Himadri Chemicals - A play on Li-Ion Battery

Himadri is a Kolkata based company mainly focusing on coal tar pitch and carbon black.

Product chain

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Main Products

Coal tar pitch:
- used in the manufacture of aluminum, which is used in automobiles, airplanes, televisions, radio components, rockets, beverage cans, wires, cables, smartphones, furniture, foil wraps.
- finds downstream use in the manufacture of graphite electrodes in electric arc furnaces.
- specialized coal tar pitch, which is used in long war head missiles.
- manufactures coal tar-based thermoplastic polymeric coating, which is used as an anti-corrosive material in underground and offshore pipelines.
- Coal tar distillation capacity is 4 lakh MTPA.
- 70% market share
- Debottlenecking of capacity at 20cr planned to increase capacity

Carbon black:
- used for reinforcement of elastomeric materials. Carbon black is a critical raw material in tyre and other rubber industries, inks, plastics and paints.
- manufactures a range of specialty carbon black with specific applications in plastics, fibre, inks and food grade materials.
- Carbon black capacity - 1.2 lakh MTPA
- 17% market share

SNF:
- manufactures SNF (Sulphonated Naphthalene Formaldehyde), which enhances the performance of concrete for commercial and core infrastructure constructions.
- manufactures PCE (poly carboxylate ether) which is a performance chemical used in next-generation super-plasticisers to manufacture high-strength, high performance concrete.
- Dumping from China poses a threat
- SNF capacity - 68,000 MTPA - Largest capacity in India

Advanced Carbon (Anode for Li-Ion batteries):
- manufactures advanced carbon used in the manufacture of lithium-ion batteries that power smartphones, electric vehicles and digital cameras as well as airplane brakes that make flying safer.
- The consumption pattern of anode materials are slowly shifting from natural to synthetic graphite. Himadri offers anode materials in both synthetic and natural varieties.
- Co is the only company in the world to have in-house access to raw material making its products superior in quality.
- Moved from batch processing to continuous processing.
- Current capacity is 5 MT/month. New capacity of 50 MT/month coming onstream from 15 Sep 2017.
- Expected CAGR of 40%; no need to have firm contracts as demand is huge
- Realizations are 6 lakhs - 7 lakhs / MT for the finished product.

Plants:
Himadri has seven manufacturing units across India – four in West Bengal and one each in Andhra Pradesh, Gujarat, Chhattisgarh – and is now setting up its eighth unit in Odisha. The Company exports products to more than 10 countries.

The Company had been incurring losses during the last three years, even though at the operational level, they reported profitability. Primarily, the losses that the Company incurred were due to a depreciation of the INR and inventory losses on account of fall in the price of crude oil. The inventory pileup continued during the first two quarters of 2016.

The co took measures to reinforce operational efficiencies; appointed a consultant with global expertise to help us incorporate best-in-class practices.

The business model is unique and fully integrated to manufacture speciality chemicals. Use coal tar as the raw material and distil it to produce naphthalene, oils of various grades and coal tar pitch. The naphthalene produced is used in-house to manufacture SNF and refined naphthalene of the highest purity. Heavy creosote oil is sold to customers for specialised applications while other oils are used for making carbon black. We also produce
clean and green power. The power generated is used to power the entire complex while the balance is sold to the State Grid.

Inelastic Demand:
Aluminum smelters cannot moderate consumption during a downturn without having to shut down one (or some) of their manufacturing units. The cost of shutting down and starting afresh is too high. This means that coal tar pitch manufacturers are assured of regular offtake in even the most challenging
of markets. The strong offtake across the last two years, when aluminum and graphite industries were going through their worst phase, stands testimony.

Reason for decline in the Company’s earnings in the last 3 years:
- INR depreciation
- inventory losses due to fall in crude

What has changed:
- reduced its exposure to foreign currency loans
- debt reduction
- net debt of the company reduced by 225 Crores during 2015- 16, including the repayment of long-term debt of 122 Crores, even as the financials appeared stressed.
- LT debt reduced from 414 cr in 31-Mar-17 to 310 cr on 30-Jun-17, reduction of 104 cr.

Non-promoter holding:
- Bain Capital
- Vallabh Bhansali

RISKS
- The profitability of the company is susceptible to volatility in raw-material prices (forming 85% of total cost of sales) as the prices of raw-material are volatile in nature due to linkage with crude oil prices and global demand and supply.
- The company is also exposed to foreign exchange fluctuation risks due to high dependency on imported raw-material, foreign currency term loan and no fixed hedging policy.
- HSCL’s operations are working capital intensive due to requirement of high level of inventory on the back of lead time involved in import of few raw-materials (imported pitch and carbon black feedstock) and high credit period offered to its customers.

Financial Ratios from Screener

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Disclosure: Not currently invested.

ValuePickr Goa Meet - Disruptions in Technology

This year my main presentation at the ValuePickr Goa meet was on disruptions from technology. Being from the tech industry, this is a topic which is very close to my heart. I enjoy following new tech and new tech businesses. Wearing my investor hat, it is also wonderful to evaluate businesses which may be benefiting from tech upheavals.

What tech disruptions basically implies is, it impacts the terminal value of an investment. If you think of the value of a business, it is the sum total of all cashflows from now till eternity. Now if a business is severely disrupted, the terminal value of perpetuity goes down to zero (0). In a DCF, the terminal value is what derives the majority of the current value - sometimes 80-90% of it. So, if the TV goes down to zero, we need to question the overall valuation we are willing to pay for such businesses.

On the other hand, I also argue that in most circumstances, disruptions are relatively slow (from an investment perspective) and investors do get a chance to react. For example, Kodak did not get wiped out overnight, it took years for that to happen. So, it's important to be aware of change but not get swayed by it. Its important to understand the scale and impact of change before reacting.

Disruptions Coming Our Way by abhishekbasumallick on Scribd

Stock Update: Supreme Industries

BEAR CASE

• RERA to impact housing demand adversely. Negative impact on pipes segment.
• Competition is strengthening in pipes with Astral, Ashirvad & Finolex. Supreme has lost market share from 35% in 2009 to 26% in 2017.
• Competition is moving across the value chain and product range. e.g. Astral is moving into agri pipes and Finolex is moving into plumbing pipes.
• No major breakthrough product from the company in the recent past that can boost sales majorly. Composite cylinders still in initial stages.

BULL CASE

• Overall price cap on crude and buildup of new Polymer plant capacities in USA, China and Middle East will keep a lid on high Polymer prices.
• Govt focus on 1) Affordable housing, 2) Formalization of economy through adoption of GST, 3) Doubling of farmer's income by 2022, 4) Swacch Bharat Abhiyan, 5) 100 smart cities
• The distributors strength has gone up to 2973 by the end of March 2017 compared to 2699 by March 2016.
• Market leader in plastic piping systems with 7230 SKUs
• New Kharagpur plant for PVC,CPVC & HDPE pipes to commence from Nov'17. New Roto moulding plant at Kharagpur to commence from Aug'17
• The co has launched Overhead Water Tanks in various capacities from 500 liters to 5000 liters. Also launched Septic tanks in collaboration with a South African company
• Co manufactured solvent cement – SILBOND was approved by NSF-14 in both the varieties i.e., PVC and CPVC. The PVC variety also was certified by BIS and hence the products are going in the market with necessary ISI and NSF marking. The Company has further introduced BLUE SEALANT suitable for metal threaded joints. As a result Company now got all the products available in the segment of adhesives, solvents & lubricants required for various Piping Systems.
• Informal sector comprises of 40% of plastic furniture segment and with GST that share is expected to reduce over time
• Co has started exporting to USA and has found good acceptance for some of its products
• Co is making car interior parts for Honda and Maruti Suzuki and is continuously acquiring new business from existing customers
• Co has started a new product range using foam for children's education, toys, sports, health sector and interior decoration
• Composite cylinder order for 2.5 lakhs pcs from Bangladesh. BIS certification received and HPCL is expected to start trial runs.
• Capex planned at 300-350 cr in FY17-18

Learning from Berkshire’s Acquisition Criteria

Looking at the 100-plus businesses that Buffett has accumulated, a casual observer may feel that it is a collection of random businesses. But look closely and you will find a pattern. Who else, but Buffett has articulated the common thread amongst all his businesses when he published the Berkshire’s Acquisition Criteria.

A fact that we need to keep in mind is that these criteria are not for his general stock purchases but for acquiring controlling stake or whole companies, but they give a glimpse of how Buffett things about buying companies.

There are six criteria which are simple and straightforward.

1. Large purchases (at least $50 million of before-tax earnings)

Buffett looks at opportunities to deploy large amounts of cash. It makes very little sense to buy companies which would make up a fraction of a percentage or a couple of percentages in his overall portfolio. The same principle applies to investors as well – to look for companies where we can invest between 5-10% of our portfolio with conviction.

2. Demonstrated consistent earning power (future projections are of no interest to us, nor are "turnaround" situations)

Buffett looks for companies with regular and consistent cash flows and earnings. This significantly reduces his universe of investible stocks as some sectors are by their nature not amenable to such characteristics. Cyclicals like cement, metals, sugar, oil have never been part of Buffett’s core holdings -though he has had shorter term (five years) positions in stocks like PetroChina.

"Both our operating and investment experience cause us to conclude that turnarounds seldom turn," Buffett wrote in 1979, "and that the same energies and talent are much better employed in a good business purchased at a fair price than in a poor business purchased at a bargain price."

Investors should focus on finding good businesses with reasonably consistent cashflow and ability to generate profits for a prolonged period (many years or decades) and then try to buy them at a discount to intrinsic value.

Having a portfolio of good businesses, without being leveraged and not needing to pull out of the market when there is a downturn, can produce good results over a long period of time.

3. Businesses earning good returns on equity while employing little or no debt

Stocks of highly leveraged companies should come with a statutory warning like in cigarette packs, “Investing in highly debt-ridden companies is injurious to wealth”! The foremost reason for problems in companies over a long period of time, which results in permanent loss of capital for investors, is high debt. If an investor can simply avoid them, half the battle is won.

Return on equity (ROE) is one of the most important ratios to look at for a company. A business needs to be able to generate ROE above its cost of capital and above an investors opportunity cost to be considered for investment.  Over a long period, a business which generates high ROE will tend to be value accretive.

4. Management in place (we can't supply it)

An honest and competent management that treats minority shareholders as equal partners in the business is crucial for the long-term success of an investment. Since, minority shareholders usually are not able to control or influence management decisions and policies, special emphasis is required to understand that the management would not try to enrich itself at their expense or try to get into ‘diworsifications’ for self-aggrandizement.

5. Simple businesses (if there's lots of technology, we won't understand it)

Here again the focus is on businesses which can be understood by the investor – the circle of competence. Understanding means that the investor understands the industry dynamics, the competitive positioning of the company within the industry, how the company makes money, the demand and supply economics etc. It also means some idea about how the long-term future would look like for the business. This is precisely why Buffett tends to avoid those industries and companies which are prone to rapid disruption and change and sticks to the old-world businesses.

An investor can start with studying businesses that they are familiar with and learn more about it and its competitors. Over a period, the circle of competence can be expanded to include new industries and companies by continuous learning.

6. An offering price (we don't want to waste our time or that of the seller by talking, even preliminarily, about a transaction when price is unknown)

Price is the most ready-made data that is always available for listed stocks. Every day Mr. Market gives a quote that an investor can either take or let pass. This criterion, if strictly interpreted, is not for investors, but can be expanded to incorporate the most critical concept of “margin-of-safety”. An investor should only look to buy a business if the quoted price is below the intrinsic worth of the stock. It also protects an investor from mistakes and market downturns.

Since last year the Q&A session at the Berkshire Annual Meeting has been webcast live giving an opportunity for investors across the world an opportunity to watch the Buffett-Munger duo in action, answering questions across various topics. Every year, there is some nuggets of wisdom that can be learnt from these sessions and this year was no different.

Munger and Buffett have spent their entire lives by sticking to their investment principles not chasing fads. “A lot of people are trying to be brilliant, and we are just trying to stay rational”, said Munger. Buying and holding great businesses over very long periods of time has been extremely rewarding. As Buffett aptly put, "We did not buy American Express or Wells Fargo or United Airlines or Coca-Cola with the idea that they would never have problems or they would never have competition. But we did buy them because we thought they had very, very strong brands”. Brands of course allow Buffett to invest in companies where he can predict consumer behavior in the long term.

Over the years, Buffett has been sector-agnostic and bought wherever and whenever he has seen value.

"Charlie and I really do not discuss sectors much, we're really opportunistic. We're looking at all kinds of businesses all the time. We're hoping, we get a call, and we know in the first five minutes whether a deal has a reasonable chance of happening… We don't really say we'll go after companies in this field or that field”, Buffett said.

Markets are at time irrational and provides good companies at cheap valuations. That is the time when margin of safety in stocks are high and investors need to take advantage of. As Buffett mentioned, "It is the nature of market systems to occasionally go haywire in one direction or another."

The world is seeing a plethora of new technologies resulting in completely new businesses. In the coming years, some existing businesses will die and others will take their places. Buffett mentioned that artificial intelligence would result in significantly less employment in certain areas, but that’s good for society, though it may not be good for a given business. As an example of such widespread disruption and its impact on businesses, Buffett said, “Autonomous vehicles, widespread, would hurt us if they spread to trucks, and they would hurt our auto insurance business. They may be a long way off. That will depend on experience in the first early months of the introduction. If they make the world safer, it will be a very good thing but it won't be a good thing for auto insurers."

If we follow the basic rules laid down by Buffett, keep learning continuously and apply common sense to investing the long-term outcome is likely to be positive.

PI Industries - another look

I have been invested in PI Industries for many years now. The aspects which appealed to me first, continue to appeal to me even now. The company has, over the years, managed to strengthen its moat and scale greater heights. The way the company has scaled its CSM & CRAMS business along with strengthening domestic distribution has been exemplary. 

Recently, during the Valuepickr conference in Goa, I was thinking about if PI's business moat and whether it was widening or shrinking. So, I decided to see how they were placed and see if I can poke some holes in their story.



BEAR CASE

• Move from contract research to manufacturing will mean additional capex, reduced asset turns and lesser ROE
• Risks - i) GM seeds, ii) herbicide resistance in plants, iii) client concentration, iv) gene-edited seeds
• Contract research market is slowing due to:
• New molecules are more difficult to get
• 1st year sales have reduced drastically
• High cost of new development of new molecules
• Bio-tech is replacing agrochemical usage
• Bayer, PI's largest client, is forecasting poor agrochemical growth due to high inventory, farmer stress in Brazil and Europe, reduction in corn acreage in US
• Excel Crop has applied for manufacturing registration of (Bispyribac Sodium) Nominee Gold
• 33% of the products in PI’s portfolio is in-licensed and faces a risk of import restrictions
• Tax rates to go up substantially from 10% to 22-23%
• With Bayer's acquisition of Monsanto (if it gets completed), there may be some changes in the relationship with PI

BULL CASE

• $6bn is going off-patent in next 6 years
• Moving to Pharma CRAMS, a much larger market. Inducted a team from AstraZeneca over last 2 years. They have also inducted a Pharma veteran - Mr Balaganesh, ex-MD and Head of Research of AstraZeneca's anti bacterial research facility - on their board as Additional Independent Director. Several other senior level recruitments to drive Pharma CSM.
• Domestic market to grow substantially. 
• Imports made more stringent, hence more products to be made in India versus imported
• Recent tie-up with Kumiai Chemicals for producing Nominee Gold in India and also partner on other new molecules
• JV with Mitsui for providing registration services - pre-launch feasibility analysis, market research and feasibility analysis. Mitsui is a global major in performance materials, petro & basic chemicals and functional polymeric chemicals
• JV with BASF to produce 
• Pendimethalin - Global sales US$325m - directly competing with Rallis in India
• Saflufenacil - Global Sales US$180m
• Dimethenamid - Global sales US$145m
• Order book of $1 bn (June 2017) for 8-9 molecules
• Improving margins due to better product mix and operating leverage
• Jambusar facility capacity utilization is 65-60%, leaving a lot of room for operating leverage to kick in
• Global AgChem spending has been on a downswing and a recovery is supposed to pickup from 2018

From Bayer's presentation - Jun 2016

CONCLUSION:

PI seems to be consciously changing themselves with JVs & partnerships to launch newer service offerings and product launches in India. Having done very well during the time AgroChem producers have struggled globally, they are poised for better times in FY19. The near term (1 year) may still remain a struggle due to the industry headwinds and revenue growth may not be very strong. The business seems to be on a very strong wicket specially given that agriculture as a sector is likely to be very strong with increased global population and need for more efficient & abundant farm production.

Highlights from Book - Common Stocks and Common Sense - Edgar Wachenheim

Common Stocks and Common Sense by Edgar Wachenheim is a case-study based book on investing. In structure it is similar to Beating the Street by Peter Lynch. Edgar used to run Greenhaven Associates with an excellent long term track record. In the book, he goes through some of his picks, the rationale of why he bought them, his process of stock selection and the emotions that goes with investing. It is a good book dealing with real-life examples of a good value investor. 

Below are the key points I noted from the book.



The strategy is to try to purchase deeply undervalued securities of strong and growing companies that hopefully will appreciate sharply as the result of positive developments that already have not been largely discounted into the prices of the securities.

I do my best to make decisions that make sense given everything I know, and I do not worry about the outcomes.

When an investor is barraged with particularly bad or good news, he can reread the memos, notes, and models he wrote before the occurrence of the news. He then can ask himself three questions: What really has changed? How have the changes affected the value of the investments under consideration? Am I sure that my appraisal of the changes is rational and is not being overly influenced by the immediacy and the severity of the news?

When we purchase a stock, we are interested in what the company will be worth two or three years

I knew that my projections of IBM’s earnings and values were nothing more than best guesses based on incomplete information. However, having the projections to work with was better than not having any projections at all, and my experience is that a surprisingly large percentage of our earnings and valuation projections eventually are achieved, although often we are far off on the timing.

I greatly admire Warren Buffett. He is one of the great investors of all time. But I strongly disagree that the shares of most wonderful businesses can be held forever because most wonderful businesses become less wonderful over time—and many eventually run into difficulties.

My job would be a lot easier and much more relaxing if I could fill a portfolio with outstanding companies that I never would sell. But our ambitions lead us to seek shares that are temporarily deeply undervalued and then sell the shares when they become fully valued. This is an approach to investing that is less relaxing and that requires considerable effort and time, but that has worked for us.

I almost always start my analysis of a company by studying its balance sheet. It is said that a shareholder makes money off the income statement, but survives off the balance sheet, and I agree.

When studying a balance sheet, I look for signs of financial and accounting strengths. Debt-equity ratios, liquidity, depreciation rates, accounting practices, pension and health care liabilities, and “hidden” assets and liabilities all are among common considerations, with their relative importance depending on the situation. If I find fault with a company’s balance sheet, especially with the level of debt relative to the assets or cash flows, I will abort our analysis, unless there is a compelling reason to do otherwise.

If a company’s balance sheet passes muster, I then try to get a handle on management. The competence, motivation, and character of management often are critical to the success or failure of a company. To form an opinion on management, I normally pay careful attention to the management’s general reputation, read what the management has said in the past, assess whether the management’s stated strategies and goals make sense, and analyze whether the management has been successful carrying out its strategies and meeting its goals.

However, I am humble about my abilities to accurately assess managements. Experience shows that investors can be unduly impressed by executives who are charismatic or who purposely say what investors want to hear—who play to their audience. Also, investors frequently will undeservedly credit management for a company’s favorable results and vice versa. Favorable or unfavorable results often are fortuitous or unfortuitous.

After trying to get a handle on a company’s balance sheet and management, we usually start studying the company’s business fundamentals. We try to understand the key forces at work, including (but not limited to) quality of products and services, reputation, competition and protection from future competition, technological and other possible changes, cost structure, growth opportunities, pricing power, dependence on the economy, degree of governmental regulation, capital intensity, and return on capital.

Our models normally include earnings projections for the next two or three years. Our valuation is based on a multiple of projected earnings and cash flows.

In the stock market, it is best to be flexible and not be tied to conventions or rules.

My own policy is that no single stock should equal more than 12 percent of the total value of a portfolio and that no single industry should equal more than 25 percent of the total value. When measuring the percentages, I use the cost of the stock rather than its market price. That way, I am not forced to reduce the size of a position that appreciates faster than the portfolio as a whole.

Current fundamentals are based on known information. Future fundamentals are based on unknowns. Predicting the future from unknowns requires the efforts of thinking, assigning probabilities, and sticking ones neck out—all efforts that human beings too often prefer to avoid.

In the investment business, relatively unpredictable outlier developments sometimes can quickly derail otherwise attractive investments. It comes with the territory. So while we work hard to reduce the risks of large permanent loss, we cannot completely eliminate large risks. However, we can draw a line on how much risk we are willing to accept—a line that provides sufficient apparent protection and yet prevents us from being so risk averse that we turn down too many attractive opportunities. One should not invest with the precept that the next 100-year storm is around the corner.

I revise models frequently because my initial models rarely are close to being accurate. Usually, they are no better than directional. But they usually do lead me in the right direction, and, importantly, the process of constructing a model forces me to consider and weigh the central fundamentals of a company that will determine the company’s future value.

I strongly believe in Warren Buffett’s dictum that he never has an opinion on the stock market because, if he did, it would not be any good, and it might interfere with opinions that are good. I have monitored the short-term market predictions of many intelligent and knowledgeable investors and have found that they were correct about half the time. Thus, one would do just as well by flipping a coin.

In the end, the psychological rewards of being right can be as important as—or more important than the monetary rewards. And they are interrelated. When you feel good, you are more likely to do well.

But I believe that investors sometimes need to be open to new ideas that challenge previous convictions. In the investment business, as in life, one becomes disadvantaged if one develops tunnel vision.

Often, when I am in a quandary about whether to sell one of our holdings, I sell half or some other fraction that makes sense under the circumstances.

Occasionally, a black swan adverse event does derail one or more of our investments. When this happens, we must be ready to unemotionally rethink the economics of continuing to hold the investments—and, if necessary, sell.

When we are wrong or when fundamentals turn against us, we readily admit we are wrong and we reverse our course. We do not seek new theories that will justify our original decision. We do not let errors fester and consume our attention. We sell and move on.

Our central strategy is to purchase deeply undervalued securities of strong and growing companies that likely will appreciate sharply as the result of positive developments.

To successfully assess probabilities and make good investment decisions, an investor should hold considerable amounts of information about the companies and industries he is investing in. Having superior information (both quantity and quality) can give an investor a competitive edge. To obtain information, we spend a large percentage of our time researching the fundamentals of companies.

Pay more attention to what managements do than to what they say. Remember, managements, like most other people, tend to act in their self-interest.


Favor managements who are highly incentivized to achieve higher prices for their shares.

Learning from Security Analysis - Part 1

I have started re-reading Security Analysis, 6th edition, (also will add on things from the 5th ed). I have been putting it on the backburner for sometime, but since the last time I read this was about 14 years back, decided that I have changed too much not to re-read this once more. Hoping to learn a lot more the second time around.

From the preface to the 6th edition by Seth Klarman

Value investing is not a paint-by-numbers exercise. Skepticism and judgment are always required. For one thing, not all elements affecting value are captured in a company’s financial statements—inventories can grow obsolete and receivables uncollectable; liabilities are sometimes unrecorded and property values over - or understated. Second, valuation is an art, not a science. Because the value of a business depends on numerous variables, it can typically be assessed only within a range. Third, the outcomes of all investments depend to some extent on the future, which cannot be predicted with certainty; for this reason, even some carefully analyzed investments fail to achieve profitable outcomes.

It is not enough just to number crunch. A business participates in a complex adaptive system, which is continuously in a flux. We need to be able to understand businesses and their operating environments; political, economic and social environments are also important to be understood.

While bargains still occasionally hide in plain sight, securities today are most likely to become mispriced when they are either accidentally overlooked or deliberately avoided. 

Before buying, it is important to ask the question, why is this cheap?

When bargains are scarce, value investors must be patient; compromising standards is a slippery slope to disaster. New opportunities will emerge, even if we don’t know when or where. In the absence of compelling opportunity, holding at least a portion of one’s portfolio in cash equivalents (for example, U.S. Treasury bills) awaiting future deployment will sometimes be the most sensible option. -- This is a difficult thing to do emotionally, especially in a rising market.

Like Klarman says, this is a very very difficult thing to practice. In a rising market, most value investors get out too early, which in itself is not a bad thing, but tests ones patience and fortitude immensely, to see ones friends keep making money when one is out of the market, sitting on cash.

Even in an expensive market, value investors must keep analyzing securities and assessing businesses, gaining knowledge and experience that will be useful in the future. 

Keep sharpening your saw or as Peter Lynch has said, keep turning over as many rocks as possible. I think it is important to study business in a pattern to get the most benefit. I like to look at a particular industry and multiple stocks within it.

Selling is more difficult because it involves securities that are closer to fully priced. As with buying, investors need a discipline for selling. **First, sell targets, once set, should be regularly adjusted to reflect all currently available information.** Second, individual investors must consider tax consequences. Third, whether or not an investor is fully invested may influence the urgency of raising cash from a stockholding as it approaches full valuation. The availability of better bargains might also make one a more eager seller. Finally, value investors should completely exit a security by the time it reaches full value; owning overvalued securities is the realm of speculators. 

For stocks which are compounding machines, we need to keep updating the intrinsic value, so that we do not get out of them too early. On the other hand, a sense of what a stock is worth is a must at all times for all stocks in one's portfolio.