Book Review #15 of 2021: How I almost blew it.

Incredible lessons from India most successful digital entrepreneurs by Sidharth Rao

A fascinating and must-read book for people who want to get a synopsis of start-ups of India.   The book details the struggles of some of the Indian start-ups and how they almost blew it.  One common theme in the success of all startups was the perseverance of founders and sheer dumb luck of raising capital at opportune times. While The Golden tap by Kashyap Deorah sticks to the Big boys, this book details many entrepreneurs the author was personally involved with. 

One of the reasons I picked up the book was Sanjeev Bhikchandani – the mentor and poster boy for the startup world shared a tweet on the book from Bookmyshow founder. One cannot agree more that the focus of startups should be to like cockroaches and only a few survived the dot-com bust and GFC. 

I have been lucky to have known Sanjeev Bhikchandani professionally.  As a media Analyst, his business was competing with the classifieds section of Indian print and I had to gauge the trends.  Also, because HT media and TOI group had businesses that compete with Infoegde.  Sanjeev Bikhchandani would never miss an ICIC securities conference probably because we were the IPO bankers. I had on multiple occasions the chance to listen to Sanjeev’s views in between breaks and lunch during conferences. Sanjeev loves to talk.  

During the Rahul Yadav – housing.com fiasco, I happened to quiz Sanjeev on what will happen to Rahul and how does he see the situation. While one would expect competitors to enjoy such developments. Sanjeev clearly had kind words to say of Rahul Yadav, how the guy is very competent technically and should be able to definitely start something new. Sanjeev was always focused on profitability and he narrates an interesting incident on how a VC would react saying that “ If you are making a profit then you have a vision problem “

Some interesting quotes:

Investors and business owners compare their relationships to marriage. I believe that their relationship is somewhere between a friendship, marriage, and business relationship.

Rediff.com was to India what Yahoo! Was to the silicon Valley in the nineties. Sadly, both blew up. 

If you want to succeed in China get close to the government, if you want to succeed in India – stay away from the government.

Deep Kalra – Makemytrip – I understood that online stock broking will ultimately belong to a financial institution.  So he chose online travel company.  Time for Deep to Meet Nitin Kamath – Zerodha.

Once you spot the opportunity, acting as fast as cheetah is the only right move. 

Book review #14 of 2021: Expectations Investing by Michael Mauboussin

Reading stock prices for Better returns

Michael and Alfred Rappaport in the book provide intricate details of how to understand the mispricing of stocks from looking at the best indicator of a company – its own share price. This is a framework that helps in easing out “what’s factored in” and to put it in context I can say that Tesla’s stock price today captures a very high market share in the automobile industry even on Mars.

My entire finance education on valuations has been fueled by following the works of 2 people to who I was lucky to be introduced on the campus itself.  While Aswath Damodaran is the official Bhagavad Gita on valuation and part of all MBA curriculum.  I was lucky to be introduced to Michael Mauboussin way back in 2003 as part of a course project.  The project involved understanding one of Michaels’s framework called – Market implied competitive advantage period or MICAP and applying it to a sector in India to identify mispriced stocks.

The concept of MICAP is nowadays more loosely known as reverse DCF where instead of assuming DCF variables, we let the current stock price let us know what the market is assuming as growth/margins, etc.  I was so fascinated by the course that I spent multiple night outs figuring it out and was one of my best projects undertaken during my MBA.

Links to Michael’s articles

I strongly recommend all of Michael’s writeup and reports for understanding valuation and stock analysis.  Link to Michael’s paper on the Competitive advantage period on which my project was based ( Here ). One other paper that was my favorite is –   The economics of customer business

For more check out : https://www.valuewalk.com/michael-mauboussin/

Understanding Key value triggers

A good equity analyst with experience is able to narrow down companies’ performance of 2-3 key variables at best.  These variables can change for a company over a period of time. While for a long period key variable for ZEE entertainment was advertising and pay-tv revenue growth; recently it has only been cash flows; pledge and Corporate governance. In the case of Dish TV, the key variable was ARPU and Churn and the company kept misreporting these 2 numbers by underreporting churn.  In the case of Bharti Airtel; the key variable during 2004-2008 was subscriber addition and incremental Ebitda margin; 2008-2014 was regulatory actions and spectrum pricing and recently just JIO actions on pricing.  I strongly recommend analysts follow the book to be able to narrow down key-value triggers for each company. 

How Aswath Damodaran messed up in Netflix

Aswath Damodaran put out a detailed valuation blog on Netflix in April 2018 pegging the value of Netflix share at US$173. However, the key investment hypothesis of Aswath in that report was that Netflix’s ability to contain its content costs would be the key value driver.

“In my earlier post on Google, I noted that every company has a value driver, one number that more than any of the others determines value. In the case of Netflix, the key value driver, in my view, is content costs. My value per share is premised not just on high growth in subscribers and continued subscriber value, but also on content costs growing at a much lower rate (of 3%) in the future. “

I had disagreed with the value triggers as I had strongly believed that content costs would continue to increase and the pace of subscription will be much higher. Aswath had projected the subscriber base of Netflix in 2020 to be 178 mn where the company actually ended up at 203mn.  No wonder the current stock price is 3X of Aswath Damodaran’s fair value.  The objective of this is to understand that zeroing in on value drivers is a very difficult exercise and requires a lot of experience and study and even the best can still get it wrong. 

Interesting Quotes from the book:

Market commentators and investment managers who glibly refer to ‘growth’ and ‘value’ styles as contrasting approaches to investment are displaying their ignorance, not their sophistication.  – Buffet.

Investors make short term bets on long term outcomes.

Forecasts usually tell us more of the forecaster than of the future.  – Buffet .

The most important thing to do when you find yourself in a hole is to stop digging.  – Buffet on the stupidity of averaging down.

Stock prices are not merely passive reflections; they are active ingredients in the process and determine the fortunes of companies.

Book review #Thirteen of 2021: Start with Why by Simon Sinek

How Great leaders inspire everyone to take action.

I would recommend people to watch the Ted talk ( Link here) which became famous of Simon Sinek on the same topic.   The book goes into further details with a lot of examples to prove his point.  I liked the concept of the golden circle but the author connecting almost all major success and failure to the theory behind the golden circle is way too much.  I believe too many people try to force-fit theories to explain examples of success and at times of failure.

Apple – Cult like status

It’s true as the author says that companies like Apple are able to sell you a multitude of products not because their products are better but because you tend to believe in the company. I am a fan of apple and I almost have bought all apple products. I am a part of a cult. People who try to convince me anything otherwise about Apple are wasting their time. I will remain a Buyer of all apple products until I die or afford it. The same can be said about Harley Davidson riders or maybe Starbucks coffee drinkers.

It’s true that some companies are able to achieve phenomenal success by focusing on making the consumers believe in “Why” they are in business. However, I would say many companies would have failed to do the same and one can start explaining that – but clearly a single theory trying to explain success and failures of companies – I cannot buy into.  A company like “general magic” should have been as big a success as apple but they failed miserably.

PS: Very glad to have finished 13 books in 1st quarter. As an Analyst quartrely meeting guidance is very important.

Book review #Twelve of 2021: Robert Iger – The ride of a Lifetime

Lessons in creative leadership from the CEO of Walt Disney company

The book reads like an autobiography of Robert Iger – one of the most successful CEOs in the world.  Robert Iger deserves a lot of respect given he has been successful in steering a company of the size and legacy of Disney. The Media sector has seen unprecedented disruption in terms of delivery of content and Disney has been able to successfully disrupt its own traditional distribution to pave way for Disney+ and be a valid alternative to Netflix, prime, etc.

The story of Robert’s rise is fascinating. While the success rate of acquisitions is generally poor, he was able to execute multiple high-ticket acquisitions like Pixar, Miramax, and Lucas films and the latest being 21st-century fox.  The book details the path Disney took and how he was able to execute and integrate multiple acquisitions.

Disney and Ronnie – A failed bet

Disney in India however, I think made a colossal mistake by investing in UTV of Ronnie Screwvala at astronomical valuations. While the acquisition of Hungama channel made sense, the acquisition of UTV was more of its own inability to build an Indian film studio. What Disney India did not realize was that Ronnie was a craftsman in creating new business and disposing of them at rich valuations based on potential despite low profitability.  Many Disney employees would openly share with me later, that everybody realizes UTV investment was a big mistake, but nobody talks about it. Ronnie Screwvala was a master at telling stories and would try multiple things to woo analysts for research coverage. This included fully paid trips to Japan for understanding video gaming. I am not sure anybody remembers the mobile gaming division of UTV.

Star India – Disney’s Best bet for India

The acquisition of 21st Century FOX, however, has given Disney a formidable position in India with Star India and Hotstar.  Also, Disney has been smart in recognizing the true value potential of STAR India and the talent at star India and elevated Uday Shankar to the role of president of Walt Disney Asia.  Uday Shankar’s journey has been that of the meteoric rise and off risk-taking which defined the way of Star India. Many seniors team at star India would regularly tell me that it’s a crime at star India to not fail/take risks.  

3 Key thoughts from Robert’s career:

  • Be relentless in pursuit of perfection. 
  • Take risks and fail rather than not fail at all. Fear of failure destroys creativity.
  • KNOW WHAT YOU DON’T KNOW.

Why you should not play tennis like Boris Becker and play poker like Andre Agassi

Deepak Dhayanithy in his book “Strategy Huddle” talks about a very interesting event to understand behavioral strategy .

This is about Andre Agassi telling the world how he had an important “tell” when he faced his great rival, Boris Becker.   The “tell” was that Boris tended to stick his tongue out, pointing towards the direction of where he was going to serve.  So, if Becker was serving at deuce and he was going to serve wide of the court, his tongue would point towards left and so on. Agassi picked up on this “tell” and won a significant majority of his matches against Becker.   Also, Agassi only used this “tell” selectively in big matches only.

Andra Agassi talking about the Tell

Game theory Optimal Vs Exploitative

Well, today the poker world is increasingly debating between GTO vs Exploitative play.  What Agassi was doing was exploitative play and he used it optimally to ensure Boris Becker did not adjust his game accordingly and not allowing him the Game theory optimal play.  While, Boris Becker picked up poker after Tennis and was a celebrity Pro at PokerStars, given he had to declare bankruptcy, he was not likely good at it.  And given Agassi’s observational skills, I am pretty sure he could have been a great poker player.

The book “Strategy huddle” is a goldmine of many such incidents from the world of sports.  For a football fan, the book is a must read, given the number of examples of game changing strategies in the world of football listed in the books.  The book covers 27 different sports phenomena across 9 chapters and with each chapter themed on a strategic management topic.