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7 Lessons Learnt So Far

Goa

July 2018

@deepakvenkatesh

Disclaimer: Content provided in this presentation is only the personal views of the presenter. No affiliation to any organization be considered.
A Little Background

Investment for Unfortunately at present its is for:


Wealth Creation Trading for Income o Suppressing Gambling Urges
Generation o & to not hurt my portfolio with
unnecessary tinkering

2012
1996
2009 Got Married
Discovered equity
markets through my Internship with Bulge Sold entire portfolio
father. First business Bracket I Bank Chanced upon
shortlists: HP & APC Not my cup of tea Intelligent Investor

2008 2010 Till Present


MBA – Lehman Crash on Bought first stock: So many books so little
Birthday Booked 90%+ loss time
Traded naked options: Zero tolerance for
Lost 80% monthly salary mistakes of commission
Governing Philosophy: It’s a Risky Business after all

This is how Risk is written in Chinese.

It’s better to be out of the market and hope you were in that to be in the market and wish you were out
- Don’t recall who said this

Only Rule: Capital Protection > Capital Appreciation

Current Phase of Investing Journey: Capital Creation but not at the cost of increased risk of potential loss

Second syllable Ji means a point from where things can change from
Lesson 1: My Heisenberg’s Investment Uncertainty Principle

The principle states that the quality


positionand
andthe
thevalue
velocity
of aofbusiness
an object
cannot
cannot both
bothbebe
determined
measuredsimultaneously,
exactly, at the same
at thetime,
same even
time,
in
theory.
even in The
theory.
veryThe
concepts
very concepts
of exactof
position
qualityand
andexact
valuevelocity
together,
together,
in fact, have
in fact,
nohave
meaning
no meaning
in nature.
in nature.
- Twisted Investment Uncertainty - Britannica
Principle

o What I understand No compromises on: I wish I knew:


o Debt o Management Intention
o What I can follow o CFO o Moats Better
o Top Line Core Business Growth o When I am biased
o What I can foresee ! o ROIC o To be more patient
Lesson 1: Case – Oriental Carbon & Chemicals Ltd.
‘Further, high technology barrier coupled with exhaustive approval processes of tyre manufacturers acts as a deterrent for
entry of new manufacturers.’
- 2018 AR - 2017 AR - 2016 AR

• Management has estimated for multiple years that growth in industry is ~3-4%
• But good quality IS demand has grown approx. 1.5-2.0x its statement
Companies Composition
Insoluble Sulphur Demand
Classifications Eastman OCCL Polymeric Sulphur Rhombic Sulphur Naphthenic Polymeric Binder Silica Eastman: Regions available
140.0%
Regular Oil Treated (OT) OT 10 OT 10 81-91 4-7 8-12 0 0 Europe, Middle East & Africa, North America
120.0%
Regular Oil Treated (OT) No Product OT 20
100.0% ROIC 70-77 4-7 18-22 0 0 OCCL: PE vs ROIC & Growth
Regular Oil
40% Treated (OT) OT 33 OT 33 65-69 4-7 31-35 45%0 0 Asia Pacific, Europe, Middle East & Africa, Latin America, North America 20.00
80.0%
Special Grade No Product 90 90-98 2-10 0 40%0 0 18.00
60.0% 30% 35% 16.00
OT High Stability (HS) OT 10 HS OT 10 HS 81-91 4-7 22% 8-12
30%
0 0 Probably global
40.0% 20% 21% 14.00
OT High Stability (HS) OT 20 HS OT 20 HS 70-77 4-7 15% 18-22 25%0 0 Probably global
20.0% 12.00
10% 10% 20%
OT High Stability (HS) No Product OT 33 HS 65-69 4-7 31-35 0 0 10.00
0.0% 15%
8.00
Special OT0% Global
with Binder OT 20 HD GoodOT
Quality
20 HD China
72-77 Amercia+Europe
4-6 19-22India 10%
1-2 0 Asia Pacific, Europe, Middle East & Africa, Latin America, North America
5% 6.00
-10%
Special OT with Silica No Product
2017 toOT 25 AS
2018 Growth 65-69Management Expected
4-7 Growth 23.5-26.5 0 6.5-9.5
0% 4.00
Special OT with Silica
-20% OT 33 AS No Product ~33 -5%0 Europe, Middle East & Africa 2.00
2011 2012 2013 2014 2015 2016 2017
-10% -
NOCIL 5% 6% 2% 5% 12% 18% 21% 2011 2012 2013 2014 2015 2016 2017
OCCL 38% 27% 19% 22% 21% 24% 22% ROIC 38% 27% 19% 22% 21% 24% 22%
PCarbon 12% 13% -4% -18% 0% 2% 10% Growth 31% -4% 6% 32% 2% 11% -1%
Apollo 18% 9% 12% 18% 19% 18% 15% PE 2.88 3.50 3.05 3.95 8.79 10.44 18.25
Lesson 2: What I know I can’t Do

o Gmax = R

o Find multibaggers at nascent stage - I don’t aim to be a ‘great’ stock picker either

o Ignore the non ignorable 1st Feb ~25%


• Management calming investors on stock price 1st Jun ~100%

• Company underplaying an issue

• Consistent low PE/valuation given by Mr. Market

• Limited market/growth potential no matter how attractive the business


………
Lesson 3: What I should Do

अगर गणित पढ़ना है तो कैलकुलेशन से नह ीं डरना है


o Be Cognizant

o Be Humble - My math teacher

o Be Rational
Lesson 4: How Long is Long?
Lesson 5: Dynamic Capital Allocation

Valuation Returns

Debt Equity
Equity High Valuations

50% 7%
Debt Risk Free Rate?
Debt
Low Valuations

Equity

Income Income

December 2017 January 2018


Lesson 6: Startup Investing - Asymmetric Payoffs
Lesson 7: Trading Options - Wait for opportune but definitive moments
Closing Thoughts
Get Lucky 
Thank you

….and questions please