What Credit Suisse can learn from Santa Banta?

Credit suisse to reveal losses from Archegos ; estimate $7.5 bn losses. ( Article)

If any of you have ever played live poker with me, you are bound to hear a specific joke of Santa Banta from me -Slipping over a banana peel. The joke goes like this: Once Santa Slipped over a Banana peel and fell. Later he saw another banana peel and cried out ” Oops! I have to slip again”. This joke I immediately say after I see a repeated dumb play from a poker player where he ends up gifting most of his stack.

Credit Suisse is going to potentially take $7.5 bn loss in Archegos. The reason I see the loss of credit Suisse and other bankers as dumb is based on past record of Bill Hwang. In 2012, Bill Hwang had pleaded guilty to insider trading and agreed to a $44mn fine to SEC. The SEC said Hwang and his business had short-sold three Chinese bank stocks based on inside information—borrowing the shares, selling them high, and aiming to buy them back low and pocket the difference.  There are a lot of crooks in financial markets, but based on the SEC’s description of Hwang’s actions, he was less a garden-variety fraudster than a triple-crown winner of financial cheating: an insider trader who got unfair market discounts and tried to manipulate prices through other means.

Goldman Sachs which had blacklisted Hwang till 2018, also gave in to the greed of commission. The same year, Goldman was embroiled in a corruption scandal related to 1mdb. The greed among investors is so high that they somehow always forget very recent history and repeat the dumb mistakes. While there are no records of any wrongdoing here prima facie and being seen as a case of just margin call, I am pretty sure that leverage standards were bypassed.

I have seen a very similar behavior among Indian investors supporting companies that have earlier short-changed investors. There were enough people backing companies like Deccan Chronicle and Manpasand Beverages despite enough data of wrongdoing.

I wish someday people can learn from Santas mistakes and not slip again.

Types of Equity Analysts – Encounters of the Worst Kind

The Management Pet:  Always starts with “Great quarter guys!” and is always first to ask. . The analyst wants to show everybody that he is the most experienced analyst with a Strong BUY recommendation and that’s why his question was taken first.  So, my question is “How were you able to deliver such a strong quarter”.

Micro Guidance seeker:  Is focussed on getting precise guidance.  Questions are like – Will you be closer to the upper end or lower end of your guidance of 6.6-6.9% growth? You have said growth will be in teens – will it be high teens or low teens? I know you do not give guidance but can you help us if you will beat industry growth or lag?  Also, what will be the industry growth?

Monthly forecaster:  How has been your growth this month / this fortnight. How is the current quarter looking? Has the quarter-to-date growth higher than last quarter?  (Such analyst own forecasts are never close but will never leave the pursuit of monthly forecasting)  

Late entrant: Sorry I logged in late, can you repeat everything you said.  (Basically, such analyst doesn’t own a watch and are begging the mgmt. to gift them one)

Endless questions inquirer:  Sir I have basically 2 questions – one on the balance sheet and another on the income statement.  On the Balance sheet, my question has 3 parts…. On the Income statement, my question has 4 parts and the 4th part has 3 sub-parts.

(Operator- participants please limit the question to 2, so that everybody can get a chance)

 Class participation:  Most/all of my questions have been answered.  These are analysts who need to record their attendance to the fund managers.

(Operators – please press 02 to remove yourself from the question queue is never understood)

The attention-to-detail Analyst:  Can you help me understand the nature of “other revenues”. They are now 0.3% of all revenues as against 0.15% last quarter.   Also, why is your tax rate up by 30 bps?   (Announcing to the world my excel models are very detailed)

The stock pitcher Analyst:  I have a 3-part question are on the new business/acquisition (like Dunkin Donuts). Do you think your new business can be the biggest growth driver for your business? Second, would you say that the new business margins will be overall margins accretive? Third, do you think stock markets are not giving you full credit by not doing a sum of parts valuation?  ( Please help me – as I am the only one doing SOTP valuation)

The Meeting seeker:  Can you explain to me the accounting difference leading to the variable tax rate, depreciation, and amortization vis-à-vis peers? Can I take these answers offline in case you don’t have them handy?

The color seeking analyst:  Can you give some color on the nature of growth expected for the year?  Mgmt. – the color is baby tomato pink.

Attention seeker:  That was my associate dialing in.  This is senior writing analyst XXX here.  My question for you is ….?  (To announce the world, I have an intern/associate)  

The Student Analyst:  Can you please explain how do you calculate same-store sales growth (SSSG)? Also, can you explain what is your unit economics?  Mgmt. – Please read past 10 years’ transcripts.

PS: Even I have been guily of the worse behavior on a occasion or two.

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.

Types of Fund managers (based on personal experiences)

Techno Fundamental FM: I agree with your structural fundamental story – charts are also showing accumulation and break out.

Pseudo Long term FM: This is a structural story that will play out. Yeh quarter number kya lagta hai.

Corp Governance conscious FM: We will not buy zee stock as it was linked to KP. Can you however get me Zee Cine awards Tickets? My wife would like to attend.

No Insider info FM: Our Fund house has a strict policy against sharing insider info. Please take down my non-official mobile number. Drop me a message, if you hear anything.

Travel Enthusiast FM: We have invested in Motherson sumi. They have set up 41 new plants in 16 countries. I have visited 14 of their plants. Mexico trip was amazing.

Foodie FM: Can we have the mgmt meeting at “Masala library “. Heard they have introduced a new express menu.

Ground research FM: Did you check with watchman if MD comes on time to office? How many cars does CEO use? 

Butterfly Effect FM: Can you incorporate sensitivity of raw material cost, currency, sales decline, interest rate change on your DCF? Can you incorporate demonetization impact also?

DCF geek FM: WE only believe in DCF. Your WACC is too low. Your terminal Growth rate is too high? What is the Market implied growth rate factored in? You have to have 20-year DCF, please.

Pseudo Accounting nerd FM: Did you check the company’s payment to directors? Why is paying so much to auditors? Why is CEO salary so much? Do they have a plane? Who uses it?

Celebrity crazy FM: Get me meeting with Ekta or Jitendra (Balaji telefilms), Will Dhoni be present in India cements analyst meet?

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.