How to become rich and happy

By Prasenjit Kumar Paul

What is Valuation??
 How we proceed
• Before purchasing property, we find out the
overall market trend and then on that
particular piece of the property.
• Similarly, we need to consider the overall
market valuation and then on that particular
stock.
• Nifty P.E is the best parameter to gauge overall
market valuation.
Nifty P.E Action/Significance
Below 15 Best opportunity, comes only once or twice over 10 years.
Maximum possibility of great return with minimum holding
period 1 year. (Oct 2008-Mar 2009)

15-18 Good investment opportunity. Minimum effort will yield good

return. (2013)

18-20 Nifty mostly trades in this range. Good time to gradually build-up
your portfolio.
20-22 This is also the average range. Stock selection skill is important to
maximize return.
22-24 Either market will fall by more than 10% or earning will expand.
Few selective stocks will generate positive return. (Mar 2015)
24+ Better not to invest, wait. (Sep 2016)
25+ 30%+ crash must, Investment in this period most likely generate
negative return. So book profit/exit from as many stocks as you
can. (Oct 2007 – Jan 2008, Sep-Oct 2010)
 Additional Checks
• Interest rate trends. Economic slowdown
occurs during upward cycle.
• Inflation trend. Lowering inflation is good
because it will prompt lower interest rates and
higher spending.
• Higher spending leads to the expansion of
GDP.
 Real Problems

• Hard to sell/book profit while Nifty

P.E would be 25+.
•More difficult to buy while P.E falls
below 15.
 Why so?
• It feels bad after looking unrealized loss. Even
worse if earlier the position was in profit. (Ask
was it really your profit ever?)
• You will be scared after looking to your
portfolio while the Nifty P.E would remain
below 15.
• You will project future return based on the
current/past return.
 Golden Rules
• Never ever calculate profit/loss as long as you
are holding shares.
• Set predefined rules and just follow it. Don’t
repent after taking decisions.
• Focus would be on the process not on the
outcome.
 Tension free life
• Any mental disturbances (falling stock price, fear of losing job)
result in stress/tension that reduce our productivity and make
the situation worse. (We can’t buy in falling market). We keep
blowing horn in heavy traffic but it won’t help to clear the
traffic, rather leads to frustration.
• Frustration leads to blaming others and the more you blame,
the more you are affecting yourself!
• Any kind of mental disturbances, tension, stress will
ultimately affect you. Thus it is very important to get rid of it.
 Golden Rules
• Any probable event that is causing tension/stress, assume the
worst outcome. (Fear of losing job – visualize that the job is no
more)
• Visualize the worst. (Your life doesn’t end even at the worst
outcome).Try to improve things only which is under your control.
• Never ever think which is out of your control. No “Why” only
“How”. Whatever be the outcome from “out of control” zone.
Accept and adjust accordingly. We never question, why Sun rises
from the East, why not from North. Rather, we adjust accordingly.
Similarly the market movement is out of your control. You can
control the way you are reacting on different market situation.
Tell me the worst

Divorce? Death?
Any examples?
 Why traditional valuation method won’t
work?
• Traditional valuation method includes DCF,
intrinsic value calculation etc won’t work.
• If the intrinsic value is known to all, then why
someone would like to purchase at higher rate
and if this is the case then how someone can
make profit?
• Never ever look for secret formula to figure
out valuation.
 Stock specific valuation
• Traditional valuation method (including DCF, intrinsic
value calculation) won’t work.
• You have to assign fair P.E multiple.
• Fair P.E depends on market cap, type of sector and
financial strength.
• Whenever Nifty PE stays above 20, it is almost
impossible to find out all-perfect stock. You have to
compromise, assign some risk premium. (Example of
Vikas Ecotech, Srikalahasti etc)
 Valuation
• Consider Pharma sector, Large cap historic P.E
range 20-30, smallcaps would be highly valued
at PE of 30. So for smallcaps, fair P.E would be
10-15. For midcaps 12-20. (Example Caplin –
2600 cr, Coral lab 200 cr)
• Transformation from smallcaps to midcap or
largecap re-rates P.E
• Also consider, the type of sector and financial
strength.
 Caplin Point Lab
During May 2015 and October 2016, P.E crossed 50. During Oct, 16 annualised EPS was around 8.5.
Best case, EPS doubled within June 2018 end, i.e. 16, with PE multiple of 30, price comes 480. So,
buying position can be initiated below 300.
 Finding the valuation
• Coral Lab, microcap Pharma stock having market cap
of around 200 crore. 15%+ROE, D/E near zero,
consistent growth. The only problem is, unlike Caplin
there are no management interview, future guidance
on AR and all.
• So, figuring out some growth rate from the past.
Assuming 15% EPS growth, FY17 E EPS comes around
40. Applying fair PE of 15, price comes around 600.
Applying PE of 20, it would become 800!
How to lead happy and prosperous life?

• How do you react if someone appreciates your

dress?
• How do you react if your boss always criticize
you? (doesn’t matter how well you are doing
anything)
• Apply the same to others.
 Golden rules
• Never take anything granted. Our mother/wife
(housewives) work 24*7 throughout the year. No
holidays.
• If you want to increase productivity, expect good
things from your associates/employees/family
members, then always appreciate from the bottom
of your heart. Differentiate between real and fake
appreciation.
• If someone is doing wrong with you. Don’t fight, you
might hurt yourself. Just safeguard yourself.