2018 is sliding towards a close and it’s been a very interesting year in the markets. Here’s a quick review of analysis that we have done – a sort of a report card. There are some new initiatives that we started and built on the ones started earlier.
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New Initiatives
Fundas
In this series we take up financial concepts and try and explain them in lucid terms. In the year gone by we have covered total of 8 concepts.
Here’s the full list:
- Return on Equity – Part 1 and Part 2
- Cash Flows
- Revaluation Reserves
- Self Sustainable Growth Rate – SSGR
- Price to book – P/B
- Quality of Earnings
- Price to Earning ratio – PE
- Financial Ratios – Part 1 and Part 2
These concepts are like classics which can be revisited time and again to understand a particular concept better or refresh oneself on the concept. We will continue to cover many more concepts in the next year.
Annual Report Review
Going through annual reports is an essential requirement if one is a fundamental investor. Reading annual reports and paying special attention to certain sections of the report will help investors in avoiding investment mistakes.
We summarize annual reports and highlight important sections that readers of annual reports should look at and the analysis can act as a framework for readers when they are reading and analyzing annual reports of companies on their own.
We also try and highlight certain findings which are unique to a particular company while reviewing their annual report. For instance in the annual report review of Thermax we highlighted how the increase in assets was funded by customer advances. This form of funding does not require the company to take on additional debt and is also not a strain on the working capital requirements of the firm.
We highly recommend reading annual reports of companies for long periods of time and its competition to get a better grip on the investment idea that one is working on.
We did 6 annual report reviews during the year, below is the full list:
We intend to take up many more annual report reviews in the coming year.
Walk the Talk
We wanted to get a sense of what is happening in the industry by going through the companies latest quarter conference calls. We also analyze the results of that quarter to get a context of what the management is speaking in their conference calls. Listening to conference calls may throw up some trends that we as investors can capitalize on.
The posts are:
One interesting aspect that we came across after analyzing the Q2FY19 results of the tyre industry was – while Apollo Tyres had a share of 33% in total revenues for the tyre companies analyzed, MRF had 48% share of the net profits. We analyzed five companies – Apollo, Ceat, JK Tyre, MRF and TVS Srichakra.
This kind of analysis also helps in digging deeper into companies that look interesting and can be ground for generating new investment ideas.
Screens
An investor is always looking to generate great investment ideas. There are various sources to generate ideas – one of them is to run screens.
We covered 2 concepts during the year which help in the idea generation process. Below is the list:
- Magic Formula
- CANSLIM – Part 1 and Part 2
Magic formula was introduced by Joel Greenblatt, co founder and chief investment advisor of Gotham Asset Management. This strategy was tested and averaged 24% returns per annum between 1988-2009 as against an index return (S&P 500) of 9.55%.
CANSLIM is a techno fundamental method of picking high quality stocks which was developed by William J. O’Neil. Each of letter represents a characteristic which helps in identifying stocks. We ran a screen based on certain assumptions for Indian stocks and this process generated 12 stock ideas.
These screens are for idea generation and we strongly feel that further work will have to be done to finally pull the trigger any buy a particular stock/stocks.
The Other Stuff
Taking Stock
We had started this initiative in 2017 and continued to cover companies this year as well. Under this initiative we take a deeper look at companies and cover all aspects which will give a better grip to the investor about a particular company/companies.
Our aim while analyzing companies is that we at Capitalmind should be the place which would provide comprehensive and exhaustive analysis of companies which should help readers in taking their investment decisions.
We covered 7 stocks under the taking stock series this year. Below is the full list:
Industry Reports
During the year we covered the below industries
When one analysis a particular company, as part of background work one would want to understand the industry dynamics in which the company is conducting its business. One would have to go thorough various articles, blogs, magazines to get a grip of the industry. Through this initiative of ours we aim to provide a comprehensive analysis of industries and help readers understand industries in a simple manner.
We were able to cover only 2 industries this year, however we will strive to cover many more in the coming year.
Outlier in Focus
We come across interesting stocks generated through our Capitalmind SNAP Outliers – tool to discover stocks with momentum. Below is the full list of stock outlier posts that we wrote during the year
There were few other posts which were written around the recent developments that were happening at that point of time. Below is the list of some of them:
- The magic behind the profits of Reliance Jio
- Yes SBI when you say the worst is over
- The Bankrupt companies in NCLT may revive but you still lose: Monnet Ispat Edition
- Open offer of Fortis Hospitals
- Behind the Bankruptcy act and why moral hazard makes shareholders feel cheated
- Strides and Sequent Scientific demerger into Solara: what is in it?
- The Bhushan Steel Saga
- When a stock falls big, is that an opportunity or a forebearer of further bad news
- Understanding the Kotak – RBI battle
What’s Coming?
A bunch of more in the above set will come by. We’ll work through a lot more on the “fundas” front and analyze more annual reports.
A more detailed set of Taking Stock posts will also be part of the framework.
We’re also looking to start a podcast in 2019 as well, which will have our views in a format that’s accessible in an audio format.
The year ahead is going to be fun, just as the macro shifts and interest rate cycles change. There will be new stocks, new concepts and new areas in old stocks. There will be a lot more of Capitalmind coming over to you regularly.
NOTE: Please do not consider this article as a recommendation, It is purely for informative purpose only. Authors may have positions in the stocks mentioned, so consider our analysis biased. There is no commercial relationship between Capitalmind and the companies mentioned in this analysis.
At Capitalmind, we are not Journalists and hence our attempt is not to be first to report breaking news. Rather, we wish to critically analyse the issue at hand and provide a fair handed view that is easily understood by even those who aren’t in tune with the issue at heart. In other words, we try to simplify the complicated.
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