Sharing notes from talk of @ashishkila sir on "Ranking of Business Models"
Why ranking?
Helps to eliminate error of commission.
When we have multiple attributes to look at, if you don't have a framework it is difficult to have contrarian thoughts.
You either swing for it or avoid.
Helps to eliminate error of commission.
When we have multiple attributes to look at, if you don't have a framework it is difficult to have contrarian thoughts.
You either swing for it or avoid.
On Cloning
Don't mix 2-3 guru's advise. Choose a right guru for yourself. The style which suits you and then follow.
One can also look at foreign business or investors and look for similar Indian companies listed here.
Don't mix 2-3 guru's advise. Choose a right guru for yourself. The style which suits you and then follow.
One can also look at foreign business or investors and look for similar Indian companies listed here.
Checklist (in order of preference):
1. Management
1. Absence of red flag
2. Track record
3. Background and Journey of promoter
4. Alignment of interest: promoter holding
5. % of pledge shares
1. Management
1. Absence of red flag
2. Track record
3. Background and Journey of promoter
4. Alignment of interest: promoter holding
5. % of pledge shares
2. Longevity
It is difficult to compete when another medium starts replacing your market.
Eg: Physical Maps -> GPS device -> Google Maps
Always keep monitoring the shifts in medium.
It is difficult to compete when another medium starts replacing your market.
Eg: Physical Maps -> GPS device -> Google Maps
Always keep monitoring the shifts in medium.
When the disruption hits you is very important.
There can be a situation where the product penetration is skipped because better product has arrived.
Telephone penetrations in India vs USA.
Check this tweet to know the story:
There can be a situation where the product penetration is skipped because better product has arrived.
Telephone penetrations in India vs USA.
Check this tweet to know the story:
3. No Structural Headwinds
4. Scalability
A. Size of opportunity: Don't look at the market cap rather look at the size of the pond.
4. Scalability
A. Size of opportunity: Don't look at the market cap rather look at the size of the pond.
B. Don't look at one thing in insolation:
If high market share then market should grow fast. If low market share then slow market growth work. (If you get both then its best combination)
3. Brands which don't have user engagement will not have pricing power.
If high market share then market should grow fast. If low market share then slow market growth work. (If you get both then its best combination)
3. Brands which don't have user engagement will not have pricing power.
5. Favorable Industry structure
1. Limited players
2. Regulatory Disruption
1. Limited players
2. Regulatory Disruption
On Capital Allocation
"Select on basis of upside, size them on the basis of downside."
This image explains the above quote.
"Select on basis of upside, size them on the basis of downside."
This image explains the above quote.
Desirables:
1. Reasonable valuation
2. Annuity revenues
A. Rank 1: Frequent consumption and cross sell
1. Zomato, Nestle
B. Rank 2: Non-Annuity but low market share
1. Godrej Properties, Titan
1. Reasonable valuation
2. Annuity revenues
A. Rank 1: Frequent consumption and cross sell
1. Zomato, Nestle
B. Rank 2: Non-Annuity but low market share
1. Godrej Properties, Titan
C. Rank 3: non-annuity with higher market share
1. Maruti, Royal Enfield
3. Switching Cost
A. High cost: Higher Rank (Infosys, Godrej Properties)
2. Low cost: Lower rank (Banks in loans)
4. Optionality
1. Maruti, Royal Enfield
3. Switching Cost
A. High cost: Higher Rank (Infosys, Godrej Properties)
2. Low cost: Lower rank (Banks in loans)
4. Optionality
5. Side Car (Acquisitions)
1. Rank 1: Strategic investment
2. Rank 2: Same team
3. Rank 3: New team and replaces old one.
6. Ability to capture market share
Mindset behind it: "If you have more medals (qualities) I will give you more money (allocation)"
1. Rank 1: Strategic investment
2. Rank 2: Same team
3. Rank 3: New team and replaces old one.
6. Ability to capture market share
Mindset behind it: "If you have more medals (qualities) I will give you more money (allocation)"
On Selling: If you find new opportunity and your current portfolio stocks are good then you trim the position and not sell whole position.
Exit: On fundamental deterioration
Exit: On fundamental deterioration
Shares a video to explain concept of compounding:
youtu.be
youtu.be
Do watch the talk as I have not covered all the points in this thread.
The talk also contain good insights on evaluating management.
Here is the link to the talk:
youtu.be
The talk also contain good insights on evaluating management.
Here is the link to the talk:
youtu.be
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