There are many different styles, approach, and methods of investing. Many individual investors focus on trading (swing, positional, momentum, speculation, technicals etc.), while many others focus of investing (value, growth, blend, etc), and still many others on special situations (opportunistic, arbitrages, etc). In addition, there are quite a few individual investors that attempt at combination of trading and investing. Similar to glass being half full or half empty, I believe every style has its own pros and cons’ depending upon in what context one is looking at it. Individuals have to figure out what works best for them.
Readers are already accustomed to my approach of dividend investing. I am a long term buy and hold investor and prefer to buy my positions at fair values (fair value calculation methodology). The reason I use fair value is because, I do have enough expertise to determine the tangible book value. While I still use book value based on Graham’s method, it is not the only one on which I base my decision.
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One common question that I continue to receive is about the efficacy of long term investing. The notable factor is almost all of them use two specific examples to explain that long term investing is not a viable solution. These examples are (1) Stock market tanking in 2008; and (2) Satyam going kaput.
To begin with, it tells me that many do not understand what is investing. Folks who ask these questions do not understand long term investing. I keep wondering, how to best explain what is long term investing.
In general, first half of 2009 can be characterized as roller coaster ride. While we saw multi year lows, at the same time, we also saw historical one day rally. In my post bull running for red flag, I showed that majority of SENSEX companies are showing reduced earnings. And surprisingly, it is being rewarding by increase value. I continue to believe, there is no way any individual can predict the markets. So who bother wasting time on it?
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Pidilite Industries Ltd. Limited (Pidilite) is a consumer and specialties chemicals company. Its product range includes adhesives and sealants, construction and paint chemicals, automotive chemicals, art materials, industrial adhesives, industrial and textile resins, and organic pigments. It has several market leading brands that include Fevicol, cyclo, Sargent Art, hobby ideas, Dr. Fixit, ROFF, and m-seal. Two thirds of company’s revenue comes from India’s internal market. Historically, the company has developed most of its product thought a very strong in-house development program. However, in recent years, it has embarked expanding this reach by overseas acquisition and setting up overseas manufacturing units.
Trend Analysis
The whole reason for any business to exist is to generate sales revenue and make more profits. At a minimum, the parameters listed below should have continuously increasing trends. All the data below is based on last 8 years 2000 to 2008.
- Revenue: Increasing trend with average growth of 18% (SDev. 7%).
- Earnings per share: Increasing trend with average growth of 20% (SDev. 18%). This shows very high year-over-year variability.
- Net cash flow from operations: Overall, the net cash flow from operations has an increasing trend. For most part, the net cash flow has been very close to the reported net profit. However, since 2007, it is less than reported net profits. Not a good observation.
- Profit/Loss from operations: Looking at standalone profits only, the corporation is showing consistently increasing profits from its operations. Good observation.
- Reported net profit: Increasing trend. Good observation
- Gross margins: A slow downward trend on gross margins. 2008 gross margins lower than historical average of 16.5% (narrow stdev. of 1.36%). Still not an alarmingly low level. Neutral observation.
- Operating margins: Operating margins in-line with historical average. Neutral observation.
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Commodity Asset Class in Dividend Portfolio
One of basic tenets of portfolio construction is following the principles of asset allocation. This is much more applicable and valid for do-it-yourself individual investors. In this context, at a minimum, I need to look at and at least consider evaluating all possible asset classes. While doing this, I also have to keep in mind that my portfolio is based on dividend growth philosophy. Among others, a commodity is also one asset class which I believe I should be investing. The next question is what should be my investing vehicle?
In recent years, commodity has been in news due to continuous increase in market price. This price increase was not restricted to any one particular commodity, but just manifested itself to all types of commodities. Commodities include agriculture products (grains, oil seeds, fertilizers, pesticides), bullion (gold, silver, platinum), Oil and related products (crude oil, natural gas), chemicals and petrochemicals (additives, fibers, yarns, paints, polymers), Metals (iron, steel, aluminum, zinc, etc). So you see it is indeed a very large domain. Now what does it really mean to trade or invest in commodities? It does not mean we buy or sell or invest in real physical commodity. Continue reading rest of this article…