Centum Electronics - Annual Report Summary

An Intelsense Knowledge Series - we regularly study interesting businesses. We keep profiling them. The idea is to keep learning and expanding our knowledge base.

MTAR Technologies: Stock Story

At Intelsense we regularly study interesting businesses. We keep profiling them. The idea is to keep learning and expanding our knowledge base.

Curiosity@Intelsense

 

This week I will deviate from the set pattern. I will start with a video.

I would recommend you view this multiple times. It is only about 17 mins so even if you watch it 4 times, it will be roughly an hour.

Some of the greatest advice for investors from one of the best investors ever.

Let me highlight some of the key concepts he has spoken about and try to articulate why they are critical.

Invest, then investigate

If I get an idea and I think it’s attractive for whatever reason . . . I generally go ahead and buy it, and then tell the analysts to poke holes in it and if it turns out I was wrong I get out. I don’t like to wait around.

I’m not that smart. If I’ve seen whatever is going on, someone else might have seen it, and by the time we’re done analysing it I might have missed 30-40 per cent of the move. We’re in the camp where if we get a strong feeling we’ll cut the analysis short, and then by all means do our analysis and unload it if turns out my thesis was wrong.

Markets have become very fast and cycles have become shorter, so the time you get to evaluate a business or an opportunity also has dwindled phenomenally. Sometimes, you need to “invest and then investigate” (as Rakesh Jhunjhunwala famously said). You can always sell if on detailed analysis you find that your thesis was wrong.

Look for disconfirming evidence

I try to have young people around me who are not afraid to speak their minds and argue with me. If someone has been here too long and agrees with everything I say they’re not going to be here much longer. I need healthy debate.

Most times we get enamoured by our own successes and stop looking for flaws in our own reasoning. It is always beneficial to run off your ideas with someone who you trust and who is skilled enough. This is also perhaps one reason that great investors or traders have hunted in pairs or in small groups.

In my personal life, I have also gained tremendously from bouncing off my ideas with a few close investor friends (all of whom are actually better investors than me).

Don’t lose money

If you go down 50, you gotta go back a hundred to get it back to even. And I've always thought the way to build a long-term track record is when you really see the ball, swing really big. And when you don't see the ball, don't swing.

And if you can build a record and when your terrible years, you're up zero to five, and then throw a couple of fifties and sixties in, the numbers look pretty good over time. If you make a bunch of 30s and then you lose 55 or 60%, you got a long, long way back. It's just the way the numbers work.

And also I'm a sore loser. I don't like to lose so that kind of helps out too.

This is also similar to Buffett's advice of waiting for the fat pitch. In cricketing parlance, it is better to wait for the full toss on the leg stump to hit it out of the ground.

The other lesson here is to focus on reducing the big mistakes and protecting the downside. Big losses make it extremely difficult to get back even because the numbers just make it so difficult.

Use Technofunda

I started in the seventies and my mentor turned out to be a chartist. And, I still use that (a) to find things others may not be looking at because we use the rate of change, stuff that tends to lead. And (b) if I do take a big position, it's a great check on me not falling in love with security or falling in love with my idea.

You can always find 20 stocks that have a good chart and a good fundamental story. So if either one didn't fit, I wouldn't do it.

So, the technical provides a discipline on the fundamental and the fundamental provides a discipline on the technical.

I have been investing for the last 23 years and this is a realisation that I came to in the last five years. You need both fundamental and technical factors to be in your favour for the really big winners.

That is what I try to do now. Hitpicks and Quiver are testaments to this.

If I've got a thesis and it's really bullish and it's playing out and the stock's not going anywhere, makes me go back and check the thesis over and over.

The technicals have to align with the fundamentals. Ultimately, unless the stock price goes up, everything else is immaterial (Bhav Bhagwan Hai!!)

The future as always will be interesting

I wouldn't be surprised if the stock market was not higher in 10 years. I still believe that, but I do think like the '68 to ' 82 period, we'll have some big swings. So I think the way to make money in the next two years in the equity space is to be patient because I do think we have possibly some rough roads ahead. And I do think the central bank will respond in some crazy way that will give you a period like '70 to '72 where you can make money, or '76 to '78 when you could have made a lot of money. And also for me at least, I think the currency markets are very interesting, but I think this is a movie I've never seen anything.

So I'm gonna be very careful not to dig myself in a hole when I don't have a strong belief to come out because I think the opportunities are gonna be amazing as this movie unfolds in the next year in macro and in equities.

He is speaking about the US markets. I am more optimistic about the Indian markets. I think we have shrugged off a large number of problems in the last 5 years and although valuations are not rock bottom, they are not very high as well.

If the RBI pauses or starts reducing rates, it could trigger a rally.

The one thing I worry about is the “robinhoodisation” of options trading in India. There are way too many people with very little knowledge or capital doing option selling these days in search of regular income. Trends like these never end well. And sometimes, they tend to take a lot of others down with them as well.

This was all I had for today. Let me know your thoughts and comments.

Hitpicks: The Story So Far...

Service of the Month: This month we talk about Hitpicks, which is the technofunda based positional trading service from Intelsense.

Why Hitpicks?

Dr Hitesh Patel and I have been working together and collaborating in personal investing for a long time. I have always been a long-term-oriented investor who was more interested in compounding and growth stocks. During my many conversations with Hitesh Bhai (that’s what everyone calls him), I started appreciating the nuances of market dynamics which led me to technical analysis (and subsequently to quantitative analysis, but that’s a story for another day).

As I kept learning and applying these skills to my own investing, I realised that it is a potent tool for capturing opportunities in the small-to-medium timeframe (a few months to a few quarters).

Foundations of Hitpicks

In 2020, as part of my strategy of style diversification, we launched Hitpicks as part of Intelsense.in.

The core in any shorter duration “positional trading” has to be based on technical analysis. We brought in an overlay of fundamentals where we look only at fundamentally strong companies for technical chart patterns and breakouts. Transactions will be frequent. This is basically meant for those who have a short-to-medium-term horizon. This was completely different from the traditional buy-and-hold investing approach that we are all used to.

The experience so far has been reasonably good.

Let’s look at some numbers

It is very evident from this that we have been able to capture decent gains when we have been right and limit our losses when we have been wrong.

The holding period is roughly 2.5 months on average though we have gone up to five-seven months on occasion. When the holding period is low, it typically means that we have been stopped out of the position.

And although we don’t have a target number of recommendations in mind and we only recommend a stock when we feel it gives a good risk-reward, the average has been about 7 recommendations per quarter.

The Advantages of Technofunda approach

Since we have followed a technofunda approach we have been able to steer clear of stocks with poor fundamentals or very high valuations. For example, none of the Adani stocks ever came up in our universe of stocks due to the fundamental filter.

Another major advantage I have seen is when the market overall takes a downturn, because of the individual stop losses being in place, you are forced into cash. There is no need for a lot of market or index-level analysis because your stock holdings tell you what is happening in the market.

The Challenges of Technofunda approach

As we followed targets based on technical charts, we exited early in a lot of cases. For example, we recommended Balaji Amines at Rs 491 and exited with an 80% profit in a span of two months, a great achievement we thought. However, the stock went onto Rs 4800 levels and became nearly a 10-bagger!!

Similarly, we have had multiple cases where we got stopped out and the stock subsequently went up as per our initial analysis.

Summary

Hitpicks has been fairly effective in diversifying away from a long-term buy-and-hold approach. It also provides a steady stream of good stock ideas which are strong fundamentally and attractive technically. Most of the stocks could also very easily be bought and held for longer durations. In turbulent markets, have seen whipsaws, but that I feel is par for the course.

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