Hi Rohith, I enjoyed reading this and thank you for sharing an example of your thought process through the crash during the pandemic. To play devil's advocate, given the integrity issues, would it not be better to pass on the company entirely? Other opportunities that did not come conjoined with such promoter integrity issues may be more actionable in tumultuous times - how do you think about this?
It is definitely a valid question. And the approach you suggested is definitely one right approach to take.
Though, unlike hard sciences, investing is a softer science (probably more a mix of art and science). There is no single right answer. What is right for one can be not right for another. For me, there are few black and whites in investing - it is mostly shades of grey.
While the share issuance for the private entity was a negative, it has to be balanced against other factors - in this case the business strength (dominates its core segments), generates good returns through the cycle, and valuation (was probably at around <2x land value, and thus a fraction of replacement cost). We have to weight everything together in my view.
Also, even integrity is something I measure on a scale of 1 to 10. There are no material RPTs (which is a simple way of taking money out), or large capex (gold plating to take cash out) or unrelated diversification or such things. In fact, large salaries were taken (which require huge tax payments). In that context, in my framework, that was a negative; but not a material enough negative to make it a reject candidate.
Hi Rohith, I enjoyed reading this and thank you for sharing an example of your thought process through the crash during the pandemic. To play devil's advocate, given the integrity issues, would it not be better to pass on the company entirely? Other opportunities that did not come conjoined with such promoter integrity issues may be more actionable in tumultuous times - how do you think about this?
Thanks Abhimanyu.
It is definitely a valid question. And the approach you suggested is definitely one right approach to take.
Though, unlike hard sciences, investing is a softer science (probably more a mix of art and science). There is no single right answer. What is right for one can be not right for another. For me, there are few black and whites in investing - it is mostly shades of grey.
While the share issuance for the private entity was a negative, it has to be balanced against other factors - in this case the business strength (dominates its core segments), generates good returns through the cycle, and valuation (was probably at around <2x land value, and thus a fraction of replacement cost). We have to weight everything together in my view.
Also, even integrity is something I measure on a scale of 1 to 10. There are no material RPTs (which is a simple way of taking money out), or large capex (gold plating to take cash out) or unrelated diversification or such things. In fact, large salaries were taken (which require huge tax payments). In that context, in my framework, that was a negative; but not a material enough negative to make it a reject candidate.
Got it Rohith, thank you for sharing. Look forward to reading more of your writing.