the real fundamentals - VII

is a fundamentally ok CHEAP (ECONOMICAL) stock worth investing in?

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i am sure u can answer this one after the discussion before this.

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being cheap or not cheap is immaterial.

what matters is

- potential

- leadership and management to exploit it

- growth

- right price

the real fundamentals - VI

is a company or business with great potential necessarily worth investing?

let's take an example.

is africa a small continent? 
no

is africa devoid of natural resources? 
no

is africa without human resource? 
no

does africa have consumption potential? 
mind boggling!

so, why isn't there explosive growth?

well......simple

the potential has to be exploited

somebody has to harness the potential

turn the potential into reality.

nodoubt against asian gdp of $21,504 billion

african gdp stands at just $ 2,092 billion

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lesson : potential rusts without great leadership, good management.

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is it surprising, china is getting into africa big time?

not to forget bharti airtel's african safari!!!

the real fundamentals - V

is a well-managed company which has tremendous scope of GROWTH

necessarily a good company to invest?

lets take an example......

monsanto is a hi-technology company which is into research and production of

"super seeds" to feed "the billions" in future!

everyone knows its future potential.

everyone wanted to be on its bandwagon.

the result?

p/e ratio of 35 v/s 22 of peers!!!

meaning, people are already paying 35 times their share is earning?

meaning, people are just paying future price (35 times)!

people are simply betting on the bet!!!

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nothing succeeds like success.

and nothing grows like growth.

people come to know about the growth

before the growth knows that its growing.

the rest of the act is completed by the operators.

result? unbelievably high price! poor bargain.

if you buy the dream, you have to wait for the morning

a decade away!

(no wonder monsanto india's share price shot to 2000/- in 2004, and is still there!

smart dumb people call it "consolidation")

lesson?

if its not a bargain

it is not worth it

even if it is a rocket!

the real fundamentals - IV

are all fundamentally sound companies good for investing?

lets see an example.

lets consider a sugar company which is fundamentally all ok.

is it a good idea to invest in it?

especially, when more and more people are becoming health conscious

and are realising the importance of reducing the sugar intake?

when more and more people are starting to use low-calorie sugar substitutes?

when the farmers are becoming more and vociferous in their cost of produce?

so?

what do you feel?

will you still INVEST in a sugar stock

except for DIVIDEND?

what if you have the choice to invest in a company which makes sugar-substitute?

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what's the lesson?

fundamental strength is not something to go ga-ga about!

fundamental strength is a hygiene factor these days.

a company has to be, i repeat, HAS TO BE fundamentally good

to qualify for our attention.

but to win our money for investment

it has to be much more than "fundamentally good".

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it has to have "growth" written on its forehead.

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now what if

the sugar company decides

- to spread its geographical reach?

- to integrate vertically - e.g. grow its own sugarcane, make sugar concentrates, make candies etc etc?

- to enter hi-refined sugar segment?

- to come out with "low calorie" sugar?

that's growth....and now it qualifies to be taken seriously.

otherwise, it is good for trading only.

the real fundamentals - III

there are three crucial questions:

1. is the business (say aviation or sugar or liquor or fmcg etc etc) good or bad?

2. is the management running the business good or bad or mediocre?

3. are the times good or bad?

if times are bad, no problemat all. rather, it is mouth watering.

if management is bad, it is a big problem,

but if business is wrong...........???

the real fundamentals - II

if the past performance doesn't necessarily indicate future performance

how come fundamental analyses based on the past and present figures indicate future figures?

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before touching a company for investing

ask three more questions

- is it profitable? (if not, can it be profitable?)

- is it futuristic? (is it future-proof?)

- is it healthy? (even a profitable and futuristic business is bound to collapse if it is not healthy? poor corporate governance, unfaremeans, artificial unsustainable means, etc.)

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as defined by wikipedia

"Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets."

.......seems like rocket science

.............enough complex to leave scope for alibis and excuses

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don't analyse the mountains of fundamental data yourself.

don't reinvent the wheel.

learn to analyse the analyses of fundamental analysts.

there are hundreds out there, all nervous enough not to be wrong.

the real fundamentals - I

does high p/e ratio indicate good future? shaky future?

does high book to price ratio indicate bright future? dark future?

does high debt on the balancesheet indicate prosperity in future? bleak future?

......?????

well, it can be both!!!

one of the biggest myths of fundamental analyses is

"if u know the numbers and ratios, you can know the fundamentals of a company!"

i can show you n number of examples
when despite a bad set of numbers, a company gave 1000% returns in less than 2 years!

don't believe me?

just take out tata motors chart

share value on 20/2/2009 = 134

share value on 15/12/2009=1340

every ratio in the encyclopaedia of fundamental analyses (FA) was as red as it could have been.

still, it turned out to be as golden as it can be!!!

so, what is real FA?

what does it mean?

what all includes the real FA? what to look for???????