Unknown Market Wizards

Simple thesis: Buy well run, well financed, efficient capital allocators, market leaders that are available cheap at the trough of the market cycles. How often do you find this combination? Frequent buying/selling makes very little sense.

MCX stock is down 10% in three trading sessions since NSE announced new commodity offerings. To be clear, NSE hasn't gained traction in commodities despite being there since 2018. Traders go where liquidity is and MCX benefits from the network effect. So what has changed? NSE is now making a coordinated push: 1) Launched GOLD10G futures (10% margin) with physical delivery, lowers entry barriers for retail 2) Electricity and existing energy contracts gaining traction 3) Brent crude and natural gas contracts in pipeline MCX is still a clear monopoly, but even a slight possibility of credible competition makes the market question its ability to defend its pricing power over the long term.

At 20 P/E, one year of earnings account for only 5% of total value. Which means few weeks/months of disruptions should have limited impact on intrinsic value. Yet stocks have fallen 10-20% which seems unwarranted, unless market is factoring in something else. For years, ultra-low interest rates and abundant liquidity meant risks were largely ignored and investors were comfortable paying 20-25x earnings. Today, the environment is different: 1) Geopolitical risks are more persistent 2) Risk-free rates are higher than the post-GFC era 3) Business disruption risks are rising Kotak IE argues that market is still following historical frameworks, which may be less relevant in today's environment where risks are higher and therefore demand a higher equity risk premium.

@animeshagrawal No he wasnt x.com/WizardsUnknown…

@WizardsUnknown Doubt he was referring to HDFC. I don't think there's a large cap fund in existence who doesn't hold it. Present issue: I doubt it's a structural one. Even the Tatas have internal disputes.

Two days ago, Saurabh Mukherjea came on TV and said he continues to hold his age-old large position in HDFC Bank. Beyond that, he thinks there are asset quality issues in banking, and even a large private bank may need a bailout! A day after, HDFC Bank part time chairman resigns citing differences over governance standards and ethical direction of the bank. You can't make this up. 😅

Average performance of asset classes post wars - (Multi asset = 50% Sensex, 30% G-sec, 10% Gold, 10% US equity)

@__gaudiya x.com/WizardsUnknown…

If HDFC fiasco continues & if it needs a bailout, then people atleast will stop shouting infavour of Bank privatisation. Good only.

@stockskibaat Come on! He isn't talking about HDFC

@WizardsUnknown Here is a NDTV video where Saurabh Mukherjea said that: (Holds HDFC Bank 🤔) "There will be pressure on the asset quality of banks & NBFCs; I would expect to see one sizeable private sector bank goes into trouble and require #bailout by RBI" ⚠️😨 Watch:👇 youtube.com/watch?v=ta_kfZ…

@ajaydhaka2023 @IronyMeter So what? you're stawmanning here. Adverse news is part of the game, happens to so many businesses. I am pointing out the kind of virtue signalling he does.

@IronyMeter @WizardsUnknown Why to single out Saurabh. All MFs schemes' top holding is HDFC Bank 😊

@imhiteshmodi I agree. Not a knock on the bank. There might not even be any regulatory concern. Let's see.

@WizardsUnknown Saurabh has been wrong many times but the HDFC franchise is time tested. There may be few things here and there but the basics have been always good.

@Hiranyaksha1 What's wrong man? Comprehension problem?

@WizardsUnknown He said he owns HDFC & ICICI. He was clearly not talking of HDFC as the bank that would go into crisis. Don't mislead people.

Hold your arm out and raise your little finger. It covers about one degree of your field view. For an object to cover half a degree, it must be at a distance about 115 times its size. So if a 50 meter swimming pool on the ground is covered by half your pinky from a plane, you know you are at an altitude of 115 × 50 m ~ 6 km.

If every one of the 120 billion humans who ever lived did nothing but shuffle a deck of 52 cards once per second for 80 years straight, each time a unique shuffle, they would still have explored only about 0.00000000000000000000000000000000000000000000037% of all possible arrangements.

At the beginning of 1970, even if you had correctly guessed that S&P 500 would deliver the highest earnings growth, you still would have ended up with the worst returns. PEG folks assume growth will justify the price. First, growth forecasts are fragile and largely out of your control. Second, even if you get them right, over long periods, starting valuations matter far more than earnings growth.

@amitgupta0310 @nooreshtech Reliance has a history of sitting idle on cash rich acquisitions. advisor.valueresearchonline.com/stories/226878…

@WizardsUnknown @nooreshtech All this is hindsight analysis. At the time of acquisition, it was considered a masterstroke with the single promoter looking to sell the remaining ~15% stake at an even higher price than what Reliance bought.

The Curious Case of Just Dial. Promoter is now Reliance. Promoters own 74%. Market Cap = 4400 cr. Cash Equiv = 5400 cr. Value the Cash at a discount due to Buyback Tax/Dividend Tax or PE on the net Earnings? If business is not gr8, is any Price good? Disc- No Holdings/Reco.

@amitgupta0310 @nooreshtech x.com/WizardsUnknown…

@nooreshtech Has been the case for years now, nothing has changed in cash position. Not even a buyback.

Investors often assume markets should quickly mean revert to some fair value. In reality, valuations tend to move within a band as investor psychology evolves. Only occasionally do valuations become so distorted (think 2007 peak, 2020 trough) that adjusting equity exposure makes sense. Those moments are rare. Most of the time, markets are somewhere in between. In periods like these, better to adjust return expectations than to take extreme equity allocation decisions.

@da_witness 💯

@WizardsUnknown Conclusion is ✅ - unless high yielding business is more cyclical and/or if there is capital alloc risk (eg high FCF yield accompanied by much lower dividend yield).

10% FCF yield with 6% growth? or 1% FCF yield with 15% growth? From expected returns point of view, both are identical but they are not equally reliable. (Expected returns = FCF yield + growth + change in valuation multiple) FCF yield is the cash coupon on today's price. Growth adds to the compounding if/when it materializes. The pushback to high FCF yields usually is that low FCF is fine because the business reinvests at high ROIIC. Yes, a business that can keep deploying incremental capital at high ROIIC is great but here is where it gets complicated- High growth rarely sustains for long (base rate). Even if it does, sustainability of growth is guesswork, extremely hard to do. A 1% FCF yield business is basically asking you to believe it'll keep allocating capital perfectly for years. A 10% FCF yield business may surprise you on the upside. Even if it doesn't, you'll get paid every year. If one's edge is timing business momentum, low FCF yield is not a deal breaker but let's be honest, very few investors have that edge and even fewer can repeat it, one cycle after another. P.S.- This doesn't mean every business should trade at same or at high FCF yield. Businesses with long duration moats may have lower FCF yield, cyclical/capital intensive businesses need to compensate investors with higher yields. The point is: the lower the starting FCF yield, the more of your return is dependent on future execution. High FCF yield reduces the number of things that must go right.

FII flows vs bond yields: Historically, FII net equity inflows into India have tended to return only after a meaningful decline in bond yields. Despite Fed rate cuts, US bond yields currently are well above their 10-year average.