Hi, Welcome to the 6th Special Edition
Brief Overview of What We will cover in this Issue
Detailed Key Takeaways from the book I am reading Currently
Key Takeaways from Investing Articles and Blogs
The case for (always) staying invested (+4 Articles)
Small Important Investing Video Clips
The case for (always) staying invested (+ Many Clips)
Before you start reading, Let me tell you some important changes I made this week, So from today you will receive only 2 issues per month (Each Issue after 15 Days)
I analyzed paid subscription statistics and more than 60-70 not reading it weekly so have to decide to shift from weekly.
Key Learning and Takeaways from Learn to Earn Book By Peter Lynch (Part-2)
Why you should read Annual Report (Story of Johnson & Johnson)
No matter what the CEO says in the text of an annual report, the numbers in the back of the report give you the complete, unvarnished account of the company’s behavior.
Johnson & Johnson had been dropping steadily from about $ 57 at the end of 1991. At the time the report arrived, the stock had fallen to $395/ 8.
Also on page forty-two, you learned that the company had become more productive in recent years. In 1983, Johnson & Johnson, with 77,400 employees, manufactured and sold $ 6 billion worth of products, while in 1993, with 81,600 employees, it manufactured and sold $ 14 billion worth of products. That’s more than twice as much manufacturing and selling, with only 4,200 additional employees. From 1989 to 1993, sales increased from $ 9.7 billion to $ 14 billion, and the number of employees dropped.
The annual report suggested otherwise. Right there in big letters, it said, “Growth Through New Products.” The text gave the details: 34 percent of the company’s 1993 sales came from products introduced to the market in the last five years. On page forty-two, you discover that Johnson & Johnson spent more than $ 1 billion on research and development in 1993— 8 percent of sales.
Johnson & Johnson was selling for eleven times its estimated 1995 earnings. And Johnson & Johnson was far better than your average company.
As hard as it was to believe, you reached the inescapable conclusion: There was nothing wrong with Johnson & Johnson to cause the stock price to go down.
On page forty-one of the annual report, you learned that over 50 percent of Johnson & Johnson’s profits came from its international business— the Clinton proposals couldn’t have affected that. Then on page twenty-six, you found out that 20 percent of the company’s profits came from shampoo, Band-Aids, and other consumer items that had nothing to do with pharmaceuticals, which the Clintons had targeted for reform. Either way, you sliced it, Johnson & Johnson had limited exposure to the threat that people were worried about. It didn’t take more than twenty minutes to read that annual report and decide that Johnson & Johnson at $395/ 8 was one of the bargains of the decade. Johnson & Johnson is not a complicated story. You didn’t have to be a full-time professional investor or a graduate of the Harvard Business School to figure it out. This was an easy call: The stock was down, while the fundamentals of the company were improving. As in the case of Nike,
Peter Lynch recommended Johnson & Johnson in an article in USA Today at the end of 1993 when the stock was selling for $ 447/ 8. In the spring of 1994 on Wall Street Week with Louis Rukeyser, he recommended it again. By then, the stock was $ 7 cheaper at $ 37.
The latest quarterly report told him that sales and earnings were on the rise, so the story was getting better.
By October 1995, it had risen above $ 80. The price had doubled in eighteen months.
Why you should Complete your education :)
Apple’s All three founders left school early started a company from scratch, and become multi-millionaires before they were thirty-five. That doesn’t mean you should drop out of school and wait for something wonderful to happen.
Don’t drop out of school because these people did. When they got started in business, it was still possible to get a decent job without a college education— today it’s nearly impossible. Also, every one of them had mastered the basic skills they needed to succeed in business. They didn’t drop out to avoid work, they dropped out to start a company or pursue an interest.
Young Companies
The Company When It’s Young The young company is full of energy, bright ideas, and hope for the future. It is long on expectations and short on experience. It has the cash that was raised in the offering, so chances are it doesn’t have to worry about paying its bills at this point. It expects to be earning a living before the original cash runs out, but there’s no guarantee of that.
In its formative years, a company’s survival is far from assured. A lot of bad things can happen. It may have a great idea for a product but spend all its money before the product is manufactured and shipped to the stores. Or maybe the great idea turns out not to have been so great after all. Or maybe the company gets sued by people who say they had a great idea first, and the company stole it.
If the jury agrees with the plaintiffs, the company could be forced to pay millions of dollars it doesn’t have. Or maybe the great idea becomes a great product that fails a government test and can’t be sold in this country. Or maybe another company comes along with an even greater product that does the job better, or cheaper or both.
In industries where the competition is fierce, companies knock each other off all the time. Electronics is a good example. Some genius in a lab in Singapore invents a better relay switch, and six months later it’s on the market, leaving the other manufacturers with obsolete relay switches that nobody wants. It’s easy to see why one-half of all new businesses are dissolved within five years, and why the most bankruptcies happen in competitive industries. Because of the variety of calamities that can befall a company in the high-risk juvenile phase of its life, the people who own the shares have to protect their investment by paying close attention to the company’s progress. You can’t afford to buy any stock and then go to sleep and forget about it, but young companies, especially, must be followed every step of the way. They are often in a precarious position where one false step can put them into bankruptcy and out of business. It’s especially important to assess their financial strength—the biggest problem with young companies is that they run out of cash.
When people go on vacation, they tend to take twice as many clothes as they’re going to need, and half as much money. Young companies make the same mistake about money: They start out with too little. Now for the good part: Starting from scratch, a young company can grow very fast. It’s small and it’s restless, and it has plenty of room to expand in all directions. That’s the key reason young companies on the move can outdistance the middle-aged companies that have had their growth spurt and are past their prime.
There was still turmoil in the office, and Jobs had a falling out with Sculley. This is another interesting aspect of corporate democracy: Once the shares are in public hands, the founder of the company doesn’t necessarily get what he wants.
In hindsight, it’s easy to see that Apple recovered, but at the time of the crisis, the recovery was far from assured. (During Crisis it’s all different, Only we can say that crisis is an opportunity or something wrong in hindsight)
Past Cycle Winner is not the sure-shot winner of the next bull Market (Story of US Steel)
U.S. Steel, General Motors, and IBM are three prime examples of former champions whose most exciting days are behind them—although IBM and GM are having a rebound. U.S. Steel was once an incredible hulk, the first billion-dollar company on earth. Railroads needed steel, cars needed steel, skyscrapers needed steel, and U.S. Steel provided 60 percent of it. At the turn of this century, no company dominated its industry the way U.S. Steel dominated steel, and no stock was as popular as U.S. Steel stock. It was the most actively traded issue on Wall Street.
Dow has increased in value more than eight times over, U.S. Steel has gone downhill. Loyal shareholders have died and gone to heaven waiting for U.S. Steel to reclaim its lost glory.
The stock was recommended by stockbrokers everywhere as the bluest of the blue chips. To mutual fund managers, IBM was a “must” investment. You had to be a maverick not to own IBM. But the same thing happened to IBM that happened to GM.
Investors were so impressed with its past performance that they did not notice what was going on in the present.
A hot economy can’t stay hot forever. Eventually, there’s a break in the heat, brought about by the high cost of money. With higher interest rates on home loans, car loans, credit-card loans, you name it, fewer people can afford to buy houses, cars, and so forth. So they stay where they are and put off buying the new house. Or they keep their old clunkers and put off buying a new car.
Simplified How Fed Interest rate impact economy
If the economy is too hot, the Fed can take the opposite approach: raising interest rates and draining money from the banks. This causes the supply of money to shrink, and interest rates to go higher. When this happens, bank loans become too expensive for many consumers, who stop buying cars and houses. The economy starts to cool off. Businesses lose business, workers lose their jobs, and store owners get lonely and slash prices to attract customers.
An extended bear market can test everybody’s patience and unsettle the most experienced investors. No matter how good you are at picking stocks, your stocks will go down, and just when you think the bottom has been reached, they will go down some more.
Lessons from Major Bear Markets
People who bought stocks at the high point in 1929 (this was a small group, fortunately) had to wait twenty-five years to break even on the prices. Imagine your stocks being in the red for a quarter-century! From the high point in 1969 before the crash of 1973–74, it took twelve years to break even. Perhaps we’ll never see another bear market as severe as the one in 1929—that one was prolonged by the Depression. But we can’t ignore the possibility of another bear of the 1973–74 variety, when stock prices are down long enough for a generation of children to get through elementary, junior high, and high school.
It would be nice to be able to get a warning signal, so you could sell your stocks and your mutual funds just before a bear market and then scoop them up later on the cheap. The trouble is, nobody has figured out a way to predict bear markets. The record on that is no better than the record on predicting recessions. Once in a while, somebody calls a bear and becomes a celebrity overnight— a stock analyst named Elaine Garzarelli was celebrated for predicting the Crash of 1987. But you never hear of somebody predicting two bear markets in a row. What you do hear is a chorus of“ experts” claiming to see bears that never show up.
Far more money has been lost by investors trying to anticipate corrections than has been lost in all the corrections combined.
Here’s another telling statistic. Starting in 1970, if you were unlucky and invested two thousand dollars at the peak day of the market in each successive year, your annual return was 8.5 percent. If you timed the market perfectly and invested your two thousand dollars at the low point in the market in each successive year, your annual return was 10.1 percent. So the difference between great timing and lousy timing is 1.6 percent.
Buy shares in good companies and hold on to them through thick and thin. There’s an easy solution to the problem of bear markets. Set up a schedule of buying stocks or stock mutual funds so you’re putting in a small amount of money every month, or four months, or six months. This will remove you from the drama of the bulls and bears.
Buffett follows a simple strategy: no tricks, no gimmicks, no playing the market, just buying shares in good companies and holding on to them until it gets very boring. The results are far from boring: $ 10,000 invested with Buffett when he began his career forty years ago would be worth $ 80 million today. Most of the gains come from stocks in companies you’ve heard of and could buy for yourself, such as Coca-Cola, Gillette, and the Washington Post. If you ever begin to doubt that owning stocks is a smart thing to do, take another look at Buffett’s record.
Find something you enjoy doing and give it everything you’ve got, and the money will take care of itself. Eventually, you reach the point where you can afford to spend the rest of your life at the side of a swimming pool with a drink in your hand, but you probably won’t. You’ll be having too much fun at the office to stop working.
The economy in the 1930s couldn’t have been worse, but since Coke was very profitable, the stock price rose from $ 20 in 1932 to $ 160 in 1937. Imagine making eight times your money when everyone around you was predicting the end of the world.
Why Competition is Good for Business
brains at Coke headquarters were forced to launch a counterattack. In the heat of battle, they invented diet Coke, Coke might never have thought of diet Coke.
Coco-Cola Founder Sold Company to avoid Paying Tax :))
In 1916, Congress slapped a new tax on businesses, and Candler was furious. To avoid paying higher taxes on his Coke profits, he sold the company for $ 25 million to an Atlanta banker, Ernest Woodruff. His son, Robert, became Coca-Cola’s president.
Excerpts and Learning from Articles/Blogs
There is No Hedge For Everything
There are no perfect assets. Nothing hedges you against every single risk at all times. Investing involves uncertainty. You can’t predict how certain investments are going to react to every situation.
Investing involves risk. You can’t protect your portfolio from every risk. Investing also involves trade-offs. You can’t have it all.
There is no hedge that works for inflation, deflation, up markets, down markets, rising rates, falling rates, peace, war, recessions, expansions, and everything else.
The good news is once you realize there are no perfect assets, you can begin to create a portfolio that takes into account the fact that nothing works always and forever in the markets.
The case for (always) staying invested
The chart below illustrates what’s happened when an investor missed the 10 single best days in markets over the past 20 years. If missing the 10 best days sounds implausible to you, consider that in the past 20 years, seven of those best days happened within just about two weeks of the 10 worst days.
Is this the beginning of a bear market? Vijay Kedia demystifies Mr. Market's mood - (Best)
The Business of Delhivery 🚚 Superb Analysis by Tar
Surprise, Shock, and Uncertainty
Small Video Clips
How to identify Great Management (Laurus Labs case study by Madhusudan Kela (32:05 to 38:56 )
How Madhusudan Kela Allocate capital (39:37 to 41:15 )
Pharma sector view (50:46 To 52:04)
Worst Mistakes of Madhu Kela- Buy Cafe coffee day
Regret of not buying (Madhu Kela) - Bajaj Finance and HDFC Bank due to always high valuation
Sources of knowledge(Why you should read books and blogs and magazines 😁) (37:11 to 39:09)
How Sunil Singhania finds ideas and themes to invest (39:09 to 44:11)
Biggest Mistakes sell early (Honest confession why it's hard to buy after selling any business) (45:16 to 46:58)
Why ROE & Cashflow is important (51:10 to 55:34)
Which sector you should avoid & which sector is good to pick (Samit Vartak) (08:46 to 13:17)
why investors should focus on the supply-side rather than the demand-side (Infra, Real estate, cement) (15:17 To 16:51)