Had reread the bible the first day of Diwali vacation. Cannot agree more with 'the Graham'; the basic principles he laid 50-60 years ago are so true even today.
I have extracted following main points from the book.
- Beware of companies which are always interested in other people's money. They can be easily noticed by their acts of continuously diluting equity, issuing warrants, issuing convertible debentures (convertible bonds are double edged sword, Graham says. Companies management it betting on the fact that stock prices will always go up and people will eventually convert their bonds to stocks. This expectation gives them incentive to do financial alchemy to ensure that stock prices some how carry on going up. But we all know this is not sustainable).
- Beware of companies' which have taken more loan than the cash they can generate. Take example of Rei Agro. They pay close to 340 crore as interest payment on the debt and generate net profit 150 crore. Are they sustainable? I don't think so.
- Always look into the net profit and operating cash flow. Net profit should never be more than the operating cash flow. If a company continuously show such relation, beware!
- A combination of high entry cost and good margin makes the company out smart the competition easily. TTK Prestige is an example from my kitty. No road side company can breach the brand Prestige easily.
No comments:
Post a Comment