What’s Brewing in Our Watchlist

There are thousands of companies listed on the Indian stock market. I am sure it’s safe to say that each of those listed stocks has, at some point, hit price levels at which it would have proved to be two, three or ten bagger from its all time low.

Does it mean that all those stocks are missed opportunities because we never studied them?

Not really. As value investors and practitioners of rationality, we constantly remind ourselves that it’s foolhardy to chase ideas based only on their price movements.

We believe that the way to create long term wealth in the stock market is to keep our focus inside our circle of competence — an idea made popular by Warren Buffett. In his 1996 letter to shareholders, Buffett wrote —

What an investor needs is the ability to correctly evaluate selected businesses. Note that word “selected”: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.

At this stage there are about 40-50 listed companies that lie in our circle of competence. We have spent hours upon hours digging into the details of their financials, deciphering annual reports, and studying industry dynamics. This gives us reasonably sound understanding of these businesses and the industries they operate in.

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The Perpetuating Forces of The Capitalist Creed

How do you measure the size of an economy?

GDP, right?

By that measure, US is the biggest economy in the world today with GDP in excess of $20 trillion. That’s the total value of the goods and services the country produced in FY17. The churn out of that kind of produce was achieved on the foundation of $12 trillion of national debt.

It’s not surprising to anyone that largest economic powerhouse runs and grows on the engine fuelled by debt.

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The Rise of Investing Centaurs

Napoleon Bonaparte, the Emperor of France, is considered one of the greatest commanders in history, and his wars and campaigns are studied at military schools worldwide. But in 1809, he was defeated. Not in a war but in a game of chess. Bonaparte was a military leader, not a chess grandmaster so his defeat in chess shouldn’t have come as a surprise except that he lost against Mechanical Turk — an Automaton Chess Player.

Mechanical Turk was the brainchild of Wolfgang von Kempelen. The Turk won most of the games played during its demonstrations around Europe and the Americas for nearly 84 years, playing and defeating many challengers including statesmen Benjamin Franklin. Read More