Why acquiring "You-tube" is considered to be the best deal made by "Google" ?

Google wanted to be "The default platform for user generated content and the hub for the young generation" because being the default platform for content makes them the "Default ad network". 

At the time when Google acquired You-tube, it was clear that video would become one of the most valuable forms of content going forward.

There was long term value to be created in the business and "Google" grabbed that opportunity.

They were one of the few companies with the scale and resources to deal with the mind-boggling data and bandwidth volumes necessary to service this segment. To truly leverage video content for ad targeting and delivery requires a heavy investment in R&D. The more metadata they can associate with video the more they can monetize the content through ads. To make video searchable requires voice recognition technology to convert speech to text and image recognition technology to parse video frames. Google had the budget, talent and head start to win at these endeavors.

YouTube was burning through cash, running out of server space and weathering litigation threats from record labels. Its staff was working around the clock and its founders were growing increasingly wary of how to sustain the company without any muscle in its corner.

Google bought YouTube for $ 1.65 billion. That figure seems quaint now but at that time it was an eye-popping figure to pay for a startup only a year and a half old.

There certainly is an argument for a couple of tiny investments that paid off incredibly like Google’s $ 50 million acquisition of "Android" in 2005. The difference is that at that time no one outside Silicon Valley knew what Android was. 

YouTube was already world famous when Google snapped it up and its price tag was ridiculous by conventional standards. It was one of the first wild bets a tech giant made following the "Dot-com crash".

Advantages of the deal were that it :

• Eliminated a Direct competitor in the Market.

• Improved company's core business and helped Google in Distinguishing itself from other search engines.
  

You-Tube had the infrastructure and the eyeballs - It just needed the kind of content the TV industry respects and understands in order to prevent throwing the towel to Netflix, Facebook and the likes in the future.

Google’s stock climbed to an "All time high" shortly after the YouTube acquisition in 2006 and it’s been part of the company’s growth narrative ever since. 

YouTube rid us of the scourge of buffering, it benefited the users. 

It created a financial ecosystem that encouraged creatives to launch independent businesses. 

It let us stream almost any song we wanted to listen to and any movie we wanted to watch for "Free".

At the time of writing, "You-tube" has 1000 million views per day & it generates what it spent to acquire "You-tube" in the form of revenue every week.

That is why i think it is a very good example of "Value-Investing".

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Who is "Vijay Kedia" ?

Mr. Vijay Kedia is a well-known value investor. He is better known on Dalal Street for having spotted many multibaggers pretty early. He strictly adheres to "SMILE" as a principle in investing. It translates into Small in size, Medium in experience, Large in aspiration & Extra-large in market potential.

What is the secret sauce he uses to identify such multibagger stocks? 

How does one spot such opportunities before the crowd jumps in and valuations go through the roof ? 

In a cricket match, if you want to hit a sixer, you don’t wait for the ball to drop in front of you and then take a call whether you want to go for a six or a single. You look at the bowler’s action and then decide if you can hit a six to this ball.

The issue is, an investor's journey is not as exciting as a fast-paced T20 game; it’s way too longer than a Test match.

Kedia says that in many cases he waited patiently for 5-6 years observing all the news, announcements, product developments and financial statements of a company without even buying a single share.

In an interview he explained that if the product is good and the management is good then he quietly waits for a turnaround. When you are buying during a turnaround, you might think it is expensive but you will have to buy the stock keeping in mind the future value. Buy when you can see the trailer of a ‘Hit’ product. The product should have been accepted in the market and reached the growth stage.

In market parlance, that means buying companies when they are at an "Inflection point". If everything can be seen on the balance sheet then you won't be able to multiply money because the news is already out.

Look at the factors like whether the company's market share is growing or not and whether it is able to maintain its market share or not. If a company is in a turnaround phase, you can't look at its PE ratio. Some of them may even be making losses because they are busy developing their products.

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The first ever Economic Bubble - Tulip Mania !!

I am sure many people would not have heard about "Tulip-Mania".

In "Greed", everything seems to be "Bullish" & the price of a security seems to be "Unstoppable".

Let us take a brief look at "What the Tulip Mania or Tulip Fever actually was & How it turned out" !!

What would you say if i were to tell you that "This cute flower" once traded at the same price as "6 month average salary of a person in Holland" ?

Bonkers/ Crazy/ Insane/ Nuts you might say !!

 

Or better yet, one might say "You must be Nuts to pay a price like that for a Flower" !!

Well that was the case for "People of Holland, back in 1630's".

It began when "People started speculating on the price of a rare flower".

Dutch learned that "Tulips" could grow from seeds or buds that grew on the mother bulb. A bulb that grew from seed would take 7 to 12 years before flowering but a bulb itself could flower the very next year. "Broken bulbs" were a type of tulip with a striped, multi-colored pattern rather than a single solid color which evolved from a mosaic virus strain. This variation was a catalyst causing a growing demand for rare, “Broken bulb” tulips which is what ultimately led to its "High market price".

It was at that time "Professional traders/ Stock jobbers" got in on the action and everybody appeared to be making money, simply by possessing some of these rare bulbs. Indeed, it seemed at the time that "The passion for tulips would last forever". People began buying tulips with leverage. Once prices started their decline, holders were forced to sell their bulbs at any price and had to declare "Bankruptcy" in the process. "Hundreds who, a few months ago, had begun to doubt that there was such a thing as poverty in the land suddenly found themselves in that exact situation".

There is a lot more to it on "Google" if you would like to read more but i have just shared a "Snippet" of it to keep it "Simple & Relevant to the article" !!

You can look at your portfolio and decide for yourself if you are holding a "Real asset" or just a "Speculative Tulip".

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Is having "Multiple monitors/ screens" really necessary for Trading ?

It may be helpful for someone else but my answer will be a humble “No”.

First of all many people portray themselves as "Professional traders by having a multiple screen setup".

It maybe a good idea if you are an "Institution or a High net-worth individual" trying to do intra-day trading.

Let us understand why some people like to have multiple screens in the first place :

* Order placing screen (Where you only enter orders).

* Charting screen (Fundamentals generally don't change in the market hours and overnight so there would be no point allocating a screen to it, on this screen only price monitoring takes place).

* Miscellaneous screen (Either for monitoring option data or anything else).

* News screen (This screen is used for watching breaking news basically).

I just use multiple tabs on a single screen to keep it simple.

My only advice is to start using "Laptop/ PC/ Desktop because I don't get the idea of trading on a mobile as it is time consuming & one cannot properly monitor all that they need to".

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Should we look at "Market depth/ Order book" while Trading ?

Only looking at the "Buyers & Sellers" won't do any good because there is something called "Last traded quantity".

Suppose there are 100 buyers amounting to demand of 1 lakh shares and there are 100 sellers amounting to supply of 2 lakh shares, what would you infer from this data is that supply is greater than demand and you would sell the stock and still the price might go up and you will scratch your head thinking “What the hell just happened”.

I agree that "Total sell quantity was greater than total buy quantity" but at what price the orders were getting matched and rest of the orders were getting rejected ?

Now suppose that at the "Current price the buy quantity is greater than the sell quantity then what would happen" ?

"Rule of economics" says that "Buyers want the lowest price at which they would be willing to buy and sellers want the highest price at which they would be willing to sell".

So, if at the "Current price the buy quantity is higher than the sell quantity then the buyers would have to accept the shares at a higher price than the current price which would increase the last traded price".

This data keeps changing by the second.

In my opinion, you should try to understand this behavior only "When the price is trading near a support or resistance to help you in making a better decision".

This is a very common mistake that people make and it costs them "A ton of money".

It is against the principle of "Protecting your capital".

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Who is "Madhusudan Kela" ?

I prefer to call him “The Pharma Bull”.

"Madhusudan Kela" is an Indian businessman and investor. He was chief investment strategist at Reliance Capital until 2017.

During this tenure, Reliance Mutual Fund`s assets grew from nearly Rs 200 crore in 2002 to more than Rs 1 Lakh crore in 2011. Under his leadership, Reliance Mutual Fund received many awards and was rated the most trusted Mutual Fund House for three consecutive years by The Economic Times.

On a warm Delhi evening in 2006, star fund manager Madhusudan Kela and his trusted lieutenant Sunil Singhania were at a dinner with the promoter of food processing company REI Agro.

The firebrand duo from Reliance Mutual Fund was considering an investment in the up and coming firm. The company had also arranged their visit to the factory the following morning.

But as the dinner progressed and the chat kept coming back to REI Agro’s future plans, Kela became more and more excited. He asked the promoter if they could visit the plant immediately after dinner instead of the next day. Taken aback, the entrepreneur nevertheless said yes. So it was around midnight that Reliance Mutual Fund decided to make one of its most daring bets.

Passionate. Impatient. Instinctive. Crafty. These are some of the adjectives that the mutual fund industry knows Madhu Kela by.

He is the man who built the equity funds of Reliance MF from Rs. 13 crore in 2001 to a record-breaking Rs. 40,000 crore in 2010, helping the fund house become India’s largest in the process.

For awestruck rivals and happy investors, he was the Enduring Atlas, the titan who held up the heavens for all. A man who had the nose for multibaggers much before anybody else did.

Like the time when he had a chat with a Kingfisher airhostess on a flight from Delhi to Mumbai. That led him to do more research on the sector and he decided to invest in SpiceJet. Or when he took a close look at Adani Enterprises in 2006 when it was just a trading firm and bet on its future. Or even the investment he made in Jindal Steel & Power in 2003 and saw its market capitalisation zoom by 40 times within six years.

Over time, Madhu Kela became the embodiment of smart stock picking and hundreds of thousands of investors trusted him with their money. He became the icon of ‘Bottoms-up’ investing, picking scalable long-term opportunities with the help of rigorous balance sheet scrutiny and intense research of corporate plans.

In an extremely silent move, Kela moved out of the mutual fund to Reliance Capital as chief investment strategist. It took a while for outsiders to notice this change, but when they did, speculation flew thick and fast.

It came at a time when the Anil Ambani group, which owns the mutual fund, was negotiating a settlement with the market regulator over charges of misusing funds raised abroad. It also came at a time when its flagship equity fund, the midcap-focussed Reliance Growth, had begun to underperform the stock market.

“I have always looked at a company’s individual financial parameters and never really bothered about what is happening in the outside world,” Kela recalls in an interview with Forbes India. “But the 2008 crisis affected our portfolios and that is the time we decided to concentrate on the macro factors.”

A Salesman Par Excellence

Kela was instrumental in setting up the institutional desk at brokerage Motilal Oswal in the Nineties. “Madhu Kela managed to earn himself a reputation as a sales person because he used to put himself in the shoes of the fund managers and work closely with the research team,” says Ramdeo Agarwal, director and co-founder of Motilal.

His success at Reliance largely comes from the team he built in the early 2000′s. With a ten-minute talk, he convinced Sunil Singhania, then of Advani Share Brokers, to join him. They often hunted in a pair, mainly through the vehicle of Reliance Growth.

The Kela-Singhania team hit another home run when it invested in liquor company Radico Khaitan at a time when the business was a loss-making proposition and investors typically avoided the sector. They made 15 rupees for every rupee they put in. Similarly, with Pantaloon, they earned five times their investment.

Almost at once, Kela and Singhania went in for introspection. Even much before the crisis, they had pushed Reliance Growth to invest in large cap stocks (up to 30 percent of funds) because its growing size needed the cushion. But now, they started taking a complete relook at the way they invested. Maybe, they realised, just a rigorous look at cash flows, margins and P/E was not enough because something that happens in some corner of the world could destroy the fund’s net asset value overnight.

There was another problem. About a fifth of Reliance Growth’s Rs. 8,000 crore assets was parked in small companies. The fund had invested less than 1 percent of its assets in each of these companies and was not required to detail them in its portfolio declarations.

In the early 2000’s, Mr. Madhusudhan Kela made big investments into the “Pharmaceutical stocks” because he realized that due to massive population around the world there will be “No shortage of demand for the medicines”.

Other factor was the fact that typically the companies were selling the medicines at around ten times the cost of manufacturing, all that meant higher net profit for the pharma companies and growing earnings.

The logic was on spot and the market rewarded his thesis quite handsomely because the stock prices went 100x provided that one kept holding the stocks.

Mr. Madhusudan Kela had his upbringing in a small town in Chattisgarh, India.

What made him attracted towards the “Stock market” was that while he was hanging out with his friends they talked about how they made a “X” Amount of money while they were traveling together.

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Which stocks "Rakesh Jhunjhunwala" has in his Portfolio ?

Let Mr. Rakesh Jhunjhunwala, Mr. R.K Damani, Mr. Anand Rathi, Mr. Porinju Veliyath, Mr. Ashish Kacholia, Mr. Vijay Kedia and Mrs. Dolly Khanna “Buy” or “Sell” whatever they like.

After 5.5 years experience i can tell you the real question should be "What should you Buy or Sell” ?

• Do your own "Due diligence".

Making a decision based on what others are doing is not a smart idea because :

1. Mr. Rakesh Jhunjhunwala was extremely bullish on "DHFL" and few other stocks but right now they are eating dirt.
2. Mr. Rakesh Jhunjhunwala bought Aptech but he is a "Chairman" of that company.
3. Mr. Jhunjhunwala and Mr. R. K Damani are seen in the series “Scam 1992” which may or may not seem suspecting.
4. Mr. Rakesh Jhunjhunwala did not start his career with 5000 rupees, he took loan for trading which in any case goes against cardinal rules laid down by Warren Buffet still Mr. Jhunjhunwala wants everyone to call him Warren Buffet of India. Someone adviced him to buy shares of “Titan” 20 years ago, which made him majority of his fortune.
5. There is a very brief disclaimer every time one of these "Big names" mention any stock which says they hold that stock. For all we know, they mention that company’s name, people buy, they sell and disclose their trade to SEBI. God knows if we will ever hear that company's name from them again.
6. There is no obligation to report if the shareholding is below 1 % in any particular company. Consider the scenario that Mr. Jhunjhunwala first buys 0.99 % in any company and then buys additional 0.01 % stake when the price has almost doubled. Only then will his company’s name come into limelight and when public/ retail investors would be buying based on the news thinking that entire stake has been bought at current market price without even looking at the fundamentals of a company, he can sell all his shares to make a profit.

• Nobody is an “Expert” as business channels sometimes say “Ask the expert”.
• CFA or Chartered Financial Analysts are guided not to mention anywhere that they are market veteran or experts. If they do so, they can lose their certification.

I am not trying to defame anyone, nor get anyone's praise.

Just saying that make an informed decision based on “Fundamental analysis” for your Investments.

In fact I have not seen most educators teach “Financial planning” in their Stock market or Finance course in India.

Seriously ?

Your focus should be on learning and not following anyone else.

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How "Warren Buffet" Invests his Money !!

Some call him "The Oracle of Omaha" & some know him as "The Disciple of Benjamin Graham".

"Benjamin Graham" is credited with being "The father of Value-Investing".

The 2 must read books for any "Investor" are as follows :

1. The Intelligent Investor.

2. Security analysis.

Most "Fund Managers" & "Investment Officers" have read these 2 books.

I graduated as an "Engineer" in "Electronics & Communications" so you can say at the time i started learning about "Capital Markets", i did not had any relevant qualification.

My father being an "Avid" watcher of "Stock Market" since 1992, advised me to "Read everything i can about this Humble Human Being" and that is what i did.

I am providing a link in the next line so that you can go through my favorite "Investing & Trading quotes". It will help me in saving my "Time" and as "Warren Buffet" says "It is the most important & precious asset anyone can have".

"My favorite Investing & Trading quotes" !!

Mr. Warren Buffet is somewhat a "Humble & Frugal" man.

He says that "If keep buying things that you don't need, then soon you will have to reluctantly sell things that you really need".

Don't worry, i will talk about the "Real deal" & "Technical terms" soon. I wont stop just by "Writing only what most people already know".

"Mr. Warren Buffet" is a firm believer in "Reading at-least 5 hours a day if not more".

Since we are talking about "Learning on day to day basis & Reading", i am sharing my "Favorite books that i have come across during my 5.5 years of learning journey" in the link below :

"My favorite books on Capital markets" !!

Well enough of the "Base Building", now let us dive into "How Warren Buffet Invests his Money".

The first thing that one needs to do for "Shortlisting" a company is to perform "Fundamental analysis" on the "Stocks listed in the broad market".

The whole idea of "Fundamental analysis" revolves around the concept of determining the “Intrinsic value” of a security so that we can understand whether it is "Over-valued, Fairly-valued or Under-valued".

Price is what you pay & value is what you get -- WARREN BUFFET

We all know the price of something that we are "Buying or Selling" but how do we determine its value is what decides our investment’s future.

Fundamental analysis is mainly divided into 3 parts namely :

• Economy analysis based on Macro-economic factors such as State of the economy, Political system, Demography, Government spending, Taxes, Wages, Import & Export, Trade Deficit/ Surplus, Fiscal Deficit/ Surplus, Foreign exchange currency, Oil price, Fiscal policy, Monetary policy, Inflation rate, Interest rate, Money supply, Quantative easing, Liquidity, GDP & Market capitalization/ GDP.
• Industry analysis based on which Stage the industry is in its life-cycle, Demand & Supply statistics, Competition within the industry, External threats for industry, Future prospects of industry, Credit system and Technological changes.

4 engines of the economy [Consumption, Export, Investment & Government].

SWOT Analysis [Strengths, Weaknesses, Threats & Opportunities].

• Company analysis based on Balance sheet (Share capital, Reserves & surplus, Current liabilities, Other liabilities, Current assets, Fixed assets, Other assets & Contingent liabilities), based on Income statement (Sales, Other income, Total expenditure, Earning before interest and tax, Interest, Tax & Net profit) and Net cash-flow from (Operating, Financing & Investing activity).

Ratio analysis based on Face value per share, Dividend per share, Dividend yield, Earning per share, Earning yield, Book value per share, Gross profit margin, Operating profit margin, Net profit margin, Return on net-worth/ equity, Return on assets, Return on capital employed, Current ratio, Quick ratio, Working capital, Debt to equity, interest coverage, Asset turnover, Inventory turnover, Sales growth, Net profit growth, Price to earnings, Price to book value, Price to sales, EV/ EBITDA, Price earnings growth.

“Warren Buffet” uses “Discounted cash-flow model” in order to arrive at any "Company's Intrinsic Value".

Also known as “DCF” the idea here is to “BUY” the companies whose price is trading below the “Intrinsic value”.

We determine this value by first looking at our holding period.

Suppose we want to invest in a company for 10 years. 

We have to look at the fact that “How much Net cash-flow” will that company be able to generate over the period of next 10 years.

If today we are paying 100 rupees for a company then ideally it should be able to generate a “Net cash-flow” of 500 rupees over the period of next 10 years for our investment to be viable according to the expected return in equity segment.

That is why ‘Warren Buffet’ says “Our favorite holding period is forever”.

• Never borrow & invest.

• Never invest 100 %.

• Always have some cash in hand for rainy day.

• Don’t put all your eggs in one basket.

• Compounding is the 8th wonder of the world.
  

• Patience is the key.

• Spend time in the "Market" instead of timing the market.
  

Above mentioned are the "6 Cardinal rules of Investing" !! 

"Crashes in Indian Stock Market" despite which the market is near high today :

1982, 1991, 1992, 2004, 2006, 2007, 2008, 2009, 2015, 2016, 2018, 2020.

"Warren Buffet"  has been "Investing" for well over 70 years and besides selecting "Good  companies" along the way in his journey, he has let the "Power of Compounding" work for him in his favor.

"Be Fearful when others are Greedy and be Greedy when others are Fearful".

 

Keep learning, Keep earning.

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