Tag Archives: stock valuations

The genesis of ithought

Hi , I invest in stocks . I study businesses and scout around for good ones to put my money on’. The moment I am introduced I can see different reactions in people. Somehow, the stock market has this unique ability to make people reactive. In 1990, when I chose to become an investor , the reactions were strong.

What ? is that all you do ? Isnt that gambling ?. Those were times when we werent even familiar with business research. So, investment research was a far cry. I hated explaining and would simply smile at their judgement. I would rarely be let off so easily. Free advice will be forthcoming about how this was not the place to be and how one should do something else. Things have changed a bit over the years as people understood that the stock markets may after all be just another place of work, albeit a risky place. The soaring indices have also sexed up the job.

But, let me tell you a truth. The stock market and the organized financial industry wasn’t exactly the right place to work and make a career. In fact, I decided that I would be a misfit if I formally worked in the industry even before I started out. There was a part of the financial world that i disliked intensely and steered clear of it. I steered clear of working for any firm, fund or financial company within the industry. The reasons were strong and i am going to put them bluntly. Integrity was and still is a serious issue in this business. It was all about selling, no matter what the outcome would be.

The financial services industry was all about misselling. They made you put your money in the wrong place just to earn a small commission out of it. They sold you products which you should not have been buying. They never tell you what you should have known about a product before buying it. They sold you a `hot-selling’ product at a time when you should be staying away from it. Investment bankers would price IPO’s so high knowing fully well that investors you stood to lose. To fulfil their interest, they mostly worked against your interest. This simply wasnt agreeable to me. To keep my integrity intact, I simply never worked for anyone. I remained an Investor.

I worked in this environ for 21 years by keeping away from the mob and doing my own thing. So I was independent and doing what I liked. Identifying good businesses and Investing kept me busy. I have no reason to complain. I always could make my choices and there was no room to compromise on anything Growth was personal and always in the private domain. But, something was missing in what I was doing. I needed to find out my next calling. It had to be in the public domain and should be an idea that would make a difference to a lot of people.

I started looking around. The answers came in my interactions with people I met. I was always hearing stories of how people lost money in the stock market. The stories changed with the times but their outcomes were much the same. I knew the problem. Importantly , i knew that this was solvable. So ,I thought the best thing to do was to build something that would help every investor who wants to be helped. So I chose to work in the much beaten domain of financial products like mutual funds, ULIPS etc. There was one thing i decided even before I started. I will Not sell anything. I would buy investments in a judicious way on behalf of anyone who wants them.

That was how ithought was born. I didnt start out with a business model. I went about building a Process. I knew that what made my investing deliver over the years was my investment process. So, I set about building an investment process for financial products. A small team and a dedicated office were luxuries that my earnings afforded me. Friends who knew me and my work thought that i had gone bonkers to stake my money with no clue how we will make it a financially viable. I knew the answers will be found and it was the least of our worries . We were obsessed with the process.The investment process should be knowledge- based and method driven. So we focussed on intensive research of companies and funds and then developed a method to deploy capital systematically and effectively.

The ithought way is the process that evolved from our rigorous work. While we have an intense approach to research and strategy , we chose to keep our business model simple. Clients need to know a few things. And, they need to know them for sure.

1. We will help investors plan.
2. We will take care of decision making and deployment of money.
3. We will review the investment periodically and identify opportunities.
4. We will monitor performance and measure it continuously.

The business model was to be, as we believed, simple – The client will pay a fixed annual fee to us for services rendered.

The ithought way is meant to be experienced to be understood. That is the only way to effectively judge a process which works sincerely and systematically to grow your wealth.

Happy investing!

Shyam Sekhar.
Ideator.

Stepping out of your comfort zone.

You have just finished doing 50 pushups and your trainer being ruthless orders another 50. Drenched in sweat and exhausted you don’t think you can do take one step further, leave alone do more push ups. But your trainer will not take “NO” for an answer. He keeps at it till you get back down on the floor. You manage 1, and then 5, and within a few minutes, you have done 20. Motivated, and feeling good about yourself, you go ahead and complete the 50. You rise with a new sense of confidence, one that you achieved because you stepped out of your comfort zone.

“Move out of your comfort zone. You can only grow if you are willing to feel awkward and uncomfortable when you try something new.” – Brian Tracy

Similarly, when it comes to money matters, we all have our familiar methods of operation. There are some who firmly believe having money tucked away in a bank is the best option, while there might be other who invest in stocks and shares. But, to see how far you can stretch your money, you need to take a chance, take some risk and give it a shot, to reach the goal. The first step will be difficult, but once you cross that and see the results, you will be much more willing to step out of your comfort zone and go further ahead.
For many of you, pushing yourselves into a new territory is second nature, for many it is a nagging thought hovering in their minds, but not put into practice yet.

The 5 golden points of Going beyond your comfort zone-
1. Be open to new ideas and suggestions.
2. Be willing to take risk.
3. Be patient.
4. Learn from mistakes and experiment with alternatives.
5. Have control over your decisions and never go overboard.

Events vs earnings – An investor perspective.

An earthquake of Richter 8.9. A tsunami within hours; followed by the grave news of explosions in nuclear reactors. Japan is in the midst of an unprecedented crisis. In this series of unexpected happenings, event risk returned to haunt global stock markets.

In a globalized world, our markets ought to have been impacted by the 20 pc drop in the Nikkei over two trading sessions. Many earlier events have seen our markets mirroring global trends. Trading on our bourses however seem to be relatively calm. The enormity of the problem is still sinking and selling may well happen in the days ahead. The crisis in Japan will impact global investor sentiment in the near term as money gets reallocated and risk averse capital takes flight to safe havens. Markets will head lower till investors tire of selling and sheer selling fatigue will probably reverse sentiment. It is hard to predict when this will take place.

What should Indian retail investors be doing when global sentiment is weak and dominated by fear ? Should we follow the global trends and stay out or should we make use of this opportunity thrown before us ? My view is that we must put events aside and focus on the earnings of corporate India. In the long run, you will agree that it is the earnings that determine the valuation of businesses.

The Indian economy will face a limited impact as exporting businesses may see some uncertainty in the near term. But, the overall impact of the Japan crisis on our economy is limited . In fact, the price trends in commodities is more important to us in the near term. The reasoning is simple. India is a commodity centric stock market. Our index pivotal outside of banking and IT are mostly commodity-centric businesses. The commodity producing sectors like metals, petroleum refining, coal, petrochem and oil exploration have a high weightage in our indices. Commodity consuming businesses like power, cement and auto also have a reasonable weightage. High commodity prices are not good for our economy as we need more forex to meet our oil and natural resource requirements. This will raise our costs and impact consumption. Therefore a fall in the prices of major commodities like oil, coal, iron ore and metals will ease the cost structure of several businesses. The fiscal targets of the country will also be met only if the prices of commodities head lower. Overall , the index earnings will have greater stability in a scenario of lower commodity prices and earnings growth is only subject to this happening. If commodity prices cool, inflation will also reduce and interest rates will start heading south. This will lead to sustained consumption and several key sectors like cement , auto, power , aviation and petroleum will see profitable growth. Eventually, this will result in earnings expansion returning to our companies. Earnings expansion will eventually see the PE growth reflect in our stock markets. It is in this scenario that markets will turn bullish and hit new highs.

In summary, investors must pay greater emphasis to earnings and allow events to die down . The thrust should be on understanding the impact of commodity prices as they enter a phase of high volatility. Rather than getting perturbed by the short-term fluctuations in commodities , investors must read the long-term trend lines . If the trend in commodities is decisively down, investors can return to buying stocks of commodity-user companies . The consumption story will revive and we will see the markets hitting new highs. The volatility in the interim should be patiently watched out and investors must conserve their resources to buy India-centric businesses when commodities cool down. Earnings and not events must be the decision variable in our investing process.