All Posts By

Baijnath Ramraika, CFA; Prashant Trivedi, CFA, Chairman - Multi-Act Equity Consultancy Pvt. Ltd.

Indian Investors should invest globally

Investing Globally: Why Indian Investors Should Consider Global Allocations

By | India Macro, Investment Insights | No Comments

When discussing portfolio construction with Indian investors, one question that frequently comes up is whether it makes sense for an Indian investor to invest outside of India. Indian equity markets have compounded capital at high double digit rates over the past thirty plus years and with the Indian economy expected to grow at the fastest pace of the large economies globally, investors continue to expect great returns from the Indian equity markets. Why then invest outside India? Read More

Mis-defining Investment Quality

(Mis)Defining Quality: Counting When It Cannot be Counted

By | Behavioral Finance, Global Equity, Investment Insights | No Comments

This article originally appeared on Advisor Perspectives.

 “Ben felt that what I do now makes sense for my situation. It still has its founding in Graham, but it does have more of a qualitative dimension to it because, for one thing, we manage such large sums of money that you can’t go around and find these relatively small value-price discrepancies anymore. Instead, we have to place larger bets, and that involves looking at more criteria, not all of them quantitative. Ben would say that what I do now makes sense, but he would say that it’s much harder for most people to do.” – Warren Buffett 1 responding on apparent divergence from Graham, emphasis ours.

 “The number one idea is to view a stock as an ownership of the business and to judge the staying quality of the business in terms of its competitive advantage. Look for more value in terms of discounted future cash-flow than you are paying for. Move only when you have an advantage.” –Charlie Munger

“Not everything that counts can be counted, and not everything that can be counted counts.” – William Bruce Cameron 2

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Notes:

  1. Joe Carlen, The Einstein of Money: The Life and Timeless Financial Wisdom of Benjamin Graham, 244.
  2. The quote is frequently attributed to Albert Einstein. However, it is likely an incorrect attribution. Read more here.
Sustainable Competitive Advantages

PERSPECTIVES: Consumer Preference – An Analytical Framework

By | Investment Insights | No Comments
Sustainable Competitive Advantages: Consumer Preference
By Baijnath Ramraika, CFA and Prashant Trivedi, CFA with assistance from Ms. Siddhi Gujar
August 2, 2016

This article first appeared on Advisor Perspectives.

In this article:

Understanding how to analyze a moat is critical to evaluating the value of any business, and subsequently an important factor in knowing whether you should invest in a particular business. In this article, we explain why we believe terms like “brand moats” or “intangible assets-based moats” are misleading and will set up investors for behavioral errors.

It’s not enough to call a moat by its right name. We delve further to see whether this moat is a sustainable competitive advantage. Discover the two elements that need to be present and form the primary components of an analytical framework to identifying a consumer preference moat, along with ancillary factors such as pricing power and product differentiation. You’ll understand our rule of limit to the pricing power of the incumbent through examples of companies like Parle-G.  You’ll learn why investing in emerging markets and specifically consumer companies needs to be treated with caution.

To help you understand our framework better, we take you through a step-by-step analysis of Colgate

“Our approach is very much profiting from lack of change rather than from change. With Wrigley chewing gum, it’s the lack of change that appeals to me.” – Warren Buffett (emphasis ours)

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Economies of Scale: An Analytical Framework for Assessment of A Firm’s Competitive Advantage

By | Global Equity, Investment Insights | No Comments

This article originally appeared on Advisor Perspectives.

“The moat in a business like our auto insurance business at GEICO is low cost. I mean people have to buy auto insurance, so everybody’s going to have one auto insurance policy per car basically, or per driver. And…I can’t sell them twenty…but they have to buy one. Read More

Wall_post1

The 6 Sources of a Firms Competitive Advantage

By | Investment Insights | No Comments

This article originally appeared on Advisor Perspectives.

As we have discussed previously, sustainable competitive advantages (SCAs) are a key characteristic of high-quality businesses. While SCAs are good indicators of business quality, not all competitive advantages are created equal.  The strength of the competitive advantage and the risks that the business needs to protect itself against are largely dictated by the type of competitive advantage that the business possesses. Read More

Why-Most-Quantitative-Investing-and-Trading-Systems-Fail1

Why Most Quantitative Investing and Trading Systems Fail

By | Investment Insights | No Comments

This article originally appeared on Advisor Perspectives.

“Invert, Always Invert.” – Carl Gustav Jacob Jacobi, German Mathematician

“Hundreds of studies have shown that wherever we have sufficient information to build a model, it will perform better than most people.” – Daniel Kahneman (as you read this statement, don’t forget to consider the implication of the word “sufficient”)

“Roger Federer plays tennis using Wilson racquets. I use Wilson racquets. Does that make me Roger Federer?” – Paraphrasing a friend of ours. Read More

US bull market analysis

Are We in a Bull Market? Danger, Will Robinson, Danger!

By | Global Equity | No Comments

This article originally appeared on Advisor Perspectives.

The low-yield environment manufactured by central banks has encouraged and precipitated yield-seeking speculation. Investors and speculators alike have taken up a near-religious conviction in the demi-god status of central bankers. Will these central bankers continue to enjoy their god like status indefinitely or will they disappoint their followers? Read More

Bounded rationality investment decision making

Bounded Rationality, Unbounded Confidence

By | Behavioral Finance, Investment Insights | No Comments

This article originally appeared on advisor perspectives.

“The capacity of the human mind for formulating and solving complex problems is very small compared with the size of the problems whose solution is required.” – Models of Man, Herbert A. Simon

“Boundedly rational agents experience limits in formulating and solving complex problems and in processing (receiving, storing, retrieving, transmitting) information.” – Oliver E. Williamson citing Herbert A. Simon Read More

the-Warren-Buffett-Way

The Warren Buffett Way: High Quality Stocks in Emerging Markets

By | Investment Insights | No Comments

This article originally appeared on advisor perspectives.

“Shares are not mere pieces of paper. They represent part ownership of a business. So, when contemplating an investment, think like a prospective owner.” – Warren E. Buffett

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” – Warren E. Buffett Read More