Friday, December 07, 2007

Re: free cash from ops

Pat, 

Averaging the past in a growing economy will: (1) force you to be more sanguine than a guy who takes more recent data, becomes over-optimistic and projects it into the future stupidly assuming that all trends are destiny, thereby making many errors of commission; and (2) make you ultra-conservative because many things will now start looking too expensive, which will inevitably lead you to make errors of omission.

So its a tradeoff between errors of commission and errors of omission. You know which error I'd rather make...

Best,
Sanjay

On 06-Dec-07, at 11:21 PM, pratik gandhi wrote:
Question that has troubled me for some time - should one always take the average of the past few years? Or should any leeway be given for a smaller fast growing company as opposed to a large company not growing by as much?

2 comments:

Anonymous said...

Very good response. From my personal experience I can say that I have been guilty of the second one. The stock I bought in between 200 and 300, could not believe when it started flying around at 1000+ levels. may be I could not keep pace with the structural change in the economy and could not change my mental structure. But still i would rather not buy stocks at 100+ PE ratios. I am better of being a person suffering from vertigo.

Mumbai Journo said...

I would like some advice from Prof. Bakshi and his students.

Over the past few weeks I am gradually accumulating the shares of Forbes Company (formerly Forbes Gokak).

On perusing the company's annual report I found tremendous hidden value. Its subsidiaries Eureka Forbes and Aquamall have huge valuations compared to Forbes.

Forbes Patvolk another subsidiary is into shipping agency. The company is setting up port-related infrastructure at Mundra Port. A joint venture with SCI will result in new cargo ships coming in the next 15 months.

Moreover, Forbes has about 5 acres of land in Kurla locked up in its sick unit, Swadeshi mills. Market value of the land as I found out from my sources alone is worth Rs 1500 crores. In comparison, market cap of Forbes company is below Rs 750 crores.

However the negatives include the fact that Swadeshi mills is under liquidation and the land is locked up with the liquidator. Dues have been paid off years ago and there is a possibility of the land being released for development.

The promoters, the Shapoorji Pallonjee group are also reclusive people who do not meet with analysts. So little information comes out.

IMHO, the CMP of Forbes is far below market value.

Buying shares of Forbes is also chore since it is thinly traded. Barely 4000 shares get traded and one has to pick five and ten shares at a time.

Has anyone analyzed Forbes the Company? What do people think of the underlying value of the company's share?

Is it a good idea to lock substantial part of a portfolio in a scrip like this one?

Please advice

Shiv Kumar