Equity Investment is Hedge Against Inflation and Income Tax..!

Equity Investment is Hedge Against Inflation and Income Tax..!

By Ramdeo Aggarwal

Equity is hedge against inflation and tax:

Purchasing power doubles in equity investing in 7 years while it happens in 70 years for fixed income

Focus on market cap rather than price because price keeps changing due to splits and bonuses etc

What is the quality of entrepreneurship underlying the businesses

Every country has different way of making money

Valuation: 50% present data based and balance 50% on growth based on future scenario etc

Indigo is a great company and does not need money to grow (Buffet Model

based)

Only 350 companies are worth investing out of 6500 companies

Time is friend of good company and enemy of bad company

Tailwind Investing: Affordable housing, AMC, Pvt Banks, Automotive etc in current scenario

Requires Vision, Courage and Patience

Great Number One companies in sector usually have 45 to 60% share of the market e.g Maruti, Hero Motors, Tata trucks, Asian Paints.

THESE ARE ROCKETS!

They seem to be born under special planetary combination.

Selection Criteria:

Winner Categories: Consolidated sector plus Scalability like software on 1997

Category winner: Entry barrier Plus great Mgt like Infosys

Great Investment: Category winner Plus Reasonable Valuations

Find a company which is going to make a lot of money. For them following companies did it:

1. Vysa Bank (1991)

2. Hero Honda (1996)

3. HDFC Bank (1996)

4. Infosys (1997)

5. Bharati Airtel (2003)

6. Eicher Motors (2012)

7. Ajanta Pharma (2013)

8. AU Financers (2007- Pvt. equity)

9. While lost in Mastek (2000) and Future Technologies(2014)

I visit and see how the Company treats its staff because that is how they are going to treat the minority shareholders who are also like peons;

For well-run AMC, I can pay 65PE value

There are some businesses where you can plan like HFC while in others you cannot like brokerages, AMC etc. In former you can have specific targets and achieve them like PNB Housing Finance. Whatever the Mgt guides reduce it by 20%.

Understanding the business mean what will be the shape of the business after 15 to 20 years not how they are making money now.

Those businesses that have tail wind are like speeding trucks; do not ever try to come in front of them

So long as the company is doing well, sit tight

Scuttle but: dealers in tier II and III can teach you much more about businesses and their managements than the Mgt meetings

Invest in long term strength of the business

Basic Spend and Discretionary spend: Discretionary spend will go up ten times while the income just doubles Earlier 900+100 after income becomes double then it is 1000 + 1000 that is ten time spend on discretionary’ It is an exponential opportunity. People will buy cars more than mobikes like in China;

Ultimately the value creation in market cap matches with the earnings growth;e.g Infosys 45 % and 44.5% respectively. 80% of page Industries increase in market cap is due to earnings growth and balance due to pe expansion.

The next trillion dollar addition to GDP happens earlier than the previous addition. In India 

First Trillion: 60 years

Second: 2015-2008= 7 years

Third: 2020-2015= 5 years

Fourth: 2023-2020= 3 year

Recommended Books: 

• Common Stocks Uncommon Profits: Fisher

• Competitive Strategy: Porter

• Berkshire Hathway letters to shareholders

• Value Migration: Adrian Slywotzki

• Value Investing- Buffet and Beyond

• Expectations Investing: Alfred Rappaport and Michael J Mauboussin

Sensex went up 106 times in 30 years CAGR of 17% ( Dec 84- Dec 14) From 260 to 27602.

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