Sunday, May 20, 2018

Book: 100 Baggers: Notes and References

These are the detailed notes from the book 100 Baggers written by Christopher Mayer. You can read the review by clicking here.

Chapter 1: Introducing 100 Baggers

You will learn the key characteristics of 100-baggers. There are only so many ways up the mountain, and we’ll map out these paths
Note: Objectives of the book. One, lear the key characteistics of 100 baggers. Two, explain some techniques by which an ordinary investor can identIfy and profit t from 100 baggers

you will learn why anybody can do

share with you a number of “crutches” or techniques that can help you get more out of your stocks and investing.

this book was called 100 to 1 in the Stock Market by Thomas Phelps.

“Every human problem is an investment opportunity if you can anticipate the solution,”

This was the main thrust of our conversation: the key is not only finding them, but keeping them.

Investors crave activity,

But investors need to distinguish between activity and results.

‘A lot of shavings don’t make a good workman.’”

Phelps advises looking for new methods, new materials and new products—things that improve life, that solve problems and allow us to do things better, faster and cheaper.
Note: This is what Jim Slater recommended in he Zuu Principe

“There is a Wall Street saying that a situation is better than a statistic,”

Phelps is quick to add he is not advocating blindly holding onto stocks. “My advice to buy right and hold on is intended to counter unproductive activity,”

Sometimes stocks take a long time to get going.

“One of the basic rules of investing is never, if you can help it, take an investment action for a noninvestment reason,”

You should sell rarely, and only when it is clear you made an error. One can argue every sale is a confession of error,

The main idea is to know how such returns have happened and what investors need to do to get them.

Book Review #36: 100 Baggers: Author: Christopher Mayer

Over 15 chapters,  '100 Baggers - Stocks that return 100 to 1 and how to find them' written by Christopher Mayer makes a fascinating reading. The book starts off by analyzing the 100 Baggers from the 70s to the early 2000s and try to find common lessons for the investors. The list of 100 Baggers is diverse in terms of age, industry and size. There are 50 year old companies, there are new ones, there are small, medium and large caps and these belong to diverse industries. 

To earn 100 bagger returns, you have to save yourself from yourself. Your bias to action when things are going nowhere, your itch to sell when the share price falls by whooping 40% in a day, your fear when the stock you own falls from high triple digits to single digits, as it happened in case of Amazon.

Buy the Kindle Edition of this book @Amazon at 135 rupees.

To get returns of the magnitude of 100 baggers, traditional mindset nor traditional investment style

Saturday, April 21, 2018

Lessons from Tulipomania

In the early seventeenth century, many people in Holland were collecting tulips to such an extent that it was proof of bad taste for a man of fortune to be without a rare tulip bulb collection. The desire to possess tulip bulbs spread to the Dutch middle classes. By the year 1636, the demand for rare tulip bulbs increased so much that regular marts for their sale were established on the Stock Exchange in many of the principal cities. 

Friday, April 20, 2018

Book Review #35: The Zulu Principle: Jim Slater

This is the review of the book 'The Zulu Principle - Making Extraordinary Profits from Ordinary Shares'. This book is written by Jim Slater. 

There are two ways by which an investor can make money in the market. Invest either in stocks or in bonds. Zulu principle is all about focus. So at the outset, the author informs us that this book will focus on the former (investing in stocks) and will ignore the latter. 

The first edition of this book was published in 1992, the author outlines the objectives of this book which is to explain five methods by which an investor can make money by investing in stock market. 

The five methods are to invest in:

Tuesday, April 17, 2018

The evolution of a value investor: Tom Gayner

Gyan on Treadmill dated 12-Apr-2018

Thomas Gayner graduated from the University of Virginia in 1983 and started his career in accounting and began working at Price Waterhouse Coopers (PWC) as a Certified Public Accountant. Soon he moved out and after multiple transitions, has been working with Merkal Corporation since late eighties. Currently he holds the post of Chief Investment Officer in the company. 

In this presentation Mr.Gayner discusses his evolution as a value investor. 

Gayner started off as a quantitative analysts, looking a the numbers. However, as he gained experiences, he has added other qualitative aspects to his approach of identifying value. 

Friday, April 13, 2018

The investors alphabet: Advices from Tao Jones Averages

In his book 'Tao Jones Average', the author Bennett W Goodspeed gives a set of 26 advices to a a budding investor. It is structured as one advice per letter of the English alphabet. Here is a summary of the advices.

Buy the book Tao Jones Averages @Amazon
  1. Be a light sleeper: Be aware of the changing conditions so that you can act on them quickly.
  2. Be your own judge of value: Bargains are rarely announced, so learn to assess bargains.
  3. Do not be too sure: The time to be careful is when you are sure. You may be right now, but could be wrong the next time.

Thursday, April 12, 2018

Book Review #34: The Tao Jones Averages: Author: Bennett W Goodspeed

The book 'The Tao Jones Averages: A Guide to Whole-Brained Investing', written by Bennett W Goodspeed promised to give me a different perspective on investing. It did not much.

Human brain consists of two hemispheres, the left hemisphere that is analytical, deductive and logical and the right hemisphere that is artistic, creative and intuitive. The author's point was that while the markets always behaved non-rationally (right brained), the traditional analysts approached the market with a rational approach,  focusing mostly on the analytical part of their brain. By focusing on hard numbers - the trend, growth projection, DCF, financials etc - they were missing the potential of half of the brain. And they (the analysts) were wiser post-facto. They were good at explaining 'why an event happened as it did' and 'why they couldn't have anticipated it'.

Wednesday, April 11, 2018

The most important thing:- origins and inspirations Howard Marks

Gyan on Treadmill dated 11-Apr-2018

In the world of Investing, Howard Marks stands up there with Buffett. He heads Oaktree and his funds have given phenomenal returns over the years. In the talk that he gave at Google, he talks about his book 'The most important thing'

The title of this presentation is 'The most important thing: origins and inspirations'.

Marks started off by explaining why he named his book 'The most important thing'. As he sat in his client's office, he used to hear himself say 'the most important thing is controlling risk', then in another client's office it will be 'the most important thing is buy at a low price' and at another occasion it is 'the most important thing is being contrarian' etc.

Over a period of time, he found that he had identified almost 19 different 'things' at different times as 'the most important thing'. So when he wrote the book, he titled it that.

Why did he write the book in 2011? Originally he was planning to write a book after retirement, but Warrren Buffett promised him that if he ever wrote a book, he will give a quote for the jacket. That was a motive enough to work on his book sooner. As per Mr.Marks, the book is not designed to tell the reader how to make money or how to do investing. 

Mr.Marks did not plan to end up as an investor. After graduation he applied for 6 jobs and ended up joining an investment firm. He developed his investment and life philosophy over more than 2 decades and which is embodied in his memos to the customers. 

He titled this speech 'Origins and Inspirations'. These are the sources from which he got his ideas and inspirations to write this book. In this presentation, he explains some of these. 

The first reference to the book 'Fooled by randomness' by Nassim Nicholas Taleb. The key point is that in investing, there is a lot of randomness. You can't tell from an outcome whether the decision was good or bad. This is due to randomness. In the world of randomness, good decisions may not work out and bad decision may work out quite well. The book is about the role of luck. Even if you know what is most likely outcome, many other outcomes are possible. You should not act as if the things that 'should' happen are the things that 'will' happen. Even when what should happen actually happens, it may not happen within the given timeframe. 'Never forget the 6 foot tall man who drowned while crossing the 5 foot deep pool on an average'.
Second reference to a quote by John Kenneth Galbraith. The quote is 'we have two classes of forecasters. Those who don't know and those who don't know that they don't know.' Here Mr.Marks talks about the quality of forecasts. Most of the forecasters are just extrapolaters. The problem is that such forecasters do not make money, since that forecast is already factored in the price. The forecasts that make money are the ones that predict radical change. The problem with that approach is that if you look at the previous forecasts of the same forecaster, they are not right consistently. Which means that this correct forecast is just a fluke.

The third reference is to a quote from a book called 'Winning the Loser's Game', written by Charles Ellis. This book refers to another book called 'Extraordinary tennis for the ordinary player'. In this book, the author Simon Remo talks about two different strategies for winning in Tennis. The professional tennis players win by 'winning' more points. They his harder, constantly find the angles and win aggressively. On the other hand, amateur players win by 'not losing', by making lesser mistakes than the opponent. Their objective is to simply return the ball on to the opponents court. 

Charles Ellis, says that investing in stock market is like the 'loser's game'. In stock market, you win by making 'fewer mistakes'. Paradoxically, you lose in stock market by 'playing to win'. That is the reason why defensive investing is so important. 

The fourth reference is to the meeting Mr.Marks had with Michael ('Mike') Milken the famous junk bonds specialist. Milken single-handedly created a market for junk bonds (bonds rated AA- and below). Mr.Marks met Milken in November 78. As per Mr.Milken, there is only one way to go for AAA bonds. They are already valued high, and they can go only down. Whereas, a B rated bond, and if they survive, they can only go up. 

Making money in stock market is not by buying fairly priced stocks of good companies. The way to make money is by paying for an asset at a price lower than its intrinsic value. This reminded me of my purchase of Amara Raja Batteries, a fairly priced stock as any. I purchased it about two years ago at about 800 rupees, and the stock is still trading at the same price today. It is not that the stock is bad, it is just that it is a good stock but fairly priced and captures all the potential upsides. 

The key here is 'if they survive'. If they survive, the junk bonds tend to get re-rated upwards and you make money. So the only task for the analyst at Mr.Mark's firm is to analyse the 'survivability' of the bonds. If they survive, the bonds will make money. Bond trading is a 'Negative Art'. The performance of bond portfolio comes not from what you buy, but from what you exclude.

Based on the above inputs and many more, Oaktree Capital  came up with their philosophy. These are as follows.
  • Primacy of risk control
  • Emphasis on consistency
  • Importance of market efficiency
  • Benefits of specialization
  • Macro-forecasting not critical to investing
  • Disavowal of market timing.
The idea is not to become best at all times, The idea is to be consistently above the middle. 

Marks ends his presentation with three investment adages. 

One, what wise man does in the beginning, the fool does in the end. First the innovator, then the imitator and then the idiot. 

Two, never forget the 6 foot tall man who drowned while crossing a stream that is 5 foot deep on the average.

Three, being too far ahead of your time is being indistinguishable from being wrong. 

The session was followed by a QA session. Some great questions were asked. one of them being on the efficacy of index investing. Marks says that while index investing is good, still you run a risk that your portfolio value will fall along with the index. On the other hand, if you choose a portfolio focused on risk mitigation, you get the upside of the index without the risk of downside.

Another question was that how and when the price reach the value since the value investor is betting on the difference between the two. While he do not have the exact answer to this question (remember that the same question was asked to Mr.Benjamin Graham during the Senate Committee hearing), there are one or two catalysts that push the move towards value. One of them is that the bond is close to maturity. As the bond matures, it moves towards its face value. Another catalyst is the activist investors who force the company to change its processes so that the price will match with value. 

Great stuff guys....