview of Mr. Rahul Rathi in Market Wizards by Ramesh Damani )

Both Rakesh Jhunjhunwala and Kishor Biyani Blindly Trust This Little Known Man:Do You Know Why?

Investing

Utpal Sheth is the name to reckon with in the field of stock investing and analysis. He is the little known partner in the RARE Enterprises owned by the ‘Badshah of Dalal Street Rakesh Jhunjhunwala’. However, those who know him including the Badshah deeply regard him as one of the best investing minds in the Dalal street.

His ability to crunch numbers coupled with seeing things, which are beyond obvious separates him from the crowd of run of the mill analysts.

And he never comes on the television to share his opinions. So we should be thankful to Ramesh Damani, who took his rare interview on CNBC couple of years ago. Going through the interview, you get the glimpse of his investing thought process.

Every investor wants to create wealth, but this is not possible if companies don’t create value in the long term.  Therefore, it’s important to find management that has the leadership attribute and can take right decision at right time.

Cash is God

Very few people know it but Utpal has a role in saving Pantaloon retail when the company almost ran out of cash. He soon realized that the company is highly leveraged and if it does not raise capital, running company would be difficult. However, raising capital could not have been done overnight. So, he advised Kishor Biyani to opt for flash sale as there was a lot of inventory in the company.

Biyani realized the importance of having cash at that moment and did exactly the same. This helped the company to remain float for some time.  That’s why free-cash flow is an extremely important parameter for a company.

The Curious Case of Titan

The Badshah of Dalal street was mulling to buy this stock. It was 2 AM at night when he presented a mathematical model to Rakesh Jhunjhunwala.

He saw the calculation and said, “are you drunk?” Though he knew he was a teetotaler. However, he broadly agreed with the direction.

Even Titan management did not believe those figures. But five years down the line company achieved the topline figures and in the next one year they achieved the bottomline figures!

So what did he see in Titan?

After some back of the mind calculation he found that though Titan was deploying the best talent on its watch business, but the RoCE was significantly higher in the jewelry part of the business.

Secondly, sales were fast and the business was scalable.

          High Return on Capital Employed (RoCE) + Scalability = Magical Return

Pay Attention to the Capital Allocation

That’s of paramount importance. Even if a company is growing fast, a low RoCE will result inhibit free cash flow. In that case, if you’ll have to take either debt or dilute equity. However, at some point it has to end.

No wonder Essar, Suzlon and JP Associates suffers. Investors should deeply consider leadership attribute and structural changes in a company as confluence of these two creates the greatest value. T

When Titan moved from borrowing capital to buy gold to leasing gold, it significantly reduced the working capital requirement resulting in dramatic improvement in RoCE of the company.

Similar Trends in Real Estate

Similar trend can be observed in the real estate companies today. Earlier they used to buy land parcel, which required huge investment but now they have moved to Joint Development model. This reduces the requirement of huge capital.

So we can see dramatic improvement in the performance of real estate companies such as Godrej Properties and others will reap huge rewards compared to Oberoi Realty that depends on buying huge tract of land.

With land cost making up 30-50% of the total expenditure for any realty project, this will help in prompting land owners and developers looking for joint development model. Many Bangalore based developers are working in this model.

So opportunities are always there in the market and knowing the history helps you find the similar price patterns.

The best way to learn is to observe the investing methodology of great investors and try to emulate their investing style.

 

 

Should You Buy Vakrangee Limited Shares Now

Investing

The shares of Vakrangee Limited have fallen by 50 percent in the last 3-4 days after Mumbai Mirror published a story on the alleged manipulation of stock. The company has been a darling of investors as it has given 9000% returns in the last 10 years, which is huge by any standards. Now many investors are finding it very attractive, but they are afraid to take any decision.

Should You Buy Vakrangee Now? Though I’m not advising to you and neither I have capacity to do that, but only thing I can say is to tell you my decision. I’ll buy Vakrangee Limited in some amount on Monday if the price stabilizes and there are some logical reasons behind this.

The profits of the company are not fake as they are continuously paying dividend to investors. Apart from that they pay 35% tax to government from their profit. They have a clean balance sheet.  So they are not Unitech or Satyam.

The news report is also vague as it says that SEBI has not find anything material behind the volume increase of the share of Vakrangee Limited and they don’t intend to carry out investigation. The Vakrangee Infra that is mentioned in the story has already been sold in 2014 to Kuldeep Jain and how Vakrangee can be liable for what the new promoters are doing with it.

Till now SEBI has not send any show cause notice to company to explain their position on the alleged manipulation.

Vakrangee Limited has been a very consistent performer quarter over quarter and it has grown at the rate of 30-40% for the last 10 years and that’s amazing from any standards.

My View

Another thing is that their balance sheet is real with real profit and cash flow unlike Satyam and other real estate company who fudged the balance sheet extensively. What I feel that they had wrongly sold PC Jewelers’ scrip in the huge chunk and that led to the fall of PC jewelers stock by 60%, which eventually recovered to some extent.

The maximum they can be guilty of bad treasury policy or some amount of insider trading. They bought 20 lacs PC Jewellers stock @560 Rs/ share and they sold it at 250 as they feared more loss in the stock. They should not have done this as they could have easily hired a professional company to provide sound advice. However, we can give this company a benefit of doubt as this has given 9000% return!!! This is not a crappy third rated penny stock mere bhai!!

And can you find  a 100% pure company in India? If this will be the parameter, people won;t find a single stock.

This is impossible!

So this should eventually recover. This is not such a massive scam in the company and I certainly believe that stock market has over reacted, which always happens.

I may be wrong as well, however, I’ll invest some amount in couple of days if correction stops and this price sustains for some time.  The only thing that can change my stance is any material development that affects it poorly.

I tried to search for the views of any eminent analyst, but could not find any except SP Tulsian. You should see both videos and decide yourself:

Now See this one:

(Disclaimer: I’m not a SEBI registered advisory and this in no way recommendation to the stock. Understand the risk and take position accordingly after consulting your advisor.)

 

Ignore These 8 Basant Maheshwari’s Tips, But I Bet You Will Never Ever Make Money

Investing

Hmm! You are hurt after reading the headline. It sounded too egregious!! I’m sorry, this was not my intention at all.

However, it’s my duty to hit you hard when you commit mistake and always propel you to do right things in investing. And nobody can teach you better than the “The Thoughtful Investor”

Basant Maheshwari, the ace stock picker, who has many successes to his crown—Hawkins and Housing Finance Companies are just a few examples. He discovered these gems much before people realized their potential.

He has offered his wisdom openly that you can’t even learn in IIMs. He has not only made money for himself, but also compounded the portfolio at the CAGR of 50% since inception.

Incredible!

He has shared his mind openly and if people still don’t pay heed to his gems, they deserve to be poor.

Sorry for hurting your ego, but I don’t fear calling a spade a spade.

1.Try to Ride the Profit

First misconception is that big investors became big from small. They did not come with 20 crore money and turned it into 1000 crores. They started small, bough good quality stocks, hold it for a long time and reaped the reward. And most importantly, they rode the profit.

If the company is doing well, remain invested–Basant Maheshwari

2. Invest in Good Management in Good Business

You should look management in a different way. There are only three types of managements:

  • Good management in good business: Tata running TCS
  • Good management in bad business: Tats running Tata Steel
  • Bad management in good business: Vijay Mallya running United Breweries
  • Bad management in bad business: Vijay Mallya running Kingfisher

You should not just buy a stock having a good management, it’s equally important to pay heed to whether they are in the good business or not. A good management in a good business is a deadly combination as they create the biggest wealth. Infosys is a great example and so Asian Paints

You should not just sleep after buying Tata Steel as it’s owned by Tata’s. Of course they will make money but only cyclically. When commodity cycle turns against, they will struggle. As a novice investor you should always avoid cyclical stocks.

3.Choose Great Management

This is easier said than done. After all how one can identify good management.

You just need to focus on two metrics: Return on equity and dividend payout ratio. Often crook managements don’t generate 30-40% ROE since they have tendency to take the money off the business and fudge the balance sheet—Basant Maheshwari

4.Pay Attention to Dividends and Taxes

That’s very important as it helps you know whether the profits are real or fake. Dividend declaration is discretionary, a company will declare dividends only if its profits are real. You’ll hardly see crooks management paying dividend tax.

Also see whether company is paying taxes or not. If profits are not real, they will find ways to avert taxes. If a company is showing a lot of profit and paying too little taxes—that’s a possible red flag and better avoid such stocks.

Nobody Pays Real Money on Fake Profits—Basant Maheshwari

5. Paisa Jaldi Banana Hai Ya Jyada

This is the classical question he often asks from investors. Novice investors jump in the stock market to double or treble their income, and in the process they burn their fingers. Huge wealth is created when you grow your money consistently for a long time that increases the size of your base.

6. Be Interested in What You Understand

If you are a person who work in a software company and understand how it works, go with them. There is no point to invest in the power generation utilities and pharma companies that make complex formulations.

You Should Buy Things That You Understand. This is the basic you must remember.

7. Buy With the Sector Leader

Now when you’re analyzing stocks in a particular sector, be with the sector leader. For example, if you are betting on paint space as you are expecting huge gains to be made because of the smart city space, go with the Asian paints as half of the office and home buildings will be painted by Asian paints and not from Berger paints. Betting with the sector leaders provides some sort insurance cover.

8.Avoid Regulated and Cyclical Stocks

Always be with the secular companies, which means buy companies that are not regulated and always make money whatever the market situation is. That’s why Titan, HDFC Bank, Marico and Infosys will make money. But can you think that ONGC would be allowed by government to raise the prices of gas or can NTPC be allowed to increase the prices of electricity by 2 units? The very next day Kejriwal would be on the street.

Must Watch This Interview: