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You Can Be a Stock Market Genius – Joel Greenblatt
My only problem with this book has been its title. Not only is it tacky but it also gives a wrong sense to people. Apart from the title, it’s a very informative and useful guide to discover various methods to invest in Stock market. Before I dwell further upon this book, let me remind all those who follow Benjamin Graham – The father of Value Investing and an author of security analysis, he uses a term called “Special Situations”. The book is all about these situations.
The author of this book, Joel Greenblatt is the founder of Gotham Capital, a private investment partnership firm achieving 50% annual returns over a period of 10 years. Thus Greenblatt definitely practices what he preaches.
Joel Greenblatt has explained in a simplified manner, the nuances of Special Situations such as Spin offs, Restructurings, Merger Securities, Rights Offerings, Recapitalization, Bankruptcies, Risk Arbitrage. Each one of these provides ample opportunities to invest and generate profitable returns in them.
Some of these situations cannot be exploited by a Lay investor but some situations like Spin offs, Right offerings can definitely provide ample returns to the investor doing thorough analysis.
Spin-offs: Spin-offs are often but not always the result of a parent company wanting it to get rid of a subsidiary in order to focus on their core business. Since getting rid of the segment that is dragging performance helps in improving the valuation of Core Segments, the neglected spin off thus usually has a vast potential. All that is required for the investor is to find out more about the role of management post spinoff. If their compensation is based primarily on performance, they will tend to perform well. Of course, there are a million caveats but, if you do your homework properly, specializing in corporate spin-offs can dramatically improve your odds of earning high, sustainable returns in the stock market. The best part about these situations according to the author is that all the decisions to be taken about Company is on the basis of publicly available information. The author repeatedly warns to do homework!
Risk Arbitrage and Merger Securities: Joel offers a strict warning about the dangers of risk arbitrage by the small or retail investors, but risk arbitrage’s close cousin, the merger security, can offer outstanding profits to those careful investors.
Corporate Restructurings: A corporate restructuring means something went wrong! Either the company wasn’t performing up to the expectations or an outright bankruptcy might have occurred. Typically with these kinds of situations, one would stay clear of investing in a particular company. Upon thorough analysis one can think of investing if the risk is ascertained and the company is in process of a turnaround.
A simple example given by the author here is say a company has Equity of $5 and debt of $25. Its total worth is $30. Now a 10% increase in its assets will double the Equity component and thus the stock price. Caveat: A reversal of above circumstance may wipe your entire capital. Thus these circumstances must be thoroughly analyzed before investing money into it.
Stub Stocks, Warrants, Options, and LEAPs: Derivatives can make good investments, but leverage is something I personally don’t advocate. This is for people who know the nuances of trading in derivatives. Small investors like you and I can have a clear view on investments.
The Book I believe is worth reading because it provides one with a ground work on how to exploit these “Special situations” and gain profit from them. To sum up it is a well written book.
P.S: Joel Greenblatt if you are reading this, Please avoid giving tacky titles to your future endeavors.
MMS – A
Batch 2011 – 13
Look up ‘Entrepreneur’ in the dictionary and you’ll find it says, ‘an enterprising individual who builds capital through risk and/or initiative and in a way creates employment for others’. But easier said than done, it is not just an art but also a science. Being a successful entrepreneur is a fruit of long struggle, hard work and the desire to excel.
Mr. Shounak Deshmukh, CEO of the Talent Networks, an HR consulting company, is one man who gave up his high profile corporate job to live his dream of being an entrepreneur.
“Being an entrepreneur was not easy at all”, shares Mr. Deshmukh. Coming from 18 years of Human Resources background in a corporate job and playing a support function role, he was never really exposed to the reality of chasing revenue targets. “It was very hard for me to give up my lucrative, predictable corporate pay check. All of a sudden, the glamour of working for a large Financial Service Institutions like JPMorgan wasn’t there”, he recollects. He knew right then that the individual credibility that he had built over the years was his only asset. And his professional and personal associations are exactly what gave him his initial business.
A Rough and Tough Beginning
Shaken as he was from his comfort zone during the start of his venture, Mr. Deshmukh considers himself fortunate to have had like-minded, dedicated colleagues to work with him in the new set up. It was with their help and his own resoluteness that Mr. Deshmukh incorporated ‘Talent Networks’ with the sole aim of creating a world class consulting firm that will help organizations manage the ‘people side’ of their enterprise – effectively, efficiently, and innovatively. “We had a small beginning followed with a steadily increasing presence. It has been our continuous endeavour to focus on our vision of providing ‘360 degree solutions, by adding distinct value to our clients, by consistently innovating and delivering on our promise”, he says. Being a consulting and solutions providing firm, the initial investment was not huge and was taken care of through internal funding by means of Director’s unsecured loans.
All in a day’s work
When he is not working closely with his team addressing delivery issues, guiding and coaching them to meet revenue targets, Mr. Deshmukh is interacting with clients – either pitching for more business or servicing assignments. “Initially thoughts of giving up my entrepreneurial dream and to go back to my corporate job touched my mind several times. However, every time that happened I surprised myself. The confidence of my team made me determined to face newer challenges. It compelled me to develop my business skills, sales & marketing skills and understand the financial implications of running a business”, he shares. Over the years of interacting with Senior HR managers and business leaders, he has learnt to continually get a sense of their ever-changing business challenges and track the latest developments in the market so that they are enabled to serve their clients better. He says, “In the process, we have learnt to be more patient, and have developed our coaching and consulting skills to deal with different styles with varying leadership depths. We have also learnt to recognise and gauge the seriousness of our client in order to avoid misuse of our time”.
Customer is King
Having taken off well, it was now important for Talent Networks to have a strong and dependable client base. “You have to constantly keep adding distinct value to your clients to sustain and survive”, Mr. Deshmukh points out. “In the contingent search business, we are paid for our ‘results, and not for our ‘best efforts’, unlike in our corporate role. It taught us about focusing sharply on the end results and successfully closing the search mandate.” Talent Networks consciously realises that repeat business comes only if the
output and the quality of the delivery is good, so every effort is made to provide the customer exactly what he expects, or at least a little more than that!
Mr. Deshmukh suggests two things that are essential for optimum customer focus: One is a ‘good team’ that understands the clients’ language and needs, picks up abstract assignments and converts them into meaningful and valuable outcomes for the client. Secondly, building relationships with clients to create strong ‘Brand Recall’ is what ensures that your business keeps running.
A final word
“We have learnt that what made us successful in the first two years of our business will not necessarily deliver success as we move forward. So, we ensure that we have a dynamic business approach, which is flexible enough to keep pace with the changing economy.” To young and aspiring entrepreneurs, Mr. Deshmukh has just two pieces of advice:
One, Don’t try to be a serial entrepreneur. Have a dream, a vision to create something that you ‘passionately’ want to realise.
And secondly, Think long term. Being an entrepreneur is a ‘way of life’. By not giving yourself enough time to succeed, you are only setting yourself up for failure as an entrepreneur.
So, Chase your Dream and Live it!
Reagan Chettiar MMS (2012-14)
Rahul Girisan MMS (2012-14)
Interesting question that we all have the moment we have cash to invest, are the market overvalued, fairly valued, undervalued.. Hmm to answer that lets take a peek at the past, let’s see how has the market done in the past.
“History doesn’t repeat itself, but it does rhyme.” – Mark Twain
Digging up past record of Nifty since Jan-99 we have 13 years of data from which lets assess what Nifty has done previously. During the Bull Run 2003-08, we saw P/E rising at a much faster clip than the EPS i.e more speculative growth than fundamental growth.
However since 2011 we have seen EPS rising steadily while P/E declining, few of the reasons have been the Euro crisis, our own domestic issues (deficit etc) we as bottoms up investors should not excessively worry about macro picture too much, what is important is to find a high quality business that is growing profitably at a reasonably fair price and sit tight!
During the speculative period, we also saw P/B rising to dizzying high levels and some so called analysts (market pundits) justifying them.LOL since then their P/B has come down to about 2.9 levels. This study of ours shows one thing, we are not on either extremes means neither highly overvalued nor a flat bargain levels. Let’s dig deeper and analyze, try and view from different angles. (The table shows in percentage terms occurrence of events)
Our current Nifty data as on 4 September 2012, P/E – 17.69, P/B – 2.87, Div Yield – 1.57% (source: Nse website)
Comparing past 13 years, we see presently Nifty is at a P/E range 17-21 and it has traded 38.8% of times over our past data. Not exactly trading cheap!
Presently P/B of 2.87 indicates Nifty has traded 29.2% times in this range, not extremely expensive by any stretch.
The current Dividend Yield on Nifty stocks is 1.57% which is what 73.5% times Nifty has traded in past 13 years. Again we get no conclusive case of over or undervaluation.
So what do we interpret from the following data, The Valuations of market are not highly enticing and there may be a risk of further downside before any upside. Conservative investors must demand a greater margin of safety from their investments during such time. ( Why more margin of safety.?)
As Seth Klarman said in his book, “Margin of Safety”, Future is unpredictable. The river may overflow its banks only once or twice in a century, but you still buy flood insurance. “Investors must be prepared for any eventuality.” He describes that an investor looking for a specific return over time, does not make that goal achievable. “Targeting investment returns leads investors to focus on potential upside rather on downside risk.” “Rather than targeting a desired rate of return, even an eminently reasonable one, investors should target risk.”
Find undervalued opportunities and look for protecting yourself from the downside than looking to blindly participate in the upside.! Happy Investing!
By: Rohan Pinto (MMS 2011-13)
Jagjit Phull, a computer engineer by education and an entrepreneur by profession tells us what it takes to break the regular mould and go on the path less travelled.
When you are a computer engineer with a job at an illustrious multinational company, you’d be considered crazy if you even mention the idea of starting from scratch. But this is exactly what successful entrepreneurs like Jagjit Phull do. A graduate from Bharathi Vidyapeeth (1992-1996), Mr. Phull worked with D-link (Manufacturing electronic goods) for two years. That was topped by General Electronics (GE) where he learned about the six sigma concept. His next job at IBM, according to him, was by far one of the best learning grounds any engineer could ask for.
So what made him switch to his personal project of Linux Classes? He says, “It was the lack of a challenge”. Both technical as well as financial growth should go hand in hand for complete job satisfaction, but that did not happen. “There came a point when there was financial growth but technically it was not challenging enough and I was not enjoying it”, he recalls. The appraisals for the IT sector were no talking point either. One can soon get complacent and in no time, growth stops and you get the pink slip. “One should keep jumping, and continually find new stimulus. So, I decided to jump to what I liked most – ‘LINUX’.
Every challenge comes with its fair share of difficulties but Mr. Phull seemed confident in his ability to weather any storm. The project started with only a small group of students and involved training them in labs. Being a computer engineer he would connect the routers and switches himself. Marketing and advertising costs were curtailed as he did not believe in wasting resources. “We don’t even pass pamphlets, so we save trees too”, he adds jokingly. Clearly the only thing the project relies on is the robust word of mouth publicity they enjoy.
Although he was lucky enough to float by easily, Mr. Phull is unhappy with the lack of openness of our education system today. “Our current education system doesn’t encourage entrepreneurship. Parents only care about grades and what the society thinks. Students today lack emotional and spiritual intellect”. Mr. Phull believes there are four pillars of education: intellectual, physical, spiritual and emotional. He staunchly advocates that today’s generation should go back to the gurukul way of learning rather than blindly emulating the Harvard way.
Finally, he ends with a Sanskrit shlok ‘sa vidya yeh ya vimukta’ which means ‘education liberates’. “LINUX made a difference to my life and I want to give back to society and contribute to making India better.” I wish more and more truly educated students develop the courage of building their own stepping stones towards entrepreneurial success.
Interview by: Malleswari Bhupathi (PGDM 2012-14)
Edited by: Manjiri Durge (PGDM 2012-14)
So, here you are again! Congratulations!! Because the fact that you are back to read this proves that you are REALLY interested in inculcating this essential habit. We hope you have already started implementing the tips that we suggested in the previous article, if not, please do yourself a favour and start ASAP!
Once you start following news regularly on TV / the internet or magazines, the task of reading a business newspaper seems not-so-petrifying! Well, the petrifying part of business newspapers is in their ‘language’. English, it is! But if you are reading a Business newspaper for the first time you’ll realise how English can feel like German!! So, in this case, reading isn’t a big deal, ‘understanding’ it is the challenge that faces a newbie reader.
Note: Again, I’m assuming that you are a newbie reader and that you are not / have not been an avid newspaper reader!
To start with, there are quite a few renowned Business papers in the market – The Mint, Business Standard / BS, Economic Times / ET and Financial Express (in increasing order of complexity/difficulty, personal opinion!). All of them provide the same news, but each with a different treatment. ET is most recommended in B-schools, while BS is also a good business daily. But the fact is whichever newspaper you choose to stick to; each of them is simply an overdose of information. So, it is wise to not start reading a newspaper with the aim that you will finish reading all of it! Trust us, no one does!!
What to read?
The newspaper is wisely divided into sections to cater to the interests of a diverse variety of people. So most people only read sections / headlines / news that interest them. And that is what you can do too! The first page of any Business daily, gives you the top stories and several headlines that are continued in the subsequent pages. Reading the first page gives you an idea about what may / may not interest you in almost the entire newspaper. Also, most articles feature an ‘in-set box’ that gives a gist of the situation / news. That could also help you gauge whether you want to read further or not. However, as a Business student there will be certain sections like the Editorials, Finance & Economics in which you might have to ‘generate’ interest! So start with areas that interest you and slowly, but steadily, move to these ‘heavy’ sections! Especially for those intending to specialise in Finance, once you start getting a hang of the Business daily (and possibly fall in love with it), try developing a taste towards a particular sector and analyse the industries in it. Start with a small one and slowly move to bigger industries. This is a little far-fetched, but surely you could take help from your Professors or your ever-helpful seniors!
When to read?
You could read whenever and wherever it suits you. People read them while travelling in trains and buses, while having breakfast, during the break in college. …You could decide on whatever suits you best! Just make sure you do allocate time for it!
Don’t just READ!!
Well, let’s consider, it’s your first encounter with a business daily and you start reading the top story on the first page. It reads, “IIP shocker dims hope of recovery”. Hmmm….IIP!! Now, this is where no matter how many business magazines you’ve read, no matter how many top stories you’ve followed, nothing will come to your rescue, ‘coz this is hard core economics! And most often, business dailies are teeming with Finance and Economics terms. So, what do you do? There are two ways to deal with this:
One, you read through the entire article and chances are that you will understand what the term means by the end of it.
Two, you fail to understand what it means and so, you Google it to find out. But, this isn’t feasible for each & every article and for every term that you come across. So, most people let the term linger in their minds till they come across the same term in a book/ in a lecture/ or may be in an article the next day or they ask a friend to get better clarity on it.
But, we’d suggest that, every day make it a point to Google / read up on at least one difficult term that you come across. Maintain a book / a Word document of such terms and their definitions. This would mean some value-addition every day. For a newbie, reading a newspaper is on such high-priority that she can be greatly satisfied with herself if she spends 2 hours ‘reading’ the newspaper. But then, did you gain anything out of it? That is the question.
Read & Reflect
Edmund Burke says, “To read without reflecting is like eating without digesting.” You gain nothing out of either of the exercises. So, even if you read just two articles of the newspaper in the one-hour that you’ve allocated for newspaper reading, make sure you KNOW what you read! After reading every article, take a few minutes and explain to yourself what you read. This will give you a better understanding of what you read and will also help some questions surface. Let those questions linger, if you don’t have the time to sort them out. Sooner or later the answers will surface, too. But, take 2 minutes and do reflect on the Who, What, Why and How of every article you read, that should be your take-away.
Discuss & Share
Whenever you are with a friend or a group of friends and you are short of things to talk about, the day’s headlines can be good starter. I know, you must be thinking that you’ll rather strike a discussion about the latest movie than talk about IIP or Maruti’s Manesar issue. Well, the choice is yours. It’s just a suggestion! Sharing & discussing news with friends is a good way to learn & understand things better. It helps you form opinions on issues and helps you understand other points of view that your friends may bring up. So, Movie or Maruti…you choose!
So, here we are at the end of our wits, having poured out all possible tips that we’ve learnt over a year of trying to learn to read Business newspapers. What we have tried to do is make you aware of all the possible issues that you will face and how you could tackle them. But remember, reading this article does not empower you with supernatural abilities to master the art of reading and understanding business dailies. You will have to sweat and diligently devote time and efforts to this task. Trust us, the long term benefits that you’ll reap are worth the pain!
So…..Go ahead! And enjoy the journey!! We really hope this helps!!
Sharon Mary John
With Valuable Inputs by:
Rohan Pinto, Sneha Shenoy, Preeti Singh, Ankit Shah, Riddhima Sharma, Ashwin Balakrishnan, Sindhu Sundaresh
After joining an MBA course, I’m sure you haven’t found a single professor who has failed to tell you, “You must read ET…daily!!” Well, though ET stands for Economic Times, the language of the newspaper seems so Extra-terrestrial (ET) that I thought I would never come to terms with it. The dull shade of the newspaper, or any other business paper for that matter, would make me feel dizzy. And to add to it, if you hail from a Science background, like I do, it is most likely that inculcating the habit of reading a business newspaper daily will be a nightmarish experience!
Throughout my academic years, I’ve never taken the efforts to even read the Times of India, there was never a need, I felt. Bombay Times and once in a while, Mumbai Mirror if it’s a lucky day and that would be my daily dose of news. So, you can imagine the mental agony I must have experienced in order to start reading a ‘Business paper’, which I am sure many of you are going through right now. This article is the result of a year-long struggle with newspapers. Many ideas and tips that you will find further ahead are not my sole intellectual property but are inputs by very good friends of mine who are avid newspaper readers! And therefore, at several places throughout the article ‘I’ will be ‘WE’, because this is a collective effort.
So, here you go. I hope you’ll find this helpful.
P.S.: I’m taking the liberty of assuming that you, who are reading this article are not / have not been ardent newspaper readers.
PART – I
So, to begin with, why should you be reading a Business newspaper?
Reason#1: Because professors force you to.
Reason#2: Because it helps in Group Discussions & Personal interviews.
Reason#3: Because you really want to know what’s happening in the world around you. You are really interested in ‘being aware’.
Though the first two reasons are true, trust us, you will never successfully achieve this goal of starting and sticking to daily newspaper-reading if these are your primary reasons. Reading a newspaper needs patience and enthusiasm; it can’t and shouldn’t be done because you are told to!! So, the first step must be to generate interest within yourself. And the best way forward is to start by reading business magazines. There are a bunch of them like Business World (weekly), Business Today (fortnightly), etc. which will give you ‘complete’ stories, viewpoints and analyses unlike newspapers which often only ‘report’ daily happenings. For me, not knowing the background of a particular incident/news was always a deterrent to reading newspapers, and then I would become as disinterested and demotivated as always. So, reading business magazines will help you assimilate a few stories and will create that interest, zest and curiosity within you to find out more. We’d suggest you dedicate the next 15days (minimum) – one hour daily – reading business magazines and generating interest.
To ensure that at the end of these 15 days you acclimatize yourself to news & current happenings, we’d recommend a 360˚ approach. And that is, use the TV and the Internet as an aid to your efforts. India Business hour @ 9pm on CNBC TV18 gives you the top headlines and news of the day, NDTV 24×7 has discussions on key issues @ 9 and 10pm. With no additional efforts, all you need to do is switch on the TV and hear as you have dinner. Of course, there are umpteen news channels and programmes that could suit your interests and timings, we leave it up to you to explore further. This is a slightly less strenuous way of obtaining the day’s news and catching up on top stories, and one of the best sources for starters. Also, as an MBA student you will be spending 90% of your time on the PC / on your laptop. An innovative approach is to make Google News or any other News website your home page! Each time you use your web browser, you’ll be updated with the latest news and happenings. Isn’t that easy and cool!
So, starting today implement this 360˚ approach and tell us if you see the difference.
A word of caution: This will work only if you diligently dedicate time to this endeavor EVERYDAY. We understand assignments, presentations and lectures eat up most of your time, but make it a point to set your priorities right. Lectures and presentations will come & go, you might gain something out of them, but investing time in inculcating the habit of reading will reap benefits for a lifetime.
Make a definite plan and put it into action right away.
Once you’ve done this, you are ready to dive into a business newspaper……….
……..To be continued in Part 2.
Sharon Mary John
With Valuable inputs by:
Rohan Pinto, Sneha Shenoy, Ankit Shah, Preeti Singh, Riddhima Sharma, Sindhu Sundaresh, Ashwin Balakrishnan.