THE ECONOMIC TIMES | September14, 2016
By Manish Chokhani
Investing is the ultimate profession. It requires total immersion, complete awareness and constant alertness. It is the interplay of numerous factors including macroeconomics, geopolitics and technology on one hand and micro business drivers, management ability and intent, market cycles and one's own temperament as an investor on the other. All of this translates into a valuation that offers a margin of safety as well as possibility of large compounding returns.
The Indian market, like other emerging markets, will continue to be tested by the risk on - risk off weak global environment.This will be a trying time for policy makers as well as investors.We will be unable to forecast currencies, interest rates, inflation and commodity prices which in turn will lead to volatile asset markets -across equity , property and precious metals. The safest bet will therefore be on continuation of our household consumption and saving. And on business leaders who are on top of their game.
Leaders emerge in every cycle but it is important to know if they will be able to weather the coming tempests; survive and thrive.
Therefore, understanding cycles is a vital aspect of investing.Think long and hard about life cycles and business cycles as well as sustainability and sources of advantage. Be clear if your investment returns are being driven by fundamental factors such as volume growth, pricing, efficiency gains, corporate restructuring or just on valuation multiple expansion.
When picking "business partners" choose integrity and track record over mere "promises". Management ambition should be tempered with reality and have commonality of objectives with minority shareholders.
A company's way of dealing with people is also a very telling indicator. Scrutinise how a company is managed - whether it offers lifetime employment, how it hires, trains, retains and fires employees, how it builds skills and renews itself. Analyse if it's a fast-moving commando force, a relentless army of soldiers or just opportunistic mercenaries.
Having understood these aspects, it is necessary to watch out for hidden bombs. These include conflict of interest structures such as private businesses, "group" or related party transactions especially loans and advances and corporate guarantees. Think how long it will take the company to earn profits equal to its market capitalisation. To reach a conclusion, you must understand possible scenarios and sensitivities to arrive at a valuation that offers upside to you as the investor.
Regular follow up on companies is equally essential. Try to know as much about the company as its CEO. A helicopter view of the business, its drivers and understanding the productservice and organisational DNA is what will make the act of investing fun and meaningful.
Investing is the only profession where you can learn and earn.Just make sure you don't make it learn OR earn!! (Adapted from a presentation made to students at Flame University).
The writer is director, Enam Holdings