Reblog: A Little Knowledge is Dangerous


20How to Deal with Overconfidence in Financial Markets

It had been a little over a week since anyone had seen Karina Chikitova. The forest she had walked into nine days prior was known for being overrun with bears and wolves. Luckily, she was with her dog and it was summer in the Siberian Taiga, a time when the night time temperature only dropped to 42 degrees (6 Celsius). However, there was still one major problem — Karina was just 4 years old.

Despite the odds against her survival, Karina was found two days later after her dog wandered back to town and a search party retraced the dog’s trail. You might consider Karina’s 11 day survival story a miracle, but there is a hidden lesson beneath the surface.

In his book Deep Survival: Who Lives, Who Dies, and Why, Laurence Gonzales interviews Kenneth Hill, a teacher and psychologist who manages search and rescue operations in Nova Scotia. When Gonzales asks Hill about those who survive versus those who don’t, Hill’s response is surprising (emphasis mine):

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Reblog: A Few Things I Learned Watching a Hedge Fund Manager Lose $4 Billion on One Trade


Maybe you also followed this story. Or maybe not. But basically a really big hedge fund manager, one of those guys who people quote and probably talk about at Harvard Business School, placed a super big bet on this company called Valeant.

Valeant is a pharmaceutical company trying to cure problems with skin and infectious diseases. They actually also own Bausch Lomb so that means they have a giant eye care business.

This hedge fund manager made a bet that Valeant would keep growing their business, diversifying, and acquiring. He once even called them the next “Berkshire Hathaway.”

This thesis turned out to be wrong. Like really wrong. The company crashed. People started to call Valeant out for jacking up the prices of their drugs. They also were apparently doing some dicey bookkeeping things. Just Google “Philidor Valeant scandal” if you want to learn more about that.

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Reblog: Demonetization: Impact on stock markets


demonetization

For a week now demonetization of high value notes has been polarizing the country between those who totally support the idea and those who are against it. The move has had a big impact on the stocks markets. A lot of investors are withdrawing capital from stocks. Some because they are out of funds (since the currency they had at home no longer works) and others because they expect a crash, perhaps an opportunity to buy at lower levels.

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Reblog: IPO Analysis – PNB Housing Finance


PNB Housing Finance is entering the primary market on Tuesday 25th October 2016, to raise Rs. 3,000 crore, via a fresh issue of equity shares of Rs. 10 each, in the price band of Rs. 750 to Rs. 775 per share. Based on the price discovered, company will issue 3.9 to 4.0 crore equity shares at the upper and lower end of the price band respectively. Representing 23.37% of the post issue paid-up share capital at the upper end, issue closes on Thursday 27th October.

51% subsidiary of Punjab National Bank, PNB Housing Finance is India’s 5th largest home loan provider (after HDFC, LIC Housing, Dewan and Indiabulls Housing) with loan book of Rs. 30,900 crore (30-6-16), 70% of which is housing loans, having average ticket size of Rs. 32 lakh. Average ticket size for non-housing loans, which constitute 30% of the loan book, is Rs 57 lakh. With operations mostly in the urban areas of North, South and West India, its loan book has posted CAGR of 62% between March 2012 to June 2016.

While FY16 revenue grew 52% YoY to Rs. 2,700 crore, Net interest income (NII) jumped 63% YoY to Rs. 840 crore, leading to net profit of Rs. 328 crore and EPS of Rs. 27.58, on equity of Rs. 126.92 crore. Net interest margin (NIM) of 2.98% was clocked in FY16, up from FY15’s 2.94%, while Return on average assets (RoA) stood at 1.35%, up from FY15’s 1.27%.

The stupendous financial performance continued into FY17, with revenue of Rs. 863 crore, NII of Rs. 255 crore and net profit of Rs. 96 crore for the June quarter. Q1FY17 EPS stood at Rs. 7.57. Despite the phenomenal growth, asset quality is has remained intact, infact better than industry average. Gross NPAs, as of 30-6-16, of Rs. 84 crore, represents 0.27% of gross assets.

As of 30-6-16, company had networth of Rs. 2,240 crore, translating to BVPS of Rs. 177. It has only 2 shareholders – parent Punjab National Bank (51%) and Carlyle Group (49%), the latter pursuant to its acquisition of Destimoney Enterprises in Feb 2015. Fresh issue proceeds of Rs. 3,000 crore will augment company’s capital base. Current capital adequacy ratio (CAR) stands at 13.04% vis-à-vis regulatory requirement of 12%.

Given the room which fresh capital will provide the company for further leverage, capital being lifeline for any finance business, FY17 expected EPS is estimated at about Rs. 35 per share. At Rs. 775, company’s market cap will be Rs. 12,837 crore, upon listing, based on expanded equity of Rs. 165.63 crore. Estimated BVPS, as of 31-3-17, is Rs. 340, which translates into PBV multiple of 2.3x, while the PE multiple works out to 22x, based on current year estimates.

Below is a comparison with other listed housing finance companies, both bigger and smaller than the company:

Company Name

(Rs. Crore)

Loan Assets

Revenue

PAT

Gross NPA %

Current Market Cap

Mcap % to loan assets

PE

PBV

As of 30-6-16

QoQ Growth

FY16

YoY growth

FY16

YoY growth

Margin

30-6-16

FY17E

FY17E

LIC Housing

1,27,437

1.8%

12,396

16.2%

1,661

19.8%

13.4%

0.59%

31,087

24%

16.9x

2.8x

Dewan

72,012

3.6%

7,312

22.2%

729

17.4%

10.0%

0.98%

10,455

15%

11.6x

1.7x

Indiabulls Housing

71,026

3.4%

8,290

28.2%

2,345

23.4%

28.3%

0.84%

37,121

52%

12.5x

2.7x

PNB Housing

30,901

13.7%

2,700

51.6%

328

68.9%

12.1%

0.27%

12,837*

42%*

22.1x*

2.3x*

Gruh Finance

11,543

3.9%

1,275

20.3%

244

19.5%

19.1%

0.56%

12,409

108%

44.3x

11.1x

Can Fin

11,183

5.1%

1,084

32.6%

157

82.1%

14.5%

0.24%

4,861

43%

22.1x

4.3x

* at upper end of price band of Rs. 775 per share

The growth rates which PNB Housing has posting is the highest in the industry (only Can Fin reported higher PAT growth in FY16, but its revenue and loan book growth was much lower). Moreover, PNB Housing’s NPAs have also been under check – 2nd best in the peer set. While net margins and RoE can improve further, based on valuation parameters of PBV multiple (2.3x) and market cap as a % to loan assets (42%), the pricing of the issue appears in-line. Growth visibility in the stock remains very high, given the fresh capital coming into the business, which provides added comfort.

Housing finance industry has been on a growth trajectory, with further headroom for growth. Company’s industry-leading growth coupled with sound fundamental position make it an attractive investment opportunity, albeit softening due to higher base.

Positive sector outlook coupled with stunning growth rates make the issue a subscribe.

Disclosure: No Interest.

The original article is authored by Geetanjali Kedia and is available here.


Reblog: The dumbest math mistake investors make in the stock market


The original article has been authored by Sam Ro, managing editor at Yahoo Finance and appears here in Yahoo Finance.

Yahoo Finance article

The most popular way to measure value in the stock market is to take the price of the stock or a pool of stocks, and then divide that by earnings. This is the price/earnings (PE) ratio. When the PE ratio is above some longer-term average, the stock is considered expensive. When it’s below average, it’s considered cheap. Importantly, PEs have been shown to revert to those averages.

But this is not to say that expensive stocks are doomed to see prices fall as PEs shrink. Conversely, a stock price doesn’t necessarily have to go up to become more expensive. To believe otherwise is an unfortunate mistake. And it’s arguably the dumbest math mistake investors make in the stock market.

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Budget 2016 is here! What does it hold?


The Honourable Finance Minister presented the Annual Budget 2016 today (February 29, 2016) in the parliament. While he touched upon a lot of points, here is a brief on what the budget holds for the different sectors in the stock market and some specific scrips that would be affected.

Food

  • 4 new schemes to enhance dairy-farming in India at Rs. 850 crores. A positive for Prabhat Dairy

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