Tag Archives: #freecashflow

Shame, Shame, West

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The next scam is here.

Please don’t get fooled.

Unfortunately, many already are.

You see, the storyline is so, so believable.

However, only on the surface. A few scratches, and the story falls apart.

There is something about human intelligence. Behaviour. Instinct. Decision making prowess. Mental synthesis.

Everything described here, …

… AI is not.

So, why give it that status?

What’s the agenda?

Ohhh, there’s a very solid agenda, and since one can’t fool all the people all the time, we see through the bullsh**.

First up, Western IT is hugely, hugely over-invested. Neck deep. Rational minds in other parts of the world are not. The occident needs ratification and burden-sharing. Orient is not biting. So make it bite. Unleash a scam. Perhaps it was a sop allowed through in the recent trade deal, since some of the spin doctors being utilized are actually Indian.

Secondly, rendered useless? Give us a break. Spun yarns don’t render useless quality, zero-debt, free cash-flow rich, lean, diligent companies. On the contrary, agility and versatility allows such companies to adapt very fast, particularly owing to huge spending power and zero obligations. Indian IT is adapting, FAST, and whatever artificial crashes are being caused owing to the foolishness of pigs, are buying opportunities. PERIOD.

Thirdly, what kind of a track record do the likes of current disruptors have? Like, four years. In other words, NOTHING. Current disruptors have no experience, themselves, in emerging successfully from disruptions. Indian IT has been navigating, SUCCESSFULLY, through all disruptions since the ‘80s. So, like, Western AI, garner a track record first, then talk. Also, an announcement alone, that you are potentially capable of doing XYZ, is not going to cut it.

Please remember, the problem with AI is, everything functions supremely till it doesn’t. That’s the point where the value of human capital is realized, to navigate mankind successfully through and out of the dead end. A dead end in critical ventures is not acceptable. Writing Indian IT off for dead is wishful thinking and reeks of a jealous to the hilt society that fumes with envy at the cash-richness, the zero-indebtedness, the ability to adapt at amazing speeds, the start-up laden clean balance-sheets etc. etc. etc. of Indian IT. Shame, shame, West.

Opportunity

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Knock knock!

Who’s there?

Oppo.

Oppo who?

Oppo – rrrr – tunity, which don’t knock often (enough).

Yes, huge opportunity is knocking.

Global talent will stay indoors, to a large extent, from now onwards, come this September 21st, i.e. today onwards.

Brain gain time for us.

India is going to boom. Forget about tomorrow, next week, next month, but come medium term, and, going on to the long term, India will shine.

Sure, tomorrow, Indian IT will probably be down. Who’s in it for just tomorrow? One doesn’t get one’s house valued every day, week or year. One might do it when one is contemplating a sale, maybe after twenty years of owning it. Same goes for very long-term held compounders. Like Indian IT.

So, down? Maybe. Out? NO!!! Drag other markets? A bit. Effect to continue? Very short-term.

Beautiful thing is, Indian and possibly other corporates have been working on their plan Bs, and perhaps their plan Cs, and have, slowly but surely, been implementing these.

Also, government is boldly stepping up and refusing to get bullied. Watch out for the measures to be announced that will further boost the economy, to counter this ‘shock’. Thing is, where other nations have started thinking and acting short-term only, India has started to play a longer-term game. One can call it a meta-game.

Bottom-line.?

Time to answer the door-bell, open the door, and let the knockers in.

In my opinion, it’s safe to put one’s money on the line here.

Should Indian IT fall, large quantities of domestic funds will be lapping it up. Smart money will definitely be buying into offered margin of safety.

Why?

Fundamentals.

Clean balance sheets.

Free cashflow.

ZERO DEBT.

High RoE.

Large number of diligently purchased start-ups owned.

AI incorporation and development.

Steady growth.

Technical margin of safety being offered, possibly, tomorrow onwards.

And now, brain gain.

These are some of the big pluses that Indian IT offers.

So, one can easily and calmly go out there, and, with a cool head, put one’s hard-earned money into any margin of safety exhibited by these potential compounders with amazing track records, with a clear-cut goal of generating long-term wealth.

Wishing you happy and lucrative investing!

🙂

Tech Bubble please burst

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Bubbles burst,…

…like,…

…pendulums swing.

We’ve seen bursts.

We’ve gauged our way through them.

Lucratively.

Why?

We save up…

…for such situations.

Earlier, bursts were rare.

Now, they are common…

…and quick.

That’s great news for us.

What’s the worst that can happen in a tech-bubble burst?

Front-liners can start trading at single-digit valuations.

Mid-tiers can be down 50 to 75%.

Smaller players can lose 90% of their market cap.

When front-liners trade at single digit valuations, we’ll load up on these.

Medium sized tech scrips showed even ten-bagger behaviour lately. Such down-side would be immensely valuable for us, to avail re-entry opportunities.

Coming to small-sized, debt-free tech players with remarkable free cash-flow to market cap ratios, ya, we do own a couple, and ya, we would re-buy.

So, what’s all the hoo-hah?

Bubble bursts, we buy.

Strategy is outlined.

Players are demarcated.

No time for small-talk, chit-chat, or any other non-useful “market-activity”.

Meanwhile, we just keep trading from interim low to interim high in our pursuit for small quanta of cost-free-ness.

Period.

🙂

Sniffing Out Shareholder-Friendliness

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Shareholder-friendly managements…

…are the need of the hour.

What are the signs that we need to look out for, to know that a management is benevolent towards its co-owner?

Frugality in lifestyle and attitude is worth looking at.

What I’m trying to say is…

…that one hates to see a promoter living it up on company funds, at the cost of the company’s health.

Living it up is ok. Have the balance-sheet to justify it – first – please.

Are you debt-free? Quasi debt-free will do too.

Does your company ooze free cash-flow?

Are your employees well-paid and automatons for growth?

NPM double-digit?

RoE in the 20s?

Fine.

Live it up for all I care.

Take a high salary. Throw in a hefty commission.

God bless you.

I still want to co-own your company.

Any or most of these metrics not present & living it up on company money – well, nice knowing you, but no thanks.

We’re then looking for shareholder give-aways, you know,…

…dividends, bonuses, buybacks and stuff.

Again, the balance-sheet should show enough robustness to justify a giveaway.

If it doesn’t, it means that the management is trying to appease shareholders at the cost of the balance-sheet, and that’s an avoid in my book.

Look for simplicity in the annual report.

If one is getting lost in fancy words and hi-fi design, without being given the nitty-gritty at a glance, one is probably knocking on the wrong door.

Free cash-flow is a good thing. It allows for leverage to act upon opportunity and without incurring debt, among other things.

Look at deployment of net cash-flow generated from operating activities also. Deployment should be healthy. Shows growth.

Instead of looking for fad-stuff like synergy, let’s look to see if promoter action adds to the balance-sheet and makes it stronger.

These are just examples.

Sniff out shareholder-friendliness.

Put your own metrics together, to do so.

You Miss, I Hit

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We’re in the markets to…

…capture gains. 

How do gains come about?

Buy low sell high?

Sure, you’ve then got some gains. 

Enough?

Probably not, because everyone of us holds enough losers. That’s part of the game. Amongst many losers, we then find a winner.

How does one maximize gain?

One looks for mispricing. 

Let’s say we’ve id’d a stock. 

It passes our entry criteria.

Now, we look for an entry point that will give us a price advantage. 

We would ideally like the public to misprice the stock on the downside. 

That’s when we would like to pick it up. Higher the misplacing, higher our advantage. 

When is maximum gain captured?

This happens when the same stock is mispriced by the same public on the upside. 

Is such a strategy easy to implement?

Sounds easy, but NO!

Why?

(For starters), That’s because it goes against our grain to buy something really low, for fear of it going even lower, since sentiments are so down. 

Can well happen. You buy something really cheap, and before you know it, your something is down by another half. 

What’s your protection?

Rock-solid research. Identification of sound fundamentals. A shareholder-friendly management. Technicals that support you. Mispriced entry point. Product-profile that’s going to be around. Lack of debt. Substantial free cash flow. Etc.

If you’ve got such pillars going for you, it’s only a matter of time till they start to shine forth. 

If mass-depression causes you to wilt, though, it’s on you. 

Mispricing on the upside causes us to blunder too. 

Most sell their big winners which still have sound fundamentals, and can potentially go on to bag much higher multiples. 

Do this, sure, but only if you NEED the money. 

If not, give your potential multibaggers the time to become full-fledged ones. 

Sell early, and you won’t perhaps ever find another entry point. Winners barely ever give an entry-window. 

At market highs, sell your losers, because they’ll perhaps be inflated too, and you might get a good exit. 

When others misprice, make sure you hit some home-runs. 

Nath on Equity – Yardsticks, Measures and Rules

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Peeps, these are my rules, measures and yardsticks. 

They might or might not work for you. 

If they do, it makes me happy, and please do feel free to use them. 

Ok, here goes. 

I like to do my homework well. 1). DUE DILIGENCE. 

I like to write out my rationale for entry. 2). DIARY entry.

I do not enter if I don’t see 3). VALUE.

I like to see 4). MOAT also. 

I don’t commit in one shot. 5). Staggered entry.

I can afford to 6). average down, because my fundamentals are clear. 

My 7). defined entry quantum unit per shot is minuscule compared to networth. 

I only enter 8). one underlying on a day, max. If a second underlying awaits entry, it will not be entered into on the same day something else has been purchased. 

I’ve left 9). reentry options open to unlimited. 

I enter for 10). ten years plus. 

Funds committed are classified as 11). lockable for ten years plus. 

For reentry, 12). stock must give me a reason to rebuy. 

If the reason is good enough, I don’t mind 13). averaging up. 

Exits are 14). overshadowed by lack of repurchase. 

I love 15). honest managements. 

I detest 16). debt. 

I like 17). free cashflow. 

My margin of safety 18). allows me to sit. 

I pray for 19). patience for a pick to turn into a multibagger.

I keep my long-term portfolio 20). well cordoned off from bias, discussion, opinion, or review by any other person. 

There’s more, but it’ll come another day. 

🙂