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Tuesday, November 10, 2015

How Are We Doing Diwali 2015

Wishing all Investors and readers a Healthy and Prosperous New Year!.. Let us start with the review of our performance.

Its been 6 yrs (2009 to 2015) and looking at the data of recommendations.
1. considering an investment of 10,000 in 28 stocks ie. 2,80,000 the stocks discussed in the message board have given an absolute return of 158.75% that's an avg of 30.74% per year on invested capital(Including dividends). 
Invested capital: 2,80,000.00
Current Value: 7,24,513.00

2. The NIFTY (Absolute: 82.50%, Annual: 12.79%) & SENSEX (Absolute: 82.72% & Annual: 12.82%)
this clearly shows that if we do invest with value investing principals on a long term basis the returns are  worth the effort and one can expect to do better than the index.
Index Annual Return: 12.82% add another 2% for dividend ie 14.82%
Stocks Discussed in Blog Annual Return: 30.74%(dividend included)
Difference:  15.92%

3. Surprisingly my Recommended Best Buy stocks : GAEL,Jayant, NHPC & Tata Comm) have fared not so well.  giving an annual return of 9.32% 

4. hypothetical situations:
- If invested only in profit making stocks returns would be: Absolute: 253.04%, Annual: 48.76%
- If invested only in loss making stocks  returns would be: Absolute: -ve 30.56%, Annual -ve 4.88%
- If invested only in dividend paying stocks returns would be: Absolute: 184.36%, Annual: 35.84%

Total Stocks: 28
Loss making stocks: 9, Ratio: 32.14%
Profit making stocks: 19, Ratio: 67.85%
Avg no of days invested: 1884.71 days (5 yrs 2 month)

Takeaway: Investment of 2,80,000 (10,000 invested in each of the 28 stocks discussed in the blog)  would have in 6 yrs become 7,24,513.30 (PN: some stocks have given rights which would have resulted in additional investment capital) giving an avg of 30% return every year.. This is a very good number and if we can continue to produce these kind of returns on a long term basis it would be phenominal!!
I doubt that we can continue to produce such great returns .. but long term I'm sure we can beat the index.

Our Data indicates investing only in dividend paying companies is a great investing principle

I must add.. Manugraph India which has been reporting losses for past few yrs but still continues to pay dividend even during these loss making years is a good buy at current prices.. (CMP is below our recommended price in 2010)

Dividend payment also indicates a management which is willing to share the wealth with shareholders and I think its a great idea to stick to investing in dividend paying stocks..

Recommended Best Buy:
Absolute Return: 50.51%, 
Annual Returns: 9.32% 
Recommended best buy stocks have actually underperformed massively

GAEL has given the best returns Absolute Returns: 113.65%, Annual Returns: 19.34%
Tata Comm has given avg returns: Absolute Returns: 73.52%, Annual Returns: 14.84%
Jayant Agro has given below avg. returns: Absolute: 48.87%, Annual Returns: 8.90%
NHPC has been the real drag giving -ve returns: Absolute Returns: -ve 34.01, Annual Return : -ve 6.35%
NHPC indicates how important it is to buy at the right price.. right now NHPC CMP: 17.70 is a great price to add on for the long term. In hindsight ..I have a better understanding that though Hydro power plants are the cheapest producers of power but that is on the long term.. initial capital investments are high and depreciation eats up a lot of earnings.. having said that over the long term (as capital investment decreases to zero) we can see NHPC giving out huge amounts of free cash.. its said that the first hydro power plant still produces energy.. so NHPC is truly for the long long term...

Recommended Best Buy stocks are all dividend paying stocks and over past 6 yrs improved their fundamentals (increasing Reserves). and from our own data we know that dividend paying stocks give good returns.. I think the "Best Buys" still have not yet reached their full potential and are worth investing in at current prices..
Tata Comm though rarely discussed is also a great company.. with the largest network of Fiber optic cable network in the world (some say 25% of worlds capacity) also with the largest amount of end points Tata comm is already the largest carrier of voice traffic in the world,  Tata Comm has -ve "Net Current Assets" which means its working capital requirement is NIL. Tata Comm management has front ended all its expansion plans which gives it the first movers advantage .. giving it a moat which even well established names will have tought time cracking.. SPRINT, AT&T & some 60+ odd telecom carriers world wide use Tata Comm  network to provide telecom services to their clients... Tata Comm is a play on the "data driven future" 

Jayant Agro Organics: the most written about stock in this blog.. and surprisingly has very little coverage in the media .. according to me is a definite multibagger. Uniquely placed as India produces 80% of worlds castor seed (Castor seeds is the raw material for Jayant agro's speciality chemicals derived from castor oil) 

Castor oil according to Indian Institute of Chemical Technology - Hyderabad can be used to derive 1000+ chemical intermediates to replace "Crude oil" in the chemical industry.

Jayant Agro had purchased the Govt of Gujarat Castor Seed Crushing plant in Banaskantha Gujarat. Now Banaskantha produces close to 200,000 Metric Tonnes of castor seed which is equal to the total castor seed production of "China" the 2nd largest castor producing country.. now Jayant is the largest processor of Castor seeds in the world.

Jayant has also formed alliances with Arkema (French Speciality chemical company and largest consumer of castor oil in the world:- Ihsedu Ahrochem: Jayant:75.1%, Arkema:24.9%) 

Jayant has forward integrated to produce high value added Castor oil based polyols: Vithal Castor Polyol:  Mitsui Chemical, ITOH OIL JV: Jayant 50%, Mitsui Chem:40%, ITOH Oil: 10%)

Jayant has over the years built a moat by backward and forward integration.. now its time to enjoy the fruits of years of hardwork... I see a more assertive management with news reports trickling in.. 
midcap companies)   ranking of 500 companies. Jayant Agro 7 yrs Avg. ROCE (Return on Capital Employed): 26.32%, Consistent dividend payout since inception 21+ yrs is a real Hidden Gem..

Suggestion: Invest in all the recommended best buy's as they are still very attractively priced.

Outlook: Outlook for demand is "GRIM" specially world wide due to BASEL-III. Though Basel-III is supposed to help prevent a banking related "financial crisis" .. BASEL-III regulations are going to reduce the ability of the banking industry to rotate money.. resulting in slower growth and tepid demand.

World wide demand will stumble (unless the US FED Raises Rates by 50-75 basis points.. yes raising rates by FED could result in 2-3 trillion dollars to flow into the US/world financial system.. which could hypothetically cause devaluation of dollar and massive inflation - in USA) US FED Banks hold 2.5 Trillion in excess reserves with the FED   well thought out Stocks are still going to be the best bet.

India is still going to see a problem of excess demand (As most of the population is still unbanked and live beyond the reach of banking/finance) and basic needs are still not fulfilled.  Integration of the rural masses to financial system is going to be crucial(easier said than done in a cash economy). 

Inflation is here to stay for next few yrs.. even though the NDA govt has reduced the rate of Monetary expansion its running at 11% (16% during UPA).  Tier -II bonds of banks is an interesting space for fixed income.   There is always misallocation of Assets and Asset Reconstruction Companies is also an interesting space.. A well run bank in an unbanked country like India could be available at attractive rates due to BASEL-III regulations causing a sharp rise in NPA..

=Happy Investing

PN: these are my personal view points and not a recommendation to buy or sell. Please consult a SEBI registered financial advisor. This blog is a place for me to reflect on my investment view point over the passage of time for my own personal understanding.