Can you feel the excitement level of students on the second day of CA Students Virtual Conference 2020 after such an amazing and informative sessions on the first day of the conference? If you have not read my article on CA Students Virtual Conference 2020 Day 01 (25/12/20), then I would say that you must read it here.
It is rightly said by Ben Franklin, "An investment in knowledge pays the best interest." Here comes the second day of the conference filled with a lot to learn and surely the best investment of time and energy.
For the people who have missed this event which took place on 25th and 26th December, 2020, I would like to share my experience at CA Students Virtual Conference 2020 conducted via Airmeet. Below are my key takeaways from various sessions.
DAY-2 (26th December, 2020)
Special session – 2
Speakers: Mr. Prakash Diwan, CA Govind Agarwal, CA Dr. Rajesh Khandol |
Topic: Panel discussion on equity research, investment strategies, etc.
In this session, we had speakers who are one of the best experts in stock selection, stock research, mutual funds, investment strategies, fundamental and technical analysis and so on. I would like to list my takeaways from their presentation in order of time.
Mr. Prakash Diwan
According to Prakash Diwan sir, while investing or trading in stock market it is important to first of all decide a goal for investment and then select your own portfolio. An investment goal can be fund for education, medical emergencies, retirement and so on. Further, here are some key takeaways from his presentation:-
- Understanding the business model is important. He showed us "The Business Peapod" that is, business model can be divided into:
Below is an extract of a slide from his presentation which provides in-depth information about the six parts of a business model of any organization.
- Key metrics to look at for every sector are different, yet simple! He then enlightens us about analyzing different sectors in the market using certain metrics as in the below extract of a slide from his presentation.
- There are many methods of trading and investing and also there are many indicators and resources which are available in public domain. He states that money can be made via using any method and there is no biasness among such methods. However, what is more important is proper knowledge and experience which is crucial while thinking of making money in the stock market.
- One must ask himself and make a clarity about the question that is he an investor or a trader or a mix of both. It is very important to understand the difference between both investment and trading in the stock market.
- One must do a self-analysis and select an appropriate investing style which suits his investment objective. To know what is your investing style, you must consider the following:
- Find your investing icons/gurus.
- Pull a common theme from these icons.
- Write down those adjectives.
- Check if that applies to your investments/portfolio.
- Clean out your PF.
- Choose afresh based on what you relate to.
- One must decide based on his investment objective the duration of his investment that is, short term or long term. For example, if Rs. 100 is invested today at 8% annualized returns, then either you can choose to earn Rs. 108 in 1 year or Rs. 200 in 8 years.
- One must understand that weather is not predictable and so is short term. But, seasons are predictable and so is long term. You cannot predict level of temperature tomorrow or in near future. But, you can easily say which season is going to come in next few months.
- One must put a toolkit together for the investor in them, which includes data regarding fundamental analysis, long term trends, annual reports & AGMs and quarterly numbers.
- He shared with us the "Self-learning loop" that is as in the below extract of a slide from his presentation:
There will be some sort of biases when you identify what went wrong, which simply means you will find some errors in the way of processing and interpreting the data and information gathered by your research.
- In the end, he ends his presentation with a quote by Jason Zweig, "Investing isn't about beating others at their game. It's about controlling yourself at your own game."
CA Govind Agarwal
The thought process and basic ideology of CA Govind Agarwal sir regarding fundamental equity research is almost similar to that of Prakash Diwan sir, but it has its own learnings.
The 3 pillars of stock selection
- Identify a good business.
- Simple and easy to understand & monitor - E.g. FMCG, Consumer durables, Pharma, etc.
- Size of the opportunity - BIG.
- Growth oriented - Visibility for next 5-10 years, at least.
- Less capital intensive - generally (as less capital intensive businesses make more money).
- Management: It is PEOPLE who make ALL the DIFFERENCE. Promoter's background check is very important.
- (Bad business & Bad management) OR (Good business & Bad management) - Such type of organizations should be avoided and one must not invest in stocks of such a company.
- (Bad business & Good management) - Such type of companies have a scope of correction in the performance of its business operations and one can prefer to invest in stocks of such a company if he or she sees scope of opportunities in the future.
- (Good business & Good management) - The history is evidence of stocks of such companies becoming a multi-bagger in the long term. Such companies are golden opportunity for investment.
- Valuation: First arrive at the intrinsic value of the business/enterprise - Discount the future cashflows. Buy the stock at a good discount to the intrinsic value.
Doing detailed research
Read and understand the annual reports and the financial statements: Balance Sheet, Profit and Loss Accounts, Cash Flow Statement. Ideally, analyse them for last 10 years.
- Sales/revenue growth.
- Operating margin - Stable or improving.
- Look for extraordinary items, if any.
- Tax rates - Normal? If lower - Why?
- Working capital management - Very important.
- Debt level - Same/Increasing/Decreasing? - Very important.
- Capital expenditure - Frequency; How is it funded?
- Cash Flow Statement: 'CRITICAL ANALYSIS IS MUST'
- Operating cash flow MUST be positive.
- Funding of capital expenditure - internal cash flow and/or borrowed.
- Funding of working capital.
- Management discussion statement; schedules - Contingent liability, etc.
- Meeting the management to understand their perspective - In today's times quarterly presentations, concall transcripts, etc are available on a company's website.
- Meeting the company's competitors, vendors, customers, employees and so on.
- Plant visits - If you get an opportunity.
- Regular reading of at least two business newspapers, business magazines, journals, etc.
- Read books/blogs of well-known authors on equity investing - Warren Buffet, Benjamin Graham, Howard Marks, Ray Dalio and so on.
- Listen to the concall of companies - say while travelling.
Then to end his presentation he shared with us a case study on Maruti Suzuki Limited based on his research in order to teach us ways of conducting fundamental analysis and identifying growth potential of a company.
CA Dr. Rajesh Khandol
After understanding concepts of equity research and investment strategies while actively investing in the stock market, one can also invest via mutual funds. CA Dr. Rajesh Khandol sir enlightens us about mutual funds and equity research.
- He firmly believes that the objective of investment should be clear before investing your money.
- Types of mutual funds:
- Debt-oriented mutual funds: Here, the maximum risk is fluctuations in the rate of interest. There are liquid funds, guild funds, short term funds, long term funds and so on.
- Equity-oriented mutual funds: Here, there are large cap funds, small cap funds, mid-cap funds, sectorial funds i.e. Banks, Finance, Pharma, etc. and so on. It is also important to know about equity research.
- Stock selection: He focuses only on one factor that is, management integrity. Management integrity refers to transparency of management. As we say that financial statements should indicate true and fair view, similarly, management should be transparent.
- Basic rules of investing shared by him are as follows:
- Take exit in proper time. Exit is more important than entry.
- Do not consider book value. Check management, culture, drivers of the company while investing in a company.
GENERAL ADVICE COMMONLY BY ALL THE SPEAKERS:
- Decide a goal for investment and select your own portfolio.
- Rules of investment:
- Buy a stock because of value of the company and not because of price of the stock.
- One must have ability to find if a company is good or not. However, one must not rely much on the market situations for the said purpose.
- One must focus on how much to buy and not on what to buy based on investment objective. In simple terms, buying too much shares of a low performing company which has weak dividend payment record will simply block your money which you could have invested in some other company maybe at the same or nearby cost value.
- Even if a company is very good, but there should be a growth visibility of at least next 5 to 10 years.
- Less capital intensive companies make more money in profit as compared to those that are more capital intensive companies.
QUESTIONS BASED ON THIS SESSION:
Q1. Can we look forward to make an insurance product as our investment?
Ans. Objective on insurance product is protection and objective of an investment is capital appreciation. Thus, there is no link between insurance product and investment.
Q2. What are the critical factors to be considered while investing in mutual funds?
Ans. In case of debt oriented mutual funds,
- Modified duration.
- Current Yield-to-Maturity.
- Portfolio quality.
In case of equity oriented mutual funds,
- Portfolio quality (via equity research). One must compare share prices with the benchmark of related index.
Q3. How much investment value is ideal for small investors?
- Quantum does not matter for starting phase. Earlier you start with investing, more it will be beneficial in the long term.
- Discipline of savings and investments in important than quantum of investment when you are starting.
Q4. There are many successful investors with different ideologies. Whom should we believe as everyone's strategies and methods are not same?
- Learn from the successful investors, but then prepare your own style of investing.
- For example, one watches videos to learn a new dish, but at the end he or she cooks the food in his or her own style.
- One should not imitate 100% and should learn from mistakes of such successful investors.
Q5. What are the risks associated with equity research?
Ans. The risks associated with equity research are as follows:
- Governance risk (Risk of bad or fraudulent management).
- Technology risk (Risk of products being obsolete and inadaptability of new technology).
- Business cycle risk (Risk of good and bad business cycles).
Q6. What are the authentic sources for collection of data required in equity research?
- Whatever platform one is comfortable with is good for him or her.
- Once one can afford then there are plenty of paid softwares available in the market.
- One must start easily and simply by avoiding complexities.
- One must start with book investing or paper trading that is, starting with a virtual cash on paper and investing or trading into the stock market. It can help in learning a lot of things from the experience one gets without even having to invest real money into the market.
So, here comes the end of DAY 02 of CA Students Virtual Conference 2020. I have not included the technical sessions in this article. All the paper presenters gave brilliant, informative and very helpful presentations in both the technical sessions, which enlightened us regarding such crucial topics. Again, it was very great experience hearing to great leaders and experienced dignitaries. Their suggestions for students were very helpful and inspiring. I also congratulate winners of paper presentation. I enjoyed cultural session in which there were beautiful performances by the very talented people. I would also like to thank everyone who worked very hard to conduct this event on a virtual platform. Both the days of CA Students Virtual Conference 2020 were full of information, learning and enjoyment.
Jenil Parikh, Student (CA Intermediate) | ICAI
<< Click here to read previous article >>