Have you been let down poor investment decisions? Were you provided advise or tips or products that turned out to be junk? Its now time for you to take things back and have a full control on what you want to achieve and take decisions that suit your own requirements and create more wealth in the process. I welcome you to take your first step in to intelligent investing!

1. YOUR FIRST STEP INTO INTELLIGENT
INVESTING
- Sridhar V

2. Disclaimer
2
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
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This is not an investment recommendation, but only an
illustration for knowledge purposes
All facts and data shared are accurate to the best of our
knowledge. Readers are advised to double check if
required before acting on investments.
The information here could be based on past data, which
could have changed significantly.
Past performance is not necessarily an indicator of future
performance
Any logos, company names, brand names, trademarks
or symbols used here belong to the respective owners
The author or presenter may have personal investments
in the stock or company discussed

3. AGENDA
3
Money in Life, Financial Goals
Savings & Investments
Where to create wealth?- The Asset Classes
Why Equities?
Styles of Investing
Value Investing Concept
Economic Moat – The Secret to Successful Investing
Value Investing Process
Summary

4. Money in Life
4
Myth
• Money is not everything in life
• Money can’t buy happiness
• More money = More trouble
Reality
• Its important, its an enabler
• Can’t buy happiness or love, but can keep life running
smoothly
• Law of Attraction applies here
• Wise and productive use of money can do wonders
• Getting rich or wealthy (legitimately) is not bad

5. Money in Life – Financial/Life goals
5
Having life goals or financial goals is inevitable
•
•
•
•
•
Retirement Planning
Children’s education
Pursue a hobby or start a small venture
A vacation
Wedding
Short Term Goals
Long Term Goals
Allocating Responsibilities/Accountabilities

6. Case: Time & Money
6




Vicky and Aamir studied together and started
working in the same year
Aamir started investing 5 years earlier than Vicky
See the table below showing details of their savings
Who does better and how?
Item
Annual Savings
Years
Interest Rate
Vicky
100000
25
12%
Aamir
100000
30
12%

7. Case: Time & Money
7
Item
Annual Savings
Years
Interest Rate
Accumulation
Difference


Vicky
100000
25
12%
1,33,33,387
-
Aamir
100000
30
12%
2,41,33,268
1,07,99,881
Aamir started early and was able to make 2.41
crores (against 1.33 crores for Vicky)
Vicky makes about Rs.1 crore less since he started 5
years late

8. Budgeting & Cash Flows
8

Create a budget to know your monthly incomes,
expenses and net savings
 Identify

top expenses and leaks
Find ways to maximize your cash flows
 Find
additional income options
 Curtail expenses (umpteen ways)
 Minimize loans and credit card use

Famous Quote
“If you buy things you don't need, soon you will have to sell
things you need.”- Warren Buffett

9. Savings & Investments
9
Savings
Save for a
rainy day
Safety first,
returns
second
Investments
Create
assets or
build wealth
Focus on
returns &
safety
CrossMovement
(S-I or I-S)
When your
short-term
funds are in
excess of
needs
When you
reach closer
to your
goals
Meets
Short-term
goals or
needs
Plan for
long-term
goals

10. Where to create wealth? – The Asset
Classes
10
Fixed
income
Equities
Bonds/Co.
FDs
Bank
Fixed
Deposits
Real
Estate
Gold

11. Inflation – The Silent Wealth Killer
11


CPI is 10% or more
FD and fixed income options generally provide
10% or less (before tax) barring few exceptions
 Your
returns are negative
 Does this create wealth?

No but its still important for savings or preservation
of surplus cash

12. Equities – The Ultimate Wealth Creator
12
What are equities?
• Equity Share represents part-ownership in
a company
Benefits shareholders by providing
• Dividends or share of profits &
• Capital Appreciation (of share price)

13. Why Equities?
13




They can provide about 15-20% returns p.a. and
can beat inflation
Returns are non-linear creating potential for wealth
creation
Flexibility to buy smaller or larger quantities
Easier to liquidate

14. Issues with Equities
14
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
Probably less understood
Temptation to trade
Overpriced
The company or its management is poor
Highly volatile
Others…

15. Things to do before you jump in to
Investing
15
Have a budget to maximize savings and
create positive cash flows
Have an emergency fund/contingency
fund of about 3-6 months of your salary
• Why is this required?
Research the product/instrument that you
want to invest in

16. Things to do before you jump in to
Investing
16
Provide for life and health insurance to protect
family in case of eventuality
• Choose term insurance plans only
Plan for ad-hoc expenses or responsibilities
Minimize credit card and other loans (except
home loans)
• Ideally your debt payments (EMIs) should be less than
40% of your monthly income

17. Risk in Investing
17

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
Risk exists in all investments in varying degrees
“Risk comes from not knowing what you are doing” –
Warren Buffet
Risk is the permanent loss of capital
Investors should first aim to reduce the probability
of permanent loss of capital

18. Styles of Investing
18
Growth Investing
• Choice of fast growing
companies, which are doing
well in the current market
Value Investing
• Choice of unfavourable
stocks that are available at a
price, which is lower than its
true value
Index Investing
• Investing in a basket of stocks
that form the index (basically
creating a portfolio that
replicated index)
Others

19. Which investing style to follow?
19


You can pick up a mix of different approaches
But we recommend a strong focus on Value Investing
Principles
 This


works for growth stocks too
Successful investors who follow value philosophy
include Warren Buffett, Seth Klarman, Mohnish
Pabrai, Prem Watsa, etc.
In India: Rakesh Jhunjhunwala, Rahul Saraogi,
Amitabh Singhi, etc.

20. Value Investing Idea
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Pick companies that are currently out of
favour or ignored, but fundamentally sound
To buy companies at a significant discount
to their true underlying value
• Eg. You buy a company worth Rs.100 crore for Rs.70
crore
In-depth Research & Analysis to evaluate
fundamental strengths and weaknesses

21. Old School Value – Ben. Graham
21
Benjamin Graham’s Philosophy
 Shortlist companies that are cheap on PE, PB basis
and with good dividend yield (>5%)
 Stock Price <= Net Current Asset Value per share
 Special Situations or Turnarounds
 Buy Back or Arbitrage
 Deep value techniques – Cigar butts?
Statutory Warning: Smoking and careless investing are injurious to health
and wealth

22. Buffett’s Transformation
22



Berkshire Hathaway – how did it start as?
Where is it today?
Textile business
 Highly
competitive
 Cost & Margin pressures
 Capital intensive
Statutory Warning: Smoking and careless investing are injurious to health
and wealth

23. Analysing Business
23
Threat of New
Entrants
Bargaining
Power of
Suppliers
Competitive
Rivalry
Threat of
Substitutes
Bargaining
Power of
Customers

24. Economic Moat – The secret to
successful investing
24


Moat = Competitive advantage and pricing power
Types
 Cost
Advantages
 Price Advantages

25. Economic Moat – Price Advantages
25
Product Differentiation – eg. Apple (may not be durable),
Wabco (air braking)
Intangible Assets
• Brands (eg. Coke, Titan, Colgate, Gillette, etc. )
• Regulatory Licenses (NMDC, Coal India, Solar Ind. - explosives)
• Patents & IP (Intel, Bosch)
Switching Costs (HDFC Bank, MS office)
Network Effects (NSE, Naukri, etc.)

26. Economic Moat – Cost Advantages
26
Economies of Scale
• Eg. Container Corp., Coal India, Tata Steel
• Large Distribution – Eg. ITC
• Large scale – Maruti Suzuki, Walmart
Cheaper Access to Resources
• Coal India, Sesa Sterlite, Hindalco
Process Based Advantages – efficiency, best practices
• Toyota (TQM), Ambuja Cement (efficiency)

27. Brands without a Moat
27
Mere presence
of brand or
popular
product is not
a Moat
Brands
without a
moat
Eg. Flipkart,
MakeMyTrip,
Camlin
Wind Energy –
Suzlon
Had first
mover
advantage
Legal or
regulatory
issues, high
debt
Kingfisher
Airlines
Acquisition of
Air Deccan
High costs &
overleveraged
(debt)
Violation of
regulatory
norms and
procedures

28. False Moat – Avoid!
28
A short-term
advantage
Popular
products (but
low margins,
returns)
Recent
performance
looks
favorable
High growth
expectations
or Fancy (FB,
Sify, etc.)
Well-known
personalities
in the top
management

29. Determining a Moat
29
Does the product/service have a recurring demand
Does the company have better profitability against its peers?
Consistent market share overall or within a niche
Not subject to price-regulation
Has the company earned high returns on capital?
Can it continue to earn high returns over long-term?
Changes: Technology, substitutes, etc, and their impact
Others – Refer Porter’s 5-Forces

30. Financial Indicators of Moat
30
Buffett’s Secret Recipe
• High and consistent Profit Margins
• Growing Free Cash Flows
• Minimal Capex to sustain long-term growth
• High RoE and RoCE
• Consistent Growth in Earnings and Dividends
(baring few exceptions)
• Million $ Question: Does the Moat really translate
in to superior financial performance?

31. Value Investing Process
31
Business Model
Financials & Intrinsic Value
Understand the
Margin of Safety
Business (A stock is Evaluate the
a part-ownership company’s
Arrive at a
in a business)
financials and
Purchase Price
future prospects to after providing for
arrive at an
adequate Margin
Intrinsic Value
of Safety
(Discount)

32. Summary – The Foundation
32








Money in Life
Case: Time & Money
Where to create wealth? – The Asset Classes
Inflation – The Silent Wealth Killer
Equities – The Ultimate Wealth Creator (Why
Equities and Issues)
Things to do before you jump in to Investing
Risk in Investing
Styles of Investing

33. Summary – The Structure
33





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
Value Investing Idea
Old School Value
Buffett's Transformation
Analysing Businesses
Economic Moat - Secret to Successful Investing
Types of Moats - Price and Cost Advantages
Determining a Moat & Financial Indicators
Value Investing Process

34. 34
Thank You
Looking forward to your continued participation
Contact:
sridharcw@gmail.com
+91 8050705299
Web
Slideshare: http://www.slideshare.net/sridharcw
Google Group: “Value Stock Picks”