Why standard valuation matrix is not the best way to value great businesses

Hi

Every year we strive to share our thought process on the challenges being faced by us in value investing. We started our moat investing journey with the ppt "Role of Management in Long term investing" to highlight that when Buffett says that business quality is more important than management he is referring to the competence of the management, however we wanted to highlight that in India a lot of managements are unethical and an investor needs to be discerning enough to differentiate the good from the bad. Else money will be made only by the management and not the minority 

Then we discussed on our 4C's of Investing Process (Cloning, Checklist, Capital Allocation & Checkout) on how we shortlist ideas, bet money and exit them.

Now we discuss that since stocks are no longer trading at attractive multiples, the standard valuation matrix of PE multiples would not help us hold on or buy great businesses. So the post attempts to discuss a framework to value great businesses. 

The topic of the ppt is "why standard valuation matrix is not the best way to value great businesses", the ppt was presented at various forums like IIF and FLAME Investment Lab - Alumni Meet in Pune recently. Foundation for Liberal And Management Education (FLAME)

We also won the best speaker prize at FLAME 2015 alumni meet for the above presentation and we were gifted a great book - "Anatomy of the Bear: Lessons from Wall Street's Four Great Bottoms". One can read about Flame Investment Lab here.

We look forward to your comments and suggestions on how we can further improve this process...

why standard valuation matrix is not the best way to value great businesses from perfectresearch

To download the Presentation- Please visit this link  

Acknowledgement

The author (Mr. Ashish Kila) would like to thank his entire team, for their extensive help in preparation of the above note.

Disclaimer

• We are not SEBI registered Investment Advisor
• Nothing in this article is, or should be construed as, investment advice. The stocks mentioned in the post are for educational purpose only and are not recommendations, the purpose of this post is to highlight a framework which an investor can apply to any company.
• This is not an offer (or solicitation of an offer) to buy/sell the securities/instruments mentioned.
• All the posts on this blog, including this one, are for educational and discussion purposes only.
• Please do not take buy/sell or any investment decision based on articles you read on the blog. These are only meant to provide information and initiate discussion. Final decision is and always should be, yours and only yours.
• We may or may not have a position in the stocks discussed on this blog

"Identifying Businesses exhibiting the Capacity to Suffer"

Our Second Article on CNBC TV18 Website Moneycontrol.com - "Identifying Businesses exhibiting the Capacity to Suffer" - https://t.co/TSICh8FXp7 

Over the last few years we have realised that investors fail to appreciate great businesses and managements which display the capacity to suffer.

Capacity to suffer is the management's ability to endure through early burdens on reported profits in short run in order to advance their long term competitive advantage.

“Capacity to Suffer” is a key ingredient for long term wealth creation and one must not make the mistake of punishing companies in the short run for choosing pain to develop long term competitive advantage.

We wrote briefly about it earlier on https://twitter.com/ashishkila/status/614794354381565952

The current article is an attempt to briefly summarise a few key points from our presentations on the aforesaid topic this year...(Thanks - Nikhil /moneycontrol.com /(‪#‎PerfectResearch‬ )

Disclaimer: 

Acknowledgement

The author (Mr. Ashish Kila) would like to thank his entire team, for their extensive help in preparation of the above note.

 

Disclaimer

• Nothing in this article is, or should be construed as, investment advice. The stocks mentioned in the post are for educational purpose only and are not recommendations, the purpose of this post is to show capacity to suffer as a framework which an investor can apply to any company.
• This is not an offer (or solicitation of an offer) to buy/sell the securities/instruments mentioned.
• All the posts on this blog, including this one, are for educational and discussion purposes only.
• Please do not take buy/sell or any investment decision based on articles you read on the blog. These are only meant to provide information and initiate discussion. Final decision is and always should be, yours and only yours.
• We may or may not have a position in the stocks discussed on this blog