Friday, November 06, 2015

Pressing the "Pause" button

I have been thinking about how to become a better - person, husband, father, colleague and a leader. I recently had a major ankle surgery that forced me to take a pause. It made my head a little clearer on what I want to do? where am I heading? and finally the most important question - am I healthy enough to run a marathon at sprint speed or will I drop dead? But where, really, is the time to try out all of these things that I suggest we do?

Lets take time to pause and take a step back... as W H Davies says -

What is this life if, full of care,
We have no time to stand and stare.
No time to stand beneath the boughs
And stare as long as sheep or cows.
No time to see, when woods we pass,
Where squirrels hide their nuts in grass.
No time to see, in broad daylight,
Streams full of stars, like skies at night.
No time to turn at Beauty's glance,
And watch her feet, how they can dance.
No time to wait till her mouth can
Enrich that smile her eyes began.
A poor life this if, full of care,
We have no time to stand and stare.

I recently watched this TED talk by Pico Iyer, on The Art of Stillness (https://www.ted.com/talks/pico_iyer_the_art_of_stillness?language=en), sometimes you just need to “sit still long enough to find out what moves you most, to recall where your truest happiness lies and to remember that sometimes making a living and making a life point in opposite directions.”

The Power of Pause (Ana Dutra):

“I don’t know a single executive who likes to be described as tactical, short-term oriented or as somebody who gets unnecessarily “in the weeds.” And yet, so many solid executives present, occasionally, all these behaviors, even when the situation doesn’t call for them.

Why do people who have the potential and ability to think strategically, empower others and prioritize issues seemingly choose to micromanage — to act in a way that’s myopically short-termed and dive into every problem thrown their way? The answer is that it’s not a conscious choice. No executive chooses to behave this way, just like no executive wakes up in the morning thinking “today I will really mess up and frustrate lots of people.”

Executives behave that way when they don’t allow themselves to pause and reflect about what really matters. Imagine a tennis player practicing with a ball machine that is adjusted three notches above the pace the player is able to handle. No matter how good the player is, if balls are spit at an unreasonable speed and range, the player will quickly feel exhausted, overwhelmed and defeated (feel familiar?). Only by pausing, adjusting the machine, and deciding which balls to go for, the player will obtain results and become an even better player. Just like our frustrated player, executives need to deliberately pause and reflect instead of continuously try to tackle each and every ball tossed at them.

Now imagine that the balls — or issues, challenges and opportunities thrown at us on a minute-by-minute basis — are either rubber balls or crystal balls. There are also other team members in the game. If we don’t catch all the rubber balls, they will either bounce or somebody else will catch them for us. If we don’t catch the crystal balls, they will break. The problem is that, the more exhausted, overwhelmed and frustrated we are, the harder it is to distinguish the rubber balls from the crystal balls.

But in the absence of the clarity to separate the balls, all balls look alike and we will tend to try to catch all of them fearing that we might be dropping a crystal ball. Only by allowing (or forcing) ourselves to pause we can ask ourselves which balls are really crystal balls and will, therefore, break if we don’t catch them.

At a higher level, as leaders, pausing and reflecting enables us to ask what our role really is, how to more effectively empower others to be the best at the roles they are supposed to play and, therefore, what we should really get involved with. Pause and reflection create space for us and for others — everybody becomes more effective and can grow.

Pause also creates high quality energy, increasing our resilience as leaders and our ability to deal with more complex issues. There are a number of ways to pause, physically, mentally and emotionally. A pause can be created by a walk around the block, 20 minutes of meditation, exercising, immersing into a hobby, or simply a high-quality coffee break. The important point is to create time and space to empty your mind and then reflect and filter issues.”

Pausing creates the necessary time to think, rethink, energize and act in the right direction..

1) I have started a everyday 10 minute thinking routine - wake up early and read or listen to music or podcasts or whatever makes you happy!

2) Do a few things everyday you really enjoy doing. Don't create a laundry list of things to do. Keep it simple and concentrate on things you want to achieve. Delegate. You are not a superman to do all that you are given

3) Schedule a "your time". Plan in advance and don not put off for a later time.

4) Stop multi-tasking. Stay with single tasking. As they say "the best way to do many things is to do one thing at a time"!

5) Cut down on unproductive activities. as the world grows smaller lots of communication happens over phone, email, video conferencing which creates a smaller slot to think before acting.

So, as W H Davies says - lets take the time to pause, think and take time to watch the nature's smile before its too late!

Ciao till next time...Harsha

Thursday, November 05, 2015

When to sell a stock?

I recently re-read this simple statement over and over again. Philip Fisher has a way of communicating that makes it sound easy....

Excerpt from "Common Stocks and Uncommon Profits"

There is still one other argument investors sometimes use to separate themselves from the profits they would otherwise make. This one is the most ridiculous of all. It is that the stock they own has had a huge advance. Therefore, just because it has gone up, it has probably used up most of its potential. Consequently they should sell it and buy something that hasn’t gone up yet. Outstanding companies, the only type which I believe the investor should  buy, just don’t function this way. How they do function might be best understood by considering the following somewhat fanciful analogy.
Suppose it is the day you were graduated from college. If you did not go to college, consider it to be the day of your high school graduation; from the standpoint of our example it will make no difference whatsoever. Now suppose that on this day each of your male classmates had an urgent need of immediate cash. Each offered you the same deal. If you would give them a sum of money equivalent to ten times whatever they might earn during the first twelve months after they had gone to work, that classmate would for the balance of his life turn over to you one quarter of each year’s earnings! Finally, let us suppose that while you thought this was an excellent proposition, you only had spare cash on hand sufficient to make such a deal with three of your classmates.
At this point, your reasoning would closely resemble that of the investor using sound investment principles in selecting common stocks. You would immediately start analyzing your classmates, not from the standpoint of how pleasant they might be or even how talented they might be in other ways, but solely to determine how much money they igt make. If you were part of a large class, you would probably eliminate quite a number solely on the ground of not knowing them sufficiently well to be able to pass worthwhile judgement on just how financially proficient they actually would get to be. Here again, the analogy with intelligent common stock buying runs very close.
Eventually you would pick the three classmates you felt would have the greatest future earning power. You would make your deal with them. Ten years have passed. One of your three have done sensationally. Going to work for a large corporation, he has won promotion after promotion. Already insiders in the company are saying that the president has his eye on him and that in another ten years he will probably take the top job. He will be in line for the large compensation, stock options, and pension benefits that go with that job. 
Under these circumstances, what would even the writers of stock market reports who urge taking profits on superb stocks that ‘have gotten ahead of the market’ think of your selling out of your contract with this former class-mate, just because someone has offered you 600 per cent on your original investment? You would think that anyone would need to have his head examined if he were to advise you to sell this contract and replace it with one with another former classmate  whose annual earnings still were about the same as when he left school ten years before. The argument that your successful class-mate had had his advance while the advance of your (financially) unsuccessful classmate still lay ahead of him would probably sound rather silly. If you know your common stocks equally well, many of the arguments commonly heard for selling the good one sound equally silly.”

Ciao till next time...Harsha

Friday, September 18, 2015

Ajanta Pharma - A story of the missed bus..

It was I think year 2011 and I was looking at some potential stocks to buy. Two stocks popped up on horizon in pharma - Piramal and Ajanta Pharma.

After reading the wonderful post from Prof Bakshi (here) - I had no further analysis to do except verify the facts and I decided what a wonderful side-car investment it would be!

Piramal indeed turned out to be a good investment. From sub Rs 500 it has gone up to Rs 837 and I am sure its a money multiplier in the long term at 18 - 20%; a wonderful appetite to invest and the good sense to not dilute equity will keep Mr. Ajay Piramal a man to watch in years to come.

Now - coming back to the lesser known name - Ajanta Pharma. I had about brushed this company aside thinking that the growth was unsustainable and the motives of promoters were unknown or suspect at best (having taken over the business in early 2000's as second generation owners - I suspected Yogesh and Rajesh Agarwal were not known entities).














The difference and thumb sucking left lots of money on table. Here's how the financials for Ajanta looks currently -


Mkt Cap has grown by an astonishing 25,518 Cr in 10 years and Retained Earnings in the same period has been 707 Cr. Every 1 Rs retained has created a value of 36 Rs in 10 years! What a wonderful business.

As it looks one of the dangers for Pharma companies is not entering big markets like US or Europe and be localized generics players in India. A branded-generics player needs to have three things going in the right direction - right product strategy (areas to play which on hindsight has been successful - I will not delve on this point here though you can read more in the annual reports), right regional strategy (where to play) and the right people with vision handling the company.

With Ajanta - all three seem to be coming right. The key point going forward seems to be the second strategy which I thought was doomed for failure (restricting to India and developing world). This has been a blessing in disguise helping Ajanta pile loads of cash and grow at a tremendous pace - 23% sales growth and 45% profit growth in past 10 yrs... what a wonderful business this must be - establishing presence in developing markets before actually venturing into developed markets!

With US and maybe Europe later beckoning - is this a missed bus or still something that can be caught?

Is it overpaying for growth? Is the growth sustainable?

For an instance - considering that FCF keeps growing at rate of 35% (which is what it has grown in the past and considering that they are also gaining market share in their current markets - this may not be far fetched) over next 10 years and terminal growth 5% with discount rate of 12% - I still arrive at a value of Rs 1591.

Potential Growth –

Emerging countries hold unique potential in years to come as population growth and movement of people from rural to urban areas give unique possibilities to create long lasting businesses.
Here’s a very interesting perspective of world population growth and economic growth possibilities in Asia and Africa (the two most populous continents growing rapidly for the next 3 decades) – 


“Can you see, as the years pass by, child survival is increasing? They get soap, medicine, hygiene, education, vaccination, penicillin and then family planning” – Hans Rosling.

Ajanta Pharma holds the unique position of playing in the right markets and the right segments.

Not one to over-pay I am still thinking..... 

Ciao till next time...Harsha

Wednesday, March 25, 2015

The pumpkin seeds..

This is a borrowed idea.. You can do two things with pumpkin seeds. Eat them, an excellent source of protein, or plant them, and watch a successful seed bring back 100 more. The farmer who plants the seeds aggressively, without regard for, "hey, be careful, I could have eaten that seed," often ends up with many more pumpkins and many more seeds. On the other hand, the person who guards all the seeds and then eats them ends up with not much.

And of course, money works the same way. Time, too.

Ciao till next time...Harsha

Friday, January 16, 2015

My ideal portfolio size

Over the years I have tinkered with having many many stocks to owning less than handful of stocks. Through the last 3 to 4 years - I started buying small quantities of stocks I wanted to call as 'tracking stocks' - just enough to keep an eye on, but not big enough to pinch if it hurts.

Over the vacation time during Christmas and New-year - I started re-looking... if this strategy was really worth the 'buying'. Especially if the tracking portfolio portion starts creeping upwards of 80.. or 90.. with all the nice screener tools available online - the big question was: is it really worth the money to buy something for the sake of tracking..

I think it becomes painful to see small amounts of money get painfully low / out of sync... also especially if I have no further interest in doing any research on those companies. Even getting 5% of portfolio doing bad because of a stupid idea of 'tracking' seems to be a waste of good time over bad ideas..

Its good to have the best 3-4 stocks hold 80% of portfolio (obviously changing percentages over time) and rest 20% in 5-7 stocks. This seems to be the ideal sweet-spot for me. Usually I have seen that I am highly reluctant to change much on the 3-4 stocks if all's going well. The 5-7 stocks on the periphery are the ones to read more on... maybe learn more about the industry.. how they make money, how the best-in-class companies WW make their money.. read books about the industry.. some biographies.. autobiographies... and the like. I need to do more of this. The dilution which had creeped-in is doing more harm than good.

So.. my goal for the year is to think more deeply before jumping.. and to cut down on crap. Cut the crap.

Ciao till next time...Harsha

Wednesday, January 07, 2015

Oil crisis

Very interesting. I was still not sure about buying. But, this graph sort of gives me some historical perspective. Was searching for a 30 year trend on oil prices.. thought I share this with you.

Time for some action. Silent in stock market for upwards of a year now.















Ciao till next time...Harsha

Thursday, January 01, 2015

My investment rules

I thought of penning down my rules for making a stock investment. Over the past year or two this has been revised and here's what it stands as currently:

1.       I am an investor and not a speculator. I am not as brave as the other people who are trying to get rich overnight.. I like to have a BIG margin of safety (bigger the better).. if I don’t think I am getting a $1 bill for 50-60 cent. I am happy to wait.
2.       I am a patient man. As long as fundamentals are good; I have no issues in holding the stock I invested in (as long as I have a dividend yield of 2.5% or higher and hopefully growing YoY).
3.       I like the Rip Van Winkle theory. If I can’t visualize that the company stays in 10 – 20 years.. I would be wary of buying the stock.
4.       I respect market cycles. I can’t and don’t predict the future. I just prepare for it.
5.       I am crazy about capital preservation. First of all – I am worried about return of my money than return on my money.
6.       I like my companies to grow at a decent pace – 10% YoY (sales growth) operating at a decent margin (varies by industry), with a ROE 20%+ employing either no debt or very low debt.
7.       I like monopolies that exist in very favorable circumstances. As long as the government does not try to lick into the honey-pot. Or – in private industries as long as the management stays honest.
8.       I want to concentrate on setting individual targets for the stocks I hold. I like absolute numbers. My favorite growth number is 26%. I have no interest in what the sensex or the index as a whole is doing. And I don’t really care as well.
9.       I like to get dividends. My thumb rule is 2.5% to start off when I invest and a nice 10% YoY dividend growth.
10.   I like to hold 10% of my wealth in cash. I am not clever enough to find a place to park all my cash. I never know when I will need it.
11.   I like to read. I want to read all the annual reports of my stocks. I may not understand everything that gets written in the reports (I am not a mind reader); but I like annual reports that don’t excessively use magic words..  Vision, mission, culture, commitment, system, integration, globalization (these are just a few.. you know what I mean, don’t you?).
12.   I like 26% for a reason. It’s a neat number – you double your money every 3 years and you grow 10 times every 10 years. A million grows into a billion in 30 years..
13.   I usually don’t like to sell my stocks. If they continue to grow 10% YoY and have 20%+ ROE and has a sensible management in place.
14.   I like sensible management. I don’t like it if the management salaries are excessive. Especially if they grow over 5% of profit the company makes. I also don’t like heroes – I like honest, simple and motivated people to run my company.
15.   My company. Yes, I like to call all companies where I hold stocks as ‘my’ company. I like to see myself as a part owner of the company. I am terribly angry if someone dilutes me.. I like companies that don’t dilute me.. better still if they reduce outstanding share count.
16.   I like to look at a long history.. usually 10 years. I like companies which know what they are selling. And stick to it. Not go after growth for the sake of it. I get mad if good money is spent after bad. Decent retained earnings are key.

17.   Finally, if my companies have more money than they need – I am happy to have more dividends coming in.

Ciao till next time...Harsha