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Video Series

Business valuation using the Right Valuation Metric

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Why investing is not easy:

  • People apply valuation methods/multiples like PE, DCF across companies and across sectors without understanding the risks of using such valuation tools.
  • The key risk is that the use of such tools involves making forecasts. Forecasting could involve disguised subjectivity which is affected by human behaviour. And for some businesses forecasting could be difficult if not impossible.

In this video, Rohan Samant, Assistant Portfolio Manager, Multi-Act Equity Consultancy Private Limited, helps understand why one needs to be careful while selecting a valuation method and how to make the valuation method selection process simple.

Analysing issues with the Current Monetary system

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Why investing is not easy:

  • Secular and generational changes in economic trends are not visible in a bit by bit bottom up, statistical analysis.
  • Post World War II era, imbalances have increased the risks of being just a bottom up investor-the major one being credit based imbalances.

In this video, Prashant K Trivedi, Founding Chairman of Multi-Act Trade and Investments Pvt. Ltd., helps you to make investing simple by understanding how asset allocation is the key for performance & what the major drivers for various asset classes are. He also discusses why we consider gold as the highest quality “money” and its place in asset allocation.

Investing with Margin of Safety- A Value Investment approach

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Why investing is not easy:

  • One of the critical questions investors have to answer is ‘what price is the right price’, given that the future always tends to be fraught with uncertainty.
  • As one size doesn’t fit all, valuation methods if applied without differentiating the ‘nature of the business’ can produce inconsistent and unsatisfactory outcomes.
  • The Target price approach as followed by industry participants is one dimensional and tends to be more price movement driven reflecting the herd mentality.

Vikas Biyani, Associate Director Cum Investment Advisor, Multi-Act Trade and Investments Pvt. Ltd., signifies the importance of applying a Margin of Safety as a disciplined tool to keep behavioural biases in check while taking investment decisions. He also explains why looking at both reward and risk, based on a systematic approach to valuation, is a prudent strategy in investing.

Introduction to Multi-Act’s Grading Framework

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Why investing is not easy:

  • Any investment idea has two aspects to it – the historical numbers and the narrative. An analyst’s job is not easy because decisions cannot be made only looking at the rear-view mirror but at the same time, there are certain patterns in history that are likely to repeat in the future. Thus, the analyst has to take cognisance of both these aspects.
  • The Grading process at Multi-Act tries to strike an ideal balance between analysing the historical financials objectively and using subjectivity only where required. This prevents us from blindly believing in the narratives that either brokers or company managements are prone to using.

In this video, Rohan Advant, Research Analyst, Multi-Act Equity Consultancy Private Limited, explains how the Grading Framework of Multi-Act focuses more on the analytical questions than the intuitive questions. Further, he helps one understand the criteria used for classifying businesses into high quality and low quality.

Multi-Act’s Rational Investment Approach

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Why investing is not easy:

  • Probability of an individual doing well in investing is high if one follows a set of rules.
  • But following investing rules is difficult because of noise in the newspapers, business channels and other sources which forces an investor against taking a rational decision.

Prashant K Trivedi, Founding Chairman of Multi-Act Trade and Investments Pvt. Ltd., introduces you to Multi-Act’s Global Rational Analysis Framework (GRAF) which is a set of tools that help making the investment decision both simple and easy.

Understanding Behavioural Biases in Investing

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Why investing is not easy:

  • The rules that one needs to apply to identify good investments are fairly simple to learn but when it comes to applying those rules to take live investment decisions, the behavioural biases that we suffer from prevent us from acting in a perfectly rational manner.
  • We have inherited these behavioural biases from our ancestors as these biases are actually favoured traits and helped us survive in the Stone Age. However, what worked in the Stone Age does not seem to work in the stock markets.

In this video, Rohan Advant, Research Analyst, Multi-Act Equity Consultancy Private Limited, helps one understand the origin of behavioural biases focusing on the bias of fear and herding. Further, he states real life examples of how these biases have been experienced in stock markets and lists out ways to overcome them.

Quality of Earnings analysis to avoid landmines in Portfolio

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Why investing is not easy:

  • As they say headlines are meant to catch attention but the devil lies in the detail. Similarly investors base their decisions on ‘reported’ financials but whether they depict the true economic picture is another matter which needs special attention with a forensic approach.
  • Most of the valuation tools are based on ‘reported’ earnings which can be manipulated by use of accounting shenanigans making the valuation tools used a case of garbage in garbage out.
  • ‘News’ or ‘Stories’ often colour the investing acumen leading to permanent losses of capital like Enron.

Vikas Biyani, Associate Director Cum Investment Advisor, Multi-Act Trade and Investments Pvt. Ltd., explains why it is important to pay attention to Quality of Earnings (QoE) in order to arrive at sustainable and reliable earnings to be used meaningfully for valuation purposes and to keep behavioural biases in check by not ignoring the red flags pertaining to quality of earnings.

‘When in Doubt, Stay out’.

How to Correctly Identify a Moat Business

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Why investing is not easy:

  • Long term investing involves identifying and investing in a company which is expected to do well in foreseeable future. But identifying such opportunities is difficult unless one is certain of the business model of the company and the ability of the company to protect itself against competition i.e. whether the company enjoys barriers to entry and is an Economic Moat or not.
  • The worst possible mistake would be to perceive a short term advantage as a sustainable barrier to entry/Moat. This would put the investor at the most risk.

Jinal Sheth, Associate Director / Sr. Portfolio Manager, Multi-Act Trade and Investments Pvt. Ltd., helps an investor make investing simple by listing and explaining the key identifiable “Moats”.

Investing in a Difficult Macro Economic Environment

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Why investing is not easy:

  • When analysts and investors exclusively focus on analysing earnings and identify the margin of safety in their pursuit to value companies, they tend to ignore the unsustainable credit impulses which cause these earnings. Once the credit impulses are removed, the earnings suddenly disappear and the margin of safety that the Analyst had thought protected him is non-existent.
  • The most important thing in Portfolio Construction is Asset Allocation and the Asset Allocation metrics depend on the economic regime that we are likely to see in the future.

In this video, Prashant K Trivedi, Founding Chairman of Multi-Act Trade and Investments Pvt. Ltd., points out how artificial credit impulses injected by the Central Banks can render traditional measures of assessing intrinsic value of business meaningless. He further lays down the importance of Asset Allocation as a driver of returns and gives out guidelines for creating portfolios that will do reasonably well irrespective of the economic regime that we see going forward.

Investing in Non-Moat Businesses Using Capital Cycle Theory

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Why investing is not easy:

  • Investors focus on forecasting demand and opportunity size for industry without differentiating between businesses with barriers to entry and those without barriers to entry.
  • Investing in a business without barriers to entry is tricky, especially if one is investing when the industry is doing well.
  • Noise in the form of “News” regarding the industry puts pressure from a behavioural standpoint.

In this video, Rohan Samant, Assistant Portfolio Manager, Multi-Act Equity Consultancy Private Limited, helps you understand these issues and how one could approach businesses without barriers to entry and make the investing decision simple.

Portfolio Management Services (SEBI Registration No. INP000002965) are offered through Multi-Act Equity Consultancy Private Limited (CIN: U67120PN1993PTC074692), which is a wholly-owned subsidiary of Multi-Act Trade and Investments Private Limited; Investment Advisory Services (SEBI Registration No. INA000008589) are offered through Multi-Act Trade and Investments Private Limited (CIN: U65920MH1997PTC109513).