April 25, 2010

What’s on my mind – Apr 2010

I wrote a similar post on miscellaneous topics in Feb. I am able to use these posts to ramble on several disconnected topics which in themselves may not warrant a post.

Facor alloys
I recently analyzed this stock
here. As luck would have it, Arcelor mittal – the LN mittal company seems to be in talks with the management to acquire a stake in a sister company – Ferro alloys corp (I received a comment on the same recently)

The management of the company controls three companies – Ferro alloys corp, Facor alloys and Facor steel. Ferro alloys corp owns and controls the Chrome mines. Facor alloys, also controlled by the same management has been able to access these mines and is in the business of manufacturing chrome alloys.

Chrome alloys are used in the manufacture of Steel and thus these talks on stake acquisition make sense as they would represent backward integration by acerlor mittal. These talks may or may not be successful, but the market has already responded by increasing the price by 10% for Facor alloys.

The stake accquistion seems plausible and could be a good trigger to exit the position. However I would not base my decision on this criteria alone. One should be convinced that the stock is undervalued and these kinds of events would only unlock the value

Sulzer india
I wrote about sulzer
here. I have since then exited the position completely. I was able to get a 45% gain in 6 months. I am definitely pleased with the outcome. However this was sheer luck and nothing more. If I assume that I have the skill to make 90% returns per annum, then I can plan my retirement in the next 2-3 years.

Psychology of investing
I received two comments, which touched upon the issue of how can one manage emotions in the market ? If one has invested a sizable amount of savings in the market how does one handle the market swings ?

I personally think that the intellectual part of investing – learning the basics and the fundamentals of stock analysis etc is not too difficult. Any smart person should be able to cover a decent ground in 2-3 years. The most difficult part is handling the emotional roller coaster of the stock market. That takes a lifetime and sometimes even a lifetime is not enough.

I think some people assume that one is born with the temperament to handle these emotional swings . I do not agree with that. There is definitely some level of temperament involved, however one can train oneself to become better at it.

During my early days of investing, I would get happy and greedy when the market went up and anxious when my stocks dropped. I went through considerable self –doubt too. I was always asking myself – do I really know what I am doing?

However if one focuses on learnings from mistakes, then over time the self doubt reduces. I still feel good when my stocks do well or unhappy when they drop, but I do not base my decisions on how I feel. The only antidote to these emotional swings is to learn continuously and know what you are doing.

At the same time, if you feel anxious and are losing sleep when the market drops by a few percentage point, then it is a clear indication that you have taken on way more risk than you can bear. The reasonable course of action in such a situation is to reduce the amount of money in equities and increase the allocation in debt.

Ask yourself a question now – are you feeling bullish these days? if yes, then you are thinking like all others. The time to be bullish was Jan-Mar 2009. I am not bullish or pessimistic these days, but I am definitely cautious.

Responding to emails
I have been slow in responding to personal emails. If you have written to me and have not heard from me, my apologies. I read all the emails I receive, though my responses are delayed sometimes.
If however you have written to me asking for my opinion on a stock, I would prefer if you did some homework at your end and shared your analysis with me. I would then be able to provide a better response to you.

Overall portfolio plan
I am now adopting a slightly different approach in making sell v/s hold decision. I am now asking this question – If this stock drops by 20-30%, will I add to it or do nothing. If the answer is ‘do nothing, then the stock is a good candidate to sell.

I have exited my position in VST and would be doing so in case of some other stocks as the gap between the price and fair value reduces further. The issue is not if the stock is good or not, but whether there are better ideas in the market. Holding an average idea may not result in a direct loss, but there is always an opportunity loss if the stock does not rise as much.

15 comments:

Amit said...

I am surprised that you exited VST. The topline has grown well and adjusting for exceptional items the profitability has grown well. Also the valuations are undemanding.

sachin8778 said...

Hi Rohit,

Great post, I liked this idea of random post. You touched upon multiple topics.

Although I am commenting after a long time, I don't miss even single post of yours.

As you written above, I am one of those who is waiting for your email response. I have asked you one question about buy back share and rights issue; is there any parallel if unsubscribed rights issue taken up by promoters? Can it be treated as same as far as judging the management quality is concern.

Please respond at your convenience.

Cheers,
Sachin

talll.com said...

Can you make some sample portfolios like this, and track the returns on this blog ?

C.C.Gemini said...

Sir Rohit,
Please let me know what is the most important thing to look for in a P/L account or BAL.SHEET with regards to share investing..

rayhaan said...

hey rohit
heard u r interested in options?
maybe u shud chek this out http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2010/04/21/investopedia43652.DTL
saw the price of nifty puts a few weeks ago looked quite cheap at 52.10
( i mean the market has to drop by just 2.2% for u to start makin money)

NN.Narkar said...

In simple words pl explain ULIPS

Anonymous said...

Hi Rohit,

I havent found any other investor as religious about Buffett as you. i myself am a complete fan(that doesnot mean i follow him the way u do) would like to learn more about the epitome of investing. I Know you can be a lot of help.
I am just starting.
Could you please Suggest what can one do while just starting?. I have just read a couple of books and dont know much about balance sheets and P$L statements. I like reading though and that is how i intend to learn more. Currently reading "The Snowball", may be you have read it. but i came to know about buffet just 2-3 years ago. I would love to know how anyone can reach to a particular pricing about a company?

Rgds
Bunny

Rohit Chauhan said...

Hi amit
i dont think the topline is doing well. VST had a topline improvement due to tobbaco sales. overall though the net profit is stagnant. overall its a small position for me and hence i dont see any major upside in holding it

rgds
rohit

Rohit Chauhan said...

Hi sachin
sorry ..i must have missed your email. i think if the promoters buyback share or subscribe to the unsubcribed portion of rights ..it means they are bullish on the biz and putting money where their mouth is.
at the same time it has to been seen in the context of their past actions too. they maybe over optimistic of the biz too

rgds
rohit

Rohit Chauhan said...

Hi C C gemini
its a fairly vast topic. i will try to put a post and suggest a book ..but its not easy to cover it in a post
rgds
rohit

Rohit Chauhan said...

Hi talll
sorry, no i dont do that as part of this blog and dont plan to do so in the future.
i only analyse the stocks ..its upto the reader to take their own decisions

Rohit Chauhan said...

hi rayhaan
let me check that. i am studying up on options ..not investing much in it though.

N N narkar
i have written about ULIP in the past. they are a form of equity funds ..i would personally avoid them as there is too much commision and other expenses built into it

rgds
rohit

Rohit Chauhan said...

Hi bunny
hopefully i am not running a buffett cult :)

yes i have read snowball ..its an entertaining book.

valuation is a very vast topic ..i think the first step would be to start with understanding how to read financial statements

and also learn how to do a DCF calculation. i think you can google on this and find good material

rgds
rohit

Anonymous said...

Hi Rohit,
Thank you for response.

Sachin

Ramaiah said...

Rohit,
Nice post.