Archives for March 2016

6 Investing Lessons from the Valeant Pharmaceuticals Scandal

March 28, 2016 | Reading Time: 18 minutes | 9 Comments |

It’s not every day that a company with a market cap of more than US$ 70 billion (almost same as India’s largest company by market cap), and one that is favoured by a lot of savvy investors, loses 80% in nine months (65% in just last one month). But that’s what has happened with investors in the Canada-based Valeant Pharmaceuticals, where a spate of scams has been discovered over the past few months – from bad M&A accounting, to wrongful income reporting, and now the company is facing a potential default.

Valeant is a typical case of a high-growth business where people think nothing could go wrong and overpay ignoring the complexities and fuzziness, and which ultimately presents itself as a classic case on what not to do in business and investing.

Like I wrote about the Volkswagen scandal a few months back, there are several lessons one can learn from the fall from grace of Valeant. Here are just six of them.

StockTalk (March 2016)

March 28, 2016 | Reading Time: 15 minutes | Leave a Comment |

Poke the Box: Are You a Stock or a Bond?

March 25, 2016 | Reading Time: 8 minutes | 1 Comment |

Let’s Start with Safal Niveshak
Here are some useful posts from Safal Niveshak archive which you might want to read again…

To index or not to index – that is the question. Here’s why we don’t invest in index funds.
When it comes to investing, Surfing is an important mental model that every investor should be thinking about for picking stocks.
Network effect is an important attribute to look for while evaluating the presence of economic moat.
We do things for people we like, because it’s a natural reciprocation to being liked. A mental model from psychology – Liking Bias.

Latticework of Mental Models: Float

March 23, 2016 | Reading Time: 17 minutes | 26 Comments |

About 12 years back, I first came to Bangalore to join my first job in IT industry. Known as city of lakes and the silicon valley of India, Bangalore was the place to be in.

However, the initial euphoria soon evaporated when I was told by the real estate agent that renting a house required me to deposit an advance. What added insult to the injury was the size of security deposit amount. It was supposed to be 10 months of rent.

Holy cow! That was several times more than my monthly salary at that time.

But it turned out that the practice was pretty common in Bangalore, and still is, which I suppose is not the case in other metros.

It infuriated me that the house owner would conveniently put that advance money in his bank and pocket the interest income too. So in effect he wasn’t just making money from rent, but from free deposit also.

Now here is an interesting question to puzzle over. The security deposit which in effect was a borrowing for the house owner – can we call that money as debt for him?

Yes and No. ‘Yes’ because it’s not his money and he would have to return that money sometime in future and ‘No’ because he doesn’t have to pay any interest on this borrowing.

So it’s a debt but quite different from a traditional debt. Let’s see how.

When I moved out from his house, the money which he returned to me was replenished by the new tenant. So it was a revolving fund. Effectively he would never have to return that money to his tenant, provided he doesn’t run out of tenants, which is unlikely because his house was in busy locality in Bangalore.

The deposit was an income generating asset which costed the landlord nothing. He could very well be using that money for making other investments too, like buying stocks or making down payment for another house.

So this is a very interesting type of debt. It’s called Float.

The Idea of Safal Niveshak

March 21, 2016 | Reading Time: 2 minutes | 44 Comments |

I recently presented at Agile India 2016, a tech conference in Bangalore. Given my tech illiteracy, I wouldn’t have spoken there but for the invitation from a long time tribe member who wanted me to share my experience in building the Safal Niveshak tribe.

Click here to download my presentation slides PDF (2 MB file).

This presentation captures the entire idea of Safal Niveshak – what we stand for and what you, as a tribe member, should expect from us in the future.

At this point, here is something I would request you to share with me in case you have been a tribe member for some time – Has Safal Niveshak benefited you in your investment journey? If yes, how? If not, how could we make your experience better in the future?

Please share your thoughts – feedback / testimonial / suggestion – in the Comments section of this post. I would love to hear from you.