A few years back, I wrote a post on how I stumbled into investing. After experimenting with a number of investment philosophies, the one that I settled on was value investing. In fact, value investing resonated with me so much that, I wondered why anyone would choose a different approach to investing. However, with more experience … Continue reading Back to basics: the forgotten “sell” decision
The “It” Proposition
As some of you may know, one of the biggest influences on my investment thinking has been Prof. Aswath Damodaran. I officially took his valuation class back in the spring of 2017 and right at the beginning we learnt some propositions about intrinsic value. At the time, these propositions seemed trivial but as I have … Continue reading The “It” Proposition
Connecting the dots between theory and practice
One of the biggest complaints against finance theory from practitioners of investing is that it is not “practical enough” and does not represent the real world. We all know that an economy is the culmination of decisions being made by millions of individuals every day and unlike hard sciences, finance has to deal with people’s … Continue reading Connecting the dots between theory and practice
Diversification and Non-Ergodicity – A layman’s perspective
The argument for diversification is ancient wisdom and pre-dates the financial markets as we know them today. After all, the age old saying, "Don't put all your eggs in one basket", was first recorded in a 1605 Spanish publication. It's a simple, yet useful idea that has been drilled into generation after generation. As academic … Continue reading Diversification and Non-Ergodicity – A layman’s perspective
Thoughts on the value vs. growth divide
Setting the context To say that 2020 has been a volatile year for a vast majority of the population, both personally as well as professionally, would be an understatement. And so it has been with markets which tested the depths of despondency back in March but have recovered with a vengeance since. Many traditional "value … Continue reading Thoughts on the value vs. growth divide
How to write fiction using excel
"A great deal more fiction is written in Microsoft Excel than in Microsoft Word" - Anonymous Previously, I have written about what, according to me, is one of the biggest mistakes that people make in a DCF valuation. Two years of experience post that article has only reinforced my belief in this as I have … Continue reading How to write fiction using excel
What Budget 2018 could mean for the stock market
My father-in-law and niece both have their birthdays on the same day, so usually, 1 February is a day of double celebration in our family. This year however, it was also the day the Finance Minister had some not-so-good news for us (and equity investors)… Currently, long term capital gains arising on sale of listed … Continue reading What Budget 2018 could mean for the stock market
Why are tax savings from interest ignored when computing free cash flow to firm?
Whilst preparing for my CFA Level II examinations, I was really perplexed by the calculation of the free cash flow to firm (“FCFF”) especially with regard to the tax saving from interest expenses. Let me elaborate. The definition of FCFF as per the CFA curriculum is: "Free cash flow to the firm is the cash … Continue reading Why are tax savings from interest ignored when computing free cash flow to firm?
A follow up to the “biggest mistake in a DCF”
In this post, we discuss the distinction between returns on legacy vs. new investments and how they may be useful in assessing the impact of disruption. Last week, we wrote a post on what according to us is the biggest mistake that people commit while doing a DCF valuation. In that post, we took a … Continue reading A follow up to the “biggest mistake in a DCF”
The biggest mistake in a DCF valuation
Valuation is an exciting area and at the heart of it lies the often derided discounted cash flow (DCF) method of valuing businesses. Many people make only half-hearted attempts at a DCF valuation but do it anyway because: it sounds “cool” to do it; it gives the illusion of precision; and it can be used … Continue reading The biggest mistake in a DCF valuation