Mutibagger stocks for multi fold return for long term - A review .

Now a days we are seeing lots of posts regarding success stories of Infoys, Wipro, Eicher Motors circulating these days.They highlight about multi bagger stock .

Eicher Motors.

TCS

A multi-bagger stock is a stock that gives multi fold return to the investor in a couple of years. A multi-bagger stock can make you wealthy in a short period of time.

  Does Long Term Really Pay You Off?

Stock Markets are fascinating. Indian Stock Markets can compete with the rest of world for the success stories, scandals, intrigue and the tales of disasters.
It is said that Stock Markets are the barometer of a nation’s economic progress. It is often debated but the majority argument favors this statement.
Stock market has given returns which are higher then any other asset class.
Then there are the great stories of Infosys, Wipro, Eicher Motors giving unimaginable returns on investment.
But there are two sides of every coin.The Story Nobody Likes To Tell
In the NIFTY index, there are 50 stocks ( NIFTY actually means NSE FIFTY ).

( Oddly, though at present there are 51 )

These stocks are based mainly on market capitalization. When a constituent loses value significantly, it is removed from index and replaced by another stock. No one talks of these stocks which got removed.
They were the stars of the day at some point of time and are duds today. Those were the investment ideas of that time and relegated to horror stories now. I will talk about this aspect which no one talks about.

The Wealth Destroyers:
These stocks may be not in favor presently, but were the flavor of the month at their prime. They were part of the NIFTY index or otherwise very highly regarded and traded. Today they are shunned and forgotten, but there are real people holding these stocks wondering how they will ever recover their money. NIFTY going up does not have a meaning for them.

1.Reliance Communication:
On Jan 08, 2008 , the stock traded at a lifetime high of Rs. 844.70
The lifetime low was around Rs. 30 few days back

2. Suzlon Energy:
The huge fall in this stock made me look for other similar stories.
It was added to NIFTY in 2006. In 2008, it traded above Rs. 2000 and then there was a stock split. The comparison is made taking into account the effect of splitting.
The lifetime High- Jan 09, 2008 — Rs. 412.88
The lifetime Low— August 28, 2013— Rs. 5.70
And the funny part is:
You will get to hear on business channels that Suzlon Energy has gained 158% in last three years.

3. Unitech:
It was a NIFTY stock in 2008. It was valued highly and was at a high of Rs. 546.80 on January 2, 2008.
What is the current price?
Rs. 5.90
It is around 1% of the high price.
Can the investor ever expect to make good their losses?

4. DLF:
From a high of Rs. 1225 in January 2008 , it trades for around Rs. 147 today. Appears better than the others listed above, but 90% loss is not something to be taken lightly.
Even if it goes up by 100%, it will be nowhere near 1225.

5. Himachal Futuristics:
In December 2000, one of my friend bought for Rs. 1560 on one day and sold for Rs. 1605 next day. A day later it was Rs. 1675. He blamed himself for not taking profit.
Few months later was shocked when he saw a price of Rs. 90 in April 2001.
Today it trades at around Rs. 13.
Do you know what was the highest price?
Rs. 2578.05 on March 08, 2000.
In 16 years, the value of investment has come down to about 0.5%
A stock value can not fall 100%, but it is as near as you can get.

6. Jaiprakash Associates:
It was part of NIFTY. A big conglomerate in construction, power and cement business.
In January 2008, the high was Rs. 339.
Now it trades for Rs. 13.

Why This Story Needs To Be Told?:
It is a widely held belief that in the long run, markets give good returns.
This belief is true.

But the indices do not give the true picture.
In most of the above cited cases, the high price was in January 2008 ( except HFCL ) when NIFTY was around 6100.
Today, NIFTY is at 9200 but these stocks are at just at a fraction of their highs. Market has gone up but they continue to be laggards.
I have listed only a few. There are hundreds of such horror stories.
Index is adjusted by removing or adding stocks. An investor is not so agile.
You can lose money even when markets are going up.

What should be done to avoid such situations?:
Hindsight is always twenty twenty.
We need a good foresight.
No one knows that an INFOSYS will multiply a thousand times and HFCL will reduce to half percent value. In year 2000, both were the future stars. What a contrast today?
Protect your portfolio, like index protects itself. And take action earlier than the index does. In a long term portfolio, get rid of the stock, when it has fallen by about 15–20% of your purchase price.
There will be pain at that time, but not the endless pain which the investors of Unitech, Suzlon, JP Associates are enduring year after year.
I can not suggest that you should stay invested in Blue Chips.
All these were Blue Chips in their prime.

Conclusion:

Indian stock markets are wonderful. There are success stories, but so are the doomsday tales. All make for fascinating stories.
There are inspiring stories of Rakesh Jhunjhunuwala, but the sordid saga of Harshad Mehta also looms in the background.
Do not let the euphoria of the bull market impact you. Pay heed to the beaten down cases also. Learn your lessons from them.
A balanced view will make you a better investor and trader.

If you like this post then Pl  share your comments and follow me  |

Happy Investing

 

Shankara Building Products IPO Review

The company offer comprises of fresh issue of shares and offer for sale to raise around Rs 350 crore. The company is going to raise Rs 45 crore through fresh issue, while the balance amount will be raised through offer for sale of 6521740 equity shares of face value of Rs 10 per share. The issue will remain open from March 22, 2017 to March 24,2017 with a price band of Rs 440-460 per share. The company promoters and PE investor Fairwind will raise through OFS.   

Purpose of the IPO
The company plans to utilise net proceeds from this offer for prepayments or repayments of own and its subsidiary Vishal Precious Steel Tubes and Strips Pvt. Ltd's (VPSPL) debt. The company also proposes to use these funds for undertaking existing activities and for general corporate purposes. The company expects to improve its brand image through listing on the stock exchange. The company will not get any get benefit from OFS.

Industry outlook
India is ranked as the seventh largest economy in the world with GDP growth of 7.1%, which is expected to grow to 7.9% in FY17. The per capita income is also increasing at a healthy rate of 7.3% over FY15-16. This trend is expected to continue as government is planning to implement 7th Pay Commission.

Housing industry is likely to grow due to rapid urbanisation, government push for affordable housing and other infrastructure-related incentives. We can see growth in demand for players in housing industry. Many government schemes such as Pradhan Mantri Awaas Yogana and Smart Cities project would push the demand in this sector. The company's subsidiary in financing housing sector will eventually drive the growth in this sector.

Company outlook
The company is a leading organised retailer of home improvement and building products which have presence across 10 states of India. Its major customer base comprises of home owners, professional customers like architect and contractors; and small enterprises spread in urban and semi-urban markets. The company has 100 retail counters spread across the country providing wide range of products like structural steel, cement, TMT bars, hallow blocks, roofing solutions, solar heaters, sanitary wares, etc. It has good third party brands such as Sintex, Uttam Galva, APL Apollo, etc. The company has strong logistics capabilities, supply chain network and in-house warehousing facility. The company has acquired CRIPL and VPSPL which provide backward integration to its product line and help in business operations and value chain. It has increased its brand equity and marketability with increase in number of stores named "Shakara BuildPro "

The company has wide range of logistic network, i.e. 58 warehouses of total size of 0.58 million sq.ft. and 47 fleet of truck. In enterprise network, the company serves large end-users, contractors, OEM's projects, etc. Retail customers have a major contribution of 39.68% in its total sales. The company's revenue increased at CAGR of 8.38% over FY12-16, while, EBITDA grew at CAGR of 11.34% over FY12-16 and PAT grew at CAGR of 7.94% over the same period.

Management
The company enjoys strong parentage from experienced and qualified management. Sukumar Srinivas, MD of the company; is Alumnus of IIMA with 33 years’ experience in building product industry, and has also been associated as President of Karnataka Pipes Dealer's Association. His vast experience and position has helped the company spread its network in the southern region.

Financial Performance

Revenue has been growing at CAGR of 8.38% over FY12-16. In FY16, the company's revenue grew by 3.46% as compared to FY15, which has shown slower growth rate as compared to previous years. Its EBITDA has been growing at CAGR of 11.34% in FY12-16. PAT has been growing at CAGR of 7.94% in FY12-16. The company delivered RONW of 14.31% in FY16. As we can see from financials, revenue growth is decreasing from 2012-16, affecting the growth in EBITDA and bottomline which ultimately affected earning per share of the company.


Peer Comparison and Valuation
Since there are no listed peers in the same line of business and operations, we cannot do peer comparison of the company. 
We valued company at the upper price band of Rs.460, which gives P/E of 88.80x with EPS Rs.5.18, which is overvalued. Considering slower growth rate and higher valuation of the company, we recommend our investors to avoid subscribing in this IPO. 


DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here.Above information is based on information available as on date coupled with market perceptions. Author has no plans to invest in this offer. 

CL Educate: Costly in nature , avoid for retail investors.

Diversified revenue stream, stable profit margin, established brand name as well as the strategic shift to new and growing service segments make CL Educate (CLE) a company with strong fundamentals. However, the company’s initial public offer (IPO) price of ₹500-502 per share does not leave much on the table for retail investors.

The price discounts the company’s trailing 12-month consolidated earnings by over 25 times. This is pricier than that of closest peer MT Educare that trades at about 17 times the trailing 12-month earnings. Granted, CL Educate operates in more segments and plans to expand faster through acquisitions. But investors can take a wait-and-watch approach rather than subscribe now at premium valuation for a company with a small market cap.

Diversified business
CLE derives half its revenue from coaching classes for professional entrance exams(MBA, Law, etc) through own and franchised centres in 87 cities. Marketing and sales services to corporates accounts for about a third of the company’s revenue. Sale of content — textbooks, tests in printed and digital formats — contributes about 7 per cent of revenue.

Its vocational skill training segment (Government contracts) has a long receivables cycles.

The company also plans to switch to an asset light model in its school and business school segment. Currently, about 60 per cent of the capital (₹160 crore) is deployed here, and return ratio is low (₹1 crore contribution to net profit). Asset sale is expected to improve its return on capital from about 8 per cent currently to an estimated 20 per cent in three years.

Finally, the university services business, including research support, is operated by subsidiaries CL Media and Accendere (51 per cent owned). This segment’s revenue has grown at over 38 per cent on average in the last two years to ₹5.2 crore in 2015-16. Though at a low base, growth is likely to be robust in this segment.

CLE’s average annual growth in consolidated revenue and profit has been 14 per cent and 10 per cent respectively in the last three years. In 2015-16, revenue increased 4 per cent y-o-y to ₹297 crore. Profit increased 3 per cent in the same period to ₹21.7 crore.

Net profit margin has been stable at about 7 per cent over the last three years. Debt-to-equity may improve to 0.2 times after debt repayment and is likely to remain at these levels.


Risks
CLE’s different business segments and operating models face a few risks that may impact earnings growth. One, the Indian education sector is touted to have a strong macro investment case — young population, growing graduate enrolment, increasing role of for-profit private players, higher disposable income and cultural inclination to spend on education. Yet, private players face various execution challenges, such as low returns in the K-12 school space, intense competition in the coaching space and long payment cycles for Government contracts. In spite of robust growth in target market, listed players have not delivered value to investors.

Two, while CL Educate has built a brand in coaching services, the business is competitive. After September 2016, about four test prep centres were closed, likely due to not meeting performance metrics. Also, the company deals with various ongoing litigations with franchisees. These issues could impact revenue growth in its largest revenue segment.

Three, its corporate service segment has concentration risk with the top five clients contributing about 27 per cent of the revenue.

Issue details.

CL Educate IPO details
Subscription Dates	20 – 22 March 2017
Price Band	INR500 – 502 per share
Fresh issue	2,180,119 shares (INR109.4 crore at upper end)
Offer For Sale	2,579,881 shares (INR129.5 crore at upper end)
Total IPO size	4,760,000 shares (INR238.9 crore at upper end)
Minimum bid (lot size)	29 shares
Face Value	INR10 per share
Retail Allocation	35%
Listing On	NSE, BSE

Reasons for not investing : -

• Its profits are low and fluctuating. Its profits were 4.2% in FY15 and 2.6% for FY16. It incurred loss in FY12.
• As per its annual report, auditors made comment that the Company does not have a comprehensive procurement policy for purchase of goods and services, which could potentially result in the Company procuring unnecessary goods and services, or procuring goods of lower quality, or procure goods and services at unreasonable prices.
• The Company has granted unsecured loans to companies and other parties covered in the register maintained under Section 189 of the Act and auditors of the opinion that the terms and conditions of loans granted by the Company to 2 parties covered in the register maintained under Section 189 of the Act, (total loan amount granted Rs. 10,000 and balance outstanding as at balance sheet date Rs.61,472,802 are prejudicial to the Company’s interest on account of the fact that the Company is not charging any interest on such loans.
• A significant portion of its operating revenues is derived from its test prep business. Failure to attract students in our test prep business, including due to an unsatisfactory success ratio, may adversely affect its business and prospects.
• Company business and prospects may be adversely affected if they are unable to maintain and grow its business and brand image.
• Its competitive and growth strategies are subject to execution risks that may impact its business and prospects.
• They operate in a significantly fragmented and competitive market and any failure on its part to effectively compete may adversely affect its profitability and market share.
• Other risk factors (Internal and external) can be viewed in the draft prospectus.

There are some positives that it outlined such as its pan-India presence due to integrated education products, services and content. Along with this, it has a well-recognised brand ‘Career Launcher’ and an asset light, tech-enabled business model, Angel Broking said in its report.

In terms of valuations, the pre-issue P/E works out to 23.2 times of its annualised first half of FY17 earnings which is higher compared to its peers such as MT Educare, it added.

SMC Research, on its part, has given it 2.5 star rating out of 5. The research firm rates two stars as a neutral rating, while three stars stands for a fair rating.

The research firm highlights on the positives of pan-India presence, reputed courses, track record of successful inorganic expansion along with strong brand equity.

Among risks, it cites the competitive and fragmented market as well as short term impact of demonetisation. Considering the P/E valuation on the upper end of the price band of Rs. 502, the stock is priced at pre-issue P/E of 42.16 times on FY17 earnings per share, it states.
Disclaimer :- 

I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy. Please consult your investment advisor before you invest in such high risk investment options.

The psychology of IPO investing

Neil Parag Parikh, chairman and CEO at PPFAS Mutual Fund, cautions investors against the IPO trap..

I started my career in the capital markets in the year 2004. The bull phase had just begun in 2003 due to economic growth of the country improving and there was a subdued optimism when I began my journey.

The next few years saw the market picking up steam and reaching its peak in 2007 right before the subprime crisis ended the party in 2008. This period also saw a large number of Initial Public Offerings (IPOs) hit the market.

As the market crashed and remained lackluster, so did the IPO market. We witnessed a V-shaped recovery in 2010-2011 and yet again we saw the IPO market heating up. The next few years saw the stock markets in a bearish phase and this led to the IPO market drying up. As the Narendra Modi government came to power in 2014, we saw the market react positively and that started another bull run for the markets. This again coincided with a record number of IPOs hitting the markets in 2015-2016 and continuing till today.

Notice any pattern? I bet you do!                                                                                                                           

Year	Number of IPOs	Amount (Rs/crore)
2015-16	74	48,927
2014-15	46	3039
2013-14	38	1236
2012-13	33	6528
2011-12	34	5904
2010-11	53	35,559
2009-10	39	24,696
2008-09	21	2083
2007-08	85	42,595
2006-07	77	28,504
2005-06	79	10,936
2004-05	23	12,382
Source: SEBI Annual Reports

Let us try to understand the economics of an IPO.

A company intending to raise resources for expansion and acquisitions would like to go for an IPO. Or a group of initial investors desiring an exit would also opt for an IPO. When the company is selling shares to the public, it would want the maximum possible price for its original investors and risk takers. So most IPOs come out in a bull market when prices are high and irrational investors are willing to pay any price for owning stocks. The greed and overconfidence of investors are so strong during bull markets that they will be willing to buy anything at any price. Thus, promoters of the company prefer to dilute their stake when they are hopeful of getting a handsome price for their shares due to bullish market conditions. This further leads to some unscrupulous managements to come out with IPOs to cash in on the current IPO boom and take advantage of investor greed.

This is due to the fact that if investors have made money in a couple of IPOs then other IPOs (which are probably not of good quality) become representative of profitable IPOs. Investors blindly chase IPOs. This herd mentality creates huge demand and the IPOs tend to get oversubscribed. This demand- supply mismatch may create a profit for the investors on listing due to the prevalent market conditions. But as the listing euphoria dies down, so do the prices of many of these IPOs.

Today’s IPOs are offered at market prices. In the past, India had a Controller of Capital Issues (CCI) to decide the pricing of IPOs. This made subscriptions of IPOs very profitable and investors made handsome returns then. But today if you have to pay the market prices, then there is a huge choice for you. There are over 7000 stocks listed and available at market price. Then why would one want to invest in something that is already priced high? It is absurd to assume that IPOs are offered to the public at a bargain, as IPOs don’t come in bear markets. Also, for human beings, the penchant for chasing the new is so strong that investors do not see the reality and blindly chase IPOs.

Let’s take a look at an example of this behaviour.

Let’s go a little back in history during the technology boom in 1999-2000. Again a host of IPOs entered the market. All a company had to do was to affix ‘dotcom’ after its name to have investors willing to pay crazy valuations. We all know how this ended. Most of these IT companies have been delisted or have disappeared altogether resulting in massive losses to investors.

Another example is during the 2007-2008 real estate and infrastructure boom. A host of IPOs of these sectors hit the market to try and take advantage of the current conditions. Most of these have fared quite poorly since then. Let’s look at three of the big IPOs that hit the market during that time and their return as on January 31, 2017:

• Reliance Power: Down 91.84% from listing price
• DLF Ltd: Down 76.70% from listing price
• HDIL Ltd: Down 89% from listing price

(Source: Economic Times)

There are a host of other real estate and infrastructure companies that had the same fate as the above.

My basic argument is that, if one is lucky, one can come across a few IPOs where one can reap immense benefits. However, there are too many IPOs where one can get trapped and can lead to massive losses.

Be careful when you see a host of IPOs hitting the markets as they are looking to get the maximum price out of you. Investing is all about paying the right price for an investment, to reap long term healthy returns.

The above views are personal and not necessary those of the organization the author represents.

Source: www.morningstar.co.in

 

20 Questions With Value Investor Victor Huynh

- By PJ Pahygiannis

1. How and why did you get started in investing? What is your background?

I started having exposure to investing in my first year of business school. Like many, I never pictured entering the investing environment. In fact, I did three years as a nursing student before making the switch to economics. From there, I started reading as much as I could, from every style of investing to studying the greats such as Buffett, Graham, Klarman, Cundill, Greenblatt, Pabrai, Lynch and many more. Oddly, my investment style started off with technical analysis, trading mainly options before progressing to deep value.

How I got into investing: In my high school years, I always wanted to contribute to society, so I pursued nursing. During my years as a nursing student, I would always ask myself if I was able to progressively excel, and if my passion would continue to grow in this career for the next 5, 10, 15 years, and until the end of my days. The honest answer was no, but it took me three years to accept that. In my current environment, business- particularly investing, I can confidently say I found my passion; I am where I belong.

Moral of my story - be honest and act accordingly, it will save you some valuable time.

2. Describe your investing strategy and portfolio organization. What valuation methods do you use? Where do you get your investing ideas from?

If I had to categorize my current and foreseeable investing strategy / style, it would be deep value. I like stocks that are mispriced and selling at a significant discount in relation to their intrinsic value; net-nets and cigar-butts. Essentially, I look for stocks where if I bought them today, and it were to liquidate tomorrow, paying all debts and returning all capital to shareholders, I would walk away with a significant profit. Generally (not a golden rule), I would do a valuation based on asset reproduction, earnings potential value then growth value, in that particular order. Valuation methods depend upon the nature of the business and the company, so it could vary significantly, but in the end- I require a margin of safety. I have a particular focus on current and liquid assets. I also prefer debt-free (or very little debt) and well-managed companies, but these are rare when it comes to deep-value stocks. I try not to get involved in industries I am unfamiliar with, such as biotech and complex firms. I much prefer simple businesses (particularly service, holdings and asset-based companies).

In terms of portfolio organization, deep-value stocks are usually small-caps and I try not to go over 10 stocks (deep value or not).

I get my ideas from numerous places. It can range from a friend, articles posted online or certain investing sites, and sometimes certain screeners. Often, I like to look at SEC filings, Joel Greenblatt (Trades, Portfolio)'s Magic Formula and the 52- week lows.

3. What drew you to that specific strategy? If you only had three valuation metrics, what would they be?

The themes that drove me to this specific strategy are margin of safety and protection against permanent loss of capital. Those are my core concerns in any stock. Compound interest paired with good deep-value stocks, along with some time, will take care of the performance side. Of course, one should always be wary of value traps and miscalculations. Another reason that I like this strategy is that most of these stocks are under the radar- not popular nor researched as much in comparison to hot stocks, therefore I do not have to try to outsmart the next analyst or any of that sort.

I do not put much emphasis on a single valuation metric, or even a few. Because valuations are subjective and financial models and forecasts are more of an opinion rather than a prediction or a prophecy, valuation is more of an art than an exact science. Therefore, every investment case has its own unique merit. In playing piano, you cannot play a masterpiece with a single note, you need the keys to flow together in order to project your art. Similarly, it is difficult to tell the story of a company with just a few valuation metrics, they all have to be included and analyzed together for a more "logical" valuation.

But, if gun to my head, and hesitantly, I had to choose only three valuation metrics, I would look for a good NCAV (Net Current Assets - Total Liabilities to be significantly positive), low price-earnings (as these stocks tend to perform well over the long run), EV/ EBITDA and, to add another one, price-book. In isolation, each metric has their own merit but also a significant blindspot.

4. What books or other investors changed the way you think, inspired you or mentored you? What is the most important lesson learned from them? What investors do you follow today?

I spend a lot of time reading, particularly business and investment books. Every single book has, in one extent or another, influenced me. I try to absorb the most useful concepts from these books and borrow ideas from various greats and mix them in a box with a little bias towards deep-value investing.

You can check out my full booklist here.

My very first investment book was "The Neatest Little Guide to Stock Market Investing" by Jason Kelly, which shed the very first investing light upon me. "The Intelligent Investor" by Benjamin Graham definetly made the biggest impression on me. "Security Analysis" by Graham and Dodd, "A Random Walk Down Wall Street" by Burton G. Malkiel, "The Most Important Thing Illuminated" by Howard Marks (Trades, Portfolio) and "Margin of Safety" by Seth Klarman (Trades, Portfolio) have all helped reinforce the concept of margin of safety and protection against permanent loss of capital.

Other great investors that have inspired me and that are worth researching are Joel Greenblatt (Trades, Portfolio), Peter Cundill, George Soros (Trades, Portfolio), Philip A. Fisher, Peter Lynch and Mohnish Pabrai (the list goes on).

If I had to single out an important lesson, it is that much of the investing knowledge can be learned for most individuals, the difficult part is controlling your emotions. As, Graham, the father of value investing himself, puts it:

"The fault dear investors is not in our stars- and not in our stocks- but in ourselves".

Today, I follow top value investors, particularly Buffett, Klarman and Greenblatt.

5. How long will you hold a stock and why? How long does it take to know if you are right or wrong on a stock?

I invest for the long run, but I would not put a specific time horizon on holdings (especially with deep-value stocks). I would say that deep-value stocks and undervalued stocks in general tend to eventually converge towards their "intrinsic value" after some time, so I hold them until then and re-evaluate, or until the margin of safety has been erased.

Additionally, if there is a threat for permanent capital loss, or if I was just wrong in my decision making, I will sell the stock. I change when the facts and fundamentals change. Typically, I would want to hold a stock forever, assuming it retains and can grow its intrinsic value in relationship to price. The dilemma some investors face is that often times, it may take a while for the market to correctly price an undervalued stock; this is why margin of safety is so important.

6. How has your investing approach changed over the years?

My investment approach has evolved dramatically since I began my investing journey. I started more as a technical investor, holding active options. Early on, I had a strong reliance on technical metrics such as RSI, moving averages, volume and other technical indicators. Through personal growth, reading and acquiring greater knowledge, I transitioned to value and deep-value investing. Initially, I would use broader metrics and rely on quality companies with fair prices. Now, I lean towards deeply discounted stocks with relatively small downside and larger upside potential. I would say that my approach now is geared towards deep value, or an NCAV approach, which naturally drifts toward smaller caps- preferably service firms, some cyclical and asset-based companies (land, real estate). As a Canadian investor, these are quite difficult to find within the TSX, so I often have to look in the American exchanges. I have yet to fully explore other foreign markets. Every now and then, I tend to search for bigger, good-quality companies hoping to find a bargain, and I now hold a greater amount of cash.

Of course, my investing strategy is continuously evolving- as is everyone's, and I have no bias against good-quality, well-established and moated companies selling at discounts, I just research more deep value.

7. Name some of the things that you do or believe that other investors do not.

This is a great question! Things I do particularly would be that I usually think of the worst-case scenario during the analysis of a stock, and how I would objectively take actions post-purchase, additionally, what lessons I would learn if I were wrong. When purchasing a security, there are always two parties, a buyer and a seller. I always tell myself that everyone else is just as smart, if not smarter, than I am, so when I do make a decision- I am extra careful and remind myself that I can very well be wrong- which emphasizes my reliance on margin of safety. Furthermore, when I work on my valuation models, I try not to emphasize its importance because estimating certain aspects, such as rate of growth and earnings, with laser precision is nearly impossible (at least for me).

Ultimately, I feel that a big portion of investing is about yourself and your own honesty- of course, all this is purely my own opinion. I try not to be the next Warren Buffett (Trades, Portfolio) (as much as it would be nice), but rather I strive to be the best version of myself.

8. What are some of your favorite companies, brands or even CEOs? What do you think are some of the most well-run companies? How do you judge the quality of the management?

My favorite companies are what I define as quality companies; those that have a long-term horizon, are efficient, heavily moated, adaptable, increase shareholder value over time and, more importantly, honest. Some of these companies include Berkshire Hathaway (BRK-A) (BRK-B), Coca-Cola (KO), Wal-Mart (WMT), Google (GOOG)(GOOGL), Apple (AAPL) and the list goes on.

To no surprise, my favorite CEO is Warren Buffett (Trades, Portfolio). Others to be named are from the book "The Outsiders," which are Bill Anders, John Malone, Tom Murphy and the list goes on.

It is hard to define "well run," every company is different; some in different stages and industries. For instance, Delta Air Lines (DAL) has great operations- it is "well run" in relation to the nature of the industry- but the industry itself is very capital-intensive and hard to have a significant advantage over competition. Of course, quality companies are not always a good buy if they are overvalued- nor does it mean I will hold them. We must always think value in relation to price.

To me, quality management is based upon optimal decision-making and integrity. Judging the exact economic value added from a good management team is hard to gauge. Long-term past performance record in relation to economic events (booms, busts) should be an adequate indicator (I want to know how they performed in good and bad times). Other qualitative factors can be found in reading annual reports and filings. Overall, I do not emphasize management as much as the nature of the business operations- this is not to say management is unimportant.

9. Do you use any stock screeners? What are some efficient methods to find undervalued businesses apart from screeners?

I do use screeners, some from Morningstar and Bloomberg - no heavy emphasis. I think there are plenty of ways to find undervalued businesses by researching 52-week lows, researching cyclical sectors and reading investment ideas (other individuals have great ideas- but do your own research, too). By nature, small-caps and over-the-counter stocks will have the most undervalued businesses. Searching in smaller caps is a good start.

10. Name some of the traits that a company must have for you to invest in, such as dividends. Talk about what the ideal company to invest in would look like, even if it does not exist.

A company must absolutely be undervalued before I can consider it. Depending on the nature of the business, I would value it based on its asset valuations, then earnings power, then growth potential.

The ideal company would be one that is selling at a deep discount to its intrinsic value, say price-net net working capital of about 50%, it has a positive NI, does buybacks (historically), insiders and top-tier management historically have ownership and has a few upcoming catalysts. Additionally, it helps if the company has a simple business model that I can understand and relatively easier assets to value (land, buildings, holdings).

11. What kind of checklist or homework do you utilize when investing? Do you have a specific approach, structure, process that you use? Or do you have any hard cut rules?

I do not use a specific checklist, but companies that have the components mentioned earlier are considered. I do my very best to build models and valuations from scratch for anything that catches my interest. Structure wise, I always read the balance sheet first, then the income statement, then cash flow. These can easily be found through SEC filings. I usually read the most updated (recent quarter), then the previous fiscal years. No hard cut rules.

12. Before making an investment, what kind of research do you do and where do you go for the information? Do you talk to management?

As previously mentioned, I seek out information from the balance sheet, income statement and cash flow from various sources like MorningStar and Bloomberg, but I mainly use SEC filings. After my own valuation, I usually make a decision on whether or not to invest in the company. I do not talk to management.

13. How do you go about valuing a stock and how do you decide how you are going to value a specific stock? When is cheap not cheap? If you can, give some of examples.

I mentioned valuation earlier. Cheap is not cheap if the company is burning through its cash and has no foreseeable measures to counter that. In this case, the margin of safety on a stock will quickly deteriorate. Another case is if it has no way to operate profitably in the future. Unforeseen liabilities and loss of sales (a big account) will render a company not cheap in the future (in relation to a current valuation).

14. What kind of bargains are you finding in this market? Do you have any favorite sectors or avoid certain areas, and why?

There are always bargains available with enough research. I am looking mostly within the U.S. exchanges and the TSX, so my scope for deep-value stocks is more limited. Sector wise, I like service firms (they can expand and contract alongside the economy), smaller financials, real estate and some cyclicals. There are deep values in biotechnologies, but I tend to avoid them as I do not have a deep understanding of this sector. I avoid areas that make me scratch my head.

15. How do you feel about the market today? Do you see it as overvalued? What concerns you the most?

I have no particular feeling about the overall market. It is what it is. I have a high focus on U.S. stock markets and the Canadian market. I think their large-caps are priced accordingly, perhaps with a slight premium, and some stock valuations are absurd, but generally it is not overvalued nor cheap- purely my opinion. The interest rate hike might affect valuations and reverting back to the mean might take place, but that is not something I am overly concerned about. What will happen with the economy next? I do not know and neither does the next person. What will happen to the stock market this upcoming year? As J.P. Morgan puts it, "It will fluctuate."

16. What are some books that you are reading now? What is the most important lesson learned from your favorite one?

I am currently reading " HBR's 10 Must Read on Strategy" by Harvard Business Review and "Zero to One" by Peter Thiel. I write about business lessons and concepts from books on my site.

If you have any recommendations, please do contact me. I love sharing ideas and learning new concepts.

17. Any advice to a new value investor? What should they know and what habits should they develop before they start?

I would say to keep an open mind, be creative and be yourself. Do not buy something you do not know. Every investing style has their own unique merit. Equally, if not more important, read and learn as much as you can. Practice, apply the knowledge by actually analyzing the company yourself, build your own models and valuations, strive for continuous growth and remember that nothing of value comes easy. We are human; we make mistakes. There is always someone better than you - so be honest and humble. Make time your friend, not your enemy.

18. What are your some of your favorite value investing resources or tools? Are there any investors that you piggyback or coattail?

Resource wise, there are plenty of articles written over the internet; here on GuruFocus, Seeking Alpha, WSJ and countless others. I use Excel as my main valuation tool. I try to keep things simple, complex models do not necessarily yield a more accurate forecast or valuation. Borrowing ideas are fine, but you must absolutely do your own research.

19. How do you manage the mental aspect of investing when it comes to the ups, downs, crashes, corrections and fluctuations?

It did take a bit for me to develop a better mental aspect in investing; when I started off with more volatile and risky investments, it would keep me up. But, learning and striving for growth paired with time has done its magic. Ups, downs, crashes, corrections and fluctuations are what make the stock markets. We can profit from them in many ways. Now, I am not particularly affected by how the market fluctuates. If I am right, time will tell; if I am wrong, again time will tell (but hopefully I recognize it early). I have no particular emotion towards the markets - it is what it is. I think being honest can help manage the mental aspect. For instance, if you feel like selling the stock because it took a drop, ask yourself what factual rationale is compelling you to make that decision- and if its fear (be honest), well you will know what you need to work on.

20. How does one avoid blowups in value investing?

Extensive due diligence and a sound rationale may diminish blowups. Minimizing leverage and avoiding it altogether would definetly help too. Prioritizing capital protection over seeking profits would be a logical solution. Concentration in poor companies can be a reason for blowing up (this is not to say you must absolutely diversify).

source;https://www.yahoo.com/news/20-questions-value-investor-victor-170357644.html