Saturday, 25 October 2014

Book Recommendation : Pathbreakers

I like reading interviews and a read a lot of them. I find interviews extremely engaging as they are short, crisp and have a conversational style. Provided the questions asked are good, an interview allows the interviewer & the reader to navigate the mind of the interviewee. 

One of the best series of interviews that I have read was carried out a few years back by Ms. Sucheta Dalal and Mr. Debashis Basu in their magazine Money Life. They had interviewed achievers from diverse fields : like Geet Sethi [Sports], Rajiv Bajaj; K V Kamath, Aditya Puri, Sanjiv Bhikchandani [ Business], Dr R A Mashelkar ; Dr Vijay Bhatkar [Scientists], Meeran Borwankar; R C Sinha [Civil Servants] and many many more.

The interviews encapsulate the determination of a  civil servant who wanted to save the citizens of Aurangabad from a famine [ R C Sinha]. About a business leader who rebuilt his whole company from scratch after being a leader in the industry for decades [Rajiv Bajaj]. About a sports person who was so focused on his sport that the only things that mattered in his life were a billiards table and a cycle that took him to the billiards club [ Geet Sethi].

One of the most inspiring, thought provoking and captivating interviews. Money Life did a good job and compiled all the interviews in the form of a book [2 parts] and appropriately titled them : Pathbreakers.  I strongly recommend that one should read both the parts. They carry a lifetime of wisdom in them.

 [The magazine is offering a 50% discount on the price of the books. In today's times when most of the things are selling above or close to their fair values, these books carry immense value for money.]

Saturday, 27 September 2014

Hawkins Cookers Limited- My journey as an Investor

The first time I came across Hawkins Cookers Limited was in 2006. The stock was selling at 90 and the dividend was Rs 5 per share. Dividend yield was close to 5.5%.
I casually looked at it and left it at that. No particular reason : I just sucked my thumb.The stock didn't wait for me and moved up.

In 2009, a friend of mine : Vibhu Natrajan mentioned Hawkins to me when I met him in Chennai. The stock was quoting at 250 then. My mind became closed to that idea because the stock had already gone up almost 3 times since I first saw it. I had been deprived of the profits which I could have earned : Classic Deprival Super Reaction. I felt bad about  the missed opportunity and decided to not look at the stock. Also, I did not had any clue about the quality of Hawkins or the process to judge the quality of a business per se. I missed Hawkins again.

In 2010, Prof. Sanjay Bakshi and Priyank Sanghavi co-authored an investment note on Hawkins Cookers explaining very well the quality of the business and the management. The stock was quoting at 650 by that time [2.5 times up from 250]. I understood the quality of the business a bit and I liked the management as well. But I was not very sure about the process to gauge the intrinsic value of the business. By the crude methods of EV/ EBITDA  and Mkt Cap/ PBDT, the stock seemed expensive. I didn't buy.

In 2011, Hawkins Cooker announced a dividend of Rs 40 per share. The price around that time was Rs1000 per share. The dividend yield became 4%. Being moderately convinced about the business and the management and stock again with a 4% yield [The Ben Graham in me woke up], I invested a small part of my portfolio in Hawkins. Within a year, the stock was quoting at 1700 while the company experienced twin problems of a stay on production by the Punjab Pollution Control Board and a workers strike in the Jaunpur factory. Feeling unsure about the capability of the company to tide over these crises, I sold my shares at Rs 1700.

In early 2014, I did a thorough work on Hawkins Cookers. After diving deep into the workings of the business, I emerged fully convinced about the quality of the business , the quality of the management [Both were of gold standard in my view] and the unmatched capability of the company to weather any crisis which might come its way. My intrinsic value estimate was around 1600 per share [based on DCF] while the price hovered around 2000 per share. Being used to buying businesses with a margin of safety, I found myself in a difficult position to take such a close call. I again decided not to buy.

As of today : Sep 27th, 2014, the stock is quoting at 3000 . In the last 8 years, the stock has moved up from Rs 90 to Rs 3000 excluding the dividends. And there were multiple opportunities during this time to become a stockholder of this wonderful company. Not buying the stock was a missed opportunity. There were wide gaps in my evaluation of businesses, their managements, the valuations and most importantly my own behavioral biases.

The whole objective of this exercise was to look back, chronicle a particular stock which will help me figure out the gaps in my understanding of businesses and my biases. I am confident that I will be able to plug those gaps by reading, learning, observing and practicing. As investors and students, we should look back at our investments, our mistakes and continue to improve the process.
As Charlie Munger says : "Investing is the only thing which you become better at as you grow old."

I read the latest annual report of Hawkins , the chairman's speech delivered at the AGM and the checked out the latest results.

How is the business ?  

It is one hell of a business. Only 2 organised players in the market [duopoly] , low bargaining power of customers and suppliers, no threat of imports, low threat of new entrants, very strong brand equity in the market, low threat of substitutes. ROCE / ROE of around 80%, low capex requirements and high dividend pay out ratio. Strong tailwinds of nuclear families, higher penetration and a move towards premium products. Volume growth of around 12-13% for the last few years and an annual average price hike of 3-4%. Owing to these factors, it is easy to conclude that the top line and the earnings of the business will continue to increase for  a long time to come.

How is the management?

Fantastic. Absolutely ethical, honest and focused on the business. Very difficult to find such managements . As mentioned in the note earlier, the management is of gold standard. Chairman's speeches delivered at the AGM are again gems of their own kind. I think they should be read by every student of business and otherwise. They are available on the website of Hawkins Cookers Limited.

What about the price ?

This is where I am stuck again. My current intrinsic value estimate of the business is close to Rs 2000 per share. The current price is Rs 3000. I like the business, I admire the management but paying a high price for the business would be a mistake. Almost 235 years ago, in this letter Ben Franklin advised : "Don't give too much for the whistle". I agree with Mr. Franklin and have decided to wait for the right price.

Tail piece : The timing and the prices mentioned in the note might be slightly out of place. 8 years is a long time and memories fade. And it will be too much of an effort to go back and check out for the exact timeline and prices.

This is not an investment advice to buy or sell shares of Hawkins Cookers Limited.

Monday, 1 September 2014

Notes from the AGM- Cera Sanitaryware Limited

Cera Sanitaryware Limited held its AGM on August 22, 2014 at its registered office cum factory at Kadi (Dist. Mehsana) , around 60 kms from Ahemdabad.

I decided to combine the AGM visit with a vacation in Gujarat. The trip included a visit to Sun Temple@ Modhera [an architectural masterpiece]; the place where the first ray of sunlight falls on the days of the equinoxes [March 21st and September 23rd every year]. It happens because the Tropic of Cancer passes exactly through the site of the temple.

The AGM started with the usual warm up session of a few shareholders sulking and grumbling about the payment of a low dividend. Does the low dividend matter since the management has been conservative with the capital and has been competent in deploying the capital at good rates of return ? Does the low dividend matter since the market has rewarded the shareholders with a considerable valuation jump in the equity of the company? 

Cera has been able to historically deploy capital in the business at 35% [pre tax ROCE] and 40% [pre tax ROE]. The company is growing at its top line at 30% and has a long run way to cover. It needs capital to grow and any dividend pay out is actually a loss making proposition since 17% of dividend goes to the Government as distribution tax. As long as the management is able to enhance the competitive advantage of the company and is able to deploy capital at healthy rates of return, low dividend or no dividend shouldn't bother the shareholders.

The following is the jist of the opening remarks of the management and replies in response to shareholder queries.
  1. The company plans to increase its sanitaryware capacity to 3.2 mn pieces at the current location at Kadi.
  2. Plans are in the pipeline for a new greenfield capacity expansion in sanitaryware. No location has been finalized till now. It depends on the ease of land acquisition, gas linkages etc. Once finalized, the plant will take around 15 months to be commercialized.
  3. In the faucetware business, the company has been able to streamline the manufacturing and distribution process. The division has turned profitable and the EBITDA margins are around 10%. The capacity will be enhanced from 2500 pieces per day to 7500 pieces per day in a phased manner.
  4. The management finds that the real estate sector is still going through a tough time with a lot of builders sitting on a good amount of unsold inventory and massive debt. Builders are facing a cash crunch and hence Cera is cautious about supplying its material to the builders unless it is very sure of the payments.
  5. In order to lower its dependency on the builders, Cera is aggressively scaling up its distribution network and enhancing brand promotion exercises to get more share of the retail sales.
  6. Cera currently sources around 60% of its gas requirement from ONGC /GAIL [@Rs 12 per cubic meter] and 40% of its requirement from Sabarmati Gas [@ Rs 45 per cubic meter].         
Hike in gas price was a big risk to my Cera's investment thesis. After knowing that the company already sources 40% of its gas requirements at imported LNG market rates and that it has been able to pass on the high gas price to the customers, I don't find hike in ONGC/ GAIL gas price as a serious threat to the future earnings of Cera.         

Thursday, 7 August 2014

What's in a name?

"What's in a name ? That which we call a rose by any other name will smell as sweet."- quoted Shakespeare in his play Romeo and Juliet. Well he may have been right about the times that he lived in. Today, Name [Surname] makes a lot of difference. And if Shakespeare were alive today, he would have agreed with me.

Let me give you an example. A few days back, I got up in the morning to see the photo of the arrested CMD of Syndicate Bank right on the front page of the newspaper. First thoughts : What on the earth does a CMD need to do something so despicable? He must already be having a good amount of money [white money], reputation and status in the society. Why do people bet what they already have and do need to achieve something which they don't have and don't need ?

Second thought : OMG, He is a Jain. I am also a Jain. Shame on him !
Though I am agnostic to religion and caste but the same surname does ring a bell inside. 

Why did the CMD stoop down so low? I think the road to becoming a CMD is extremely slippery and sometimes one might require to play hand in glove with the powers to be; to become a CMD. And once into the game, there is no U-turn. You have to continue pleasing the people who helped you in the first place or you become a prisoner to kleptomania. Neither is easy to get rid of.

And another party in the deal was Bhushan Steel. The Vice Chairman of the company has been on the run while the share is in a free fall. May be the shareholders should change the name of the company from Bhushan Steel to Bhushan Steal. Shakepeare would have agreed.

Thursday, 22 May 2014

Is a condom a drug or a device or a just a sheath in between ?

Just pause for a few seconds before reading any further and think about the question I raised in the title of the post. Which category does a condom fall in ? A drug ? A device ? Or a sheath [protective covering] ?
If this question were to be posed to a set of adult, sane, rational and pragmatic humans; most likely choice might be a sheath, with device as a choice opted by a few and drug might be the least preferred option.

But if you were to ask this question to a lawyer or a law maker, he or she will first refer to the rule book or a dictionary. Now, this is how a dictionary describes the 3 terms :
A drug is, in the broadest of terms, a chemical substance that has known biological effects on humans or other animals. So, a condom is indeed made up of chemicals and surely has biological effects. No doubts about that. Thus, a condom might fit the definition of a drug. A device is a peripheral, attached to a part that expands its functionality. Well, condoms are peripherals and they are attached to a part. And some variety of condoms [ribbed, dotted ...etc.] do expand the functionality. Hurray, condoms satisfy the definition of a device also. Sheath is a protective covering or a wrapper. No confusion about it. If a condom can be a drug, if it can be a device, it surely can be a sheath. 

So, a lawyer will while making things clearer will leave you more confused than ever. No wonder, Shakespeare quoted in Henry The Sixth, " The first thing that we do, let's kill all the lawyers". 

Why am I talking about condoms all of a sudden? First reason is that with markets flying high with Mr. Modi in the cock-pit, there's nothing much to do. Secondly, my visit yesterday to a neighborhood chemist. The pack of my preferred brand of condoms which used to cost Rs 200 a pack was billed for only Rs 65. I blinked my eyes in disbelief and checked the price again. It was indeed 65. What's going on ? Condoms selling at 70% discount. I had an inkling that Acchhe din aane waale hain but didn't know that Acchhe din itni jaldi aane waale hain. A brief chat with the chemist revealed that the Government has fixed the maximum selling price of condoms and no condom can sell for more than Rs 6.5 a piece. I checked the price of all other condom brands and yes, he was right, the maximum price that a condom was selling for was Rs 6.5. I couldn't believe this. What business does a Government have in fixing the price of ...of all things ....condoms?

A quick search on Google revealed that indeed the chemist was right. The Dept. of Pharmaceuticals has fixed the maximum price of condoms through a Drug Pricing Order under Essential Commodities Act. The department has argued that a condom is an essential drug and hence pricing regulations apply to it. The companies selling the contraceptives have approached different High Courts at Delhi and Madras against the order. Here and here. As rightly argued by one of the companies, the cap on the prices would force the companies to stop production of premium condoms as they can't be expected to sell below the cost price. True, as Jim Rogers said "You can control the price or the supply but not both." If this mindless capping on the price continues, sooner or later, the luxury or premium condoms will vanish from the shelves.

With that stretch of logic of the pharmaceutical department, products like Dettol, Fair & Lovely, Bournvita, Complan and hundreds of other over-the-counter products can fall under the drug pricing regulations. Somebody forgot to remind the law makers that laws are at their best when they have a bedrock of common sense and not otherwise.

The department of pharmaceuticals has finally decided to set up a standing committee to look into the matter. My suggestion to the committee : Sit down, relax , take a deep breath and think logically about this issue. The future of this country is in your hands, literally.

Monday, 28 April 2014

How do you think about Macros ?

A few weeks back, I delivered a few lectures on value investing at a business school. A general query which came up during the lectures was on the importance of macro economic indicators and how I dealt with them.

My reply was : "It's very simple. I don't think about macros". 

The very aspect of thinking about the direction of the market, interest rates, movement of currencies, gold, silver, prediction of weather, prices of sugar, rubber, steel, cement and everything else under the sun can contaminate thinking and lead to huge errors of omission and commission. 

What I focus on is the business, its economic characteristics, the people managing it, the gap between the value and the price and the downside risk to the investment. To me, this is what comprises the nucleus of investing and everything else is  noise.

I have compiled 3 excerpts from OIDs [Outstanding Investor Digest] where Buffett and Munger beautifully explain the whole concept of focusing only on the business and nothing else.

1. Macro view. How even Graham got it wrong? Focus on what’s knowable and important. [OID June 1992. Page 41]

Buffett: When I got out of Columbia, the two people I respected most in the world – my dad and Ben Graham – both generally encouraged me about eventually going into the securities business. But they both thought that it was a terrible time because the Dow had risen above 200. And there’d never been a year in history when the Dow had not at some point sold below 200. And both of them thought that it might be a good idea to wait awhile.
 I had about ten thousand bucks then. If I’d waited, I’d probably still have ten thousand bucks….
 Buffett: We’re in businesses we think we understand reasonably well and that we’re reasonably well suited for. That we should get out of such businesses because of factors we don’t have any edge in understanding … just doesn’t make sense to us.
 Phil Fisher said that the important thing in investing was to focus on what’s knowable and important. There are all kinds of things that are knowable and unimportant – and you can forget about those. What temps to error, of course, is the attraction to things that are unknowable, but important.
 The real trick is knowing that there’s something knowable and important that you can focus on. And the real test is whether, if you focus on things that are knowable and important, can you overcome the unknowable. And I think that the answer to that is yes – barring something that’s so extraordinary that it wouldn’t make much difference what you did in respect to it….
 Munger: We’re emphasizing the knowable by predicting how certain people and companies will swim against the current. We’re not predicting the fluctuations in the current….

       2.  No attention to macro economics. Focus only on the business.    [OID June 1992. Page 40]

Buffett: Charlie and I spend essentially no time really thinking about macro factors. In other words, if somebody handed us a prediction by the most revered intellectual on the subject with figures for unemployment or interest rates or whatever it might be for the next two years, we would not pay any attention to it.
 We simply try to focus in on businesses that we think we can understand and where we like the price and the management. We read no macro-economic materials. And if we see anything in the paper that relates to commentary or predictions about what’s going to happen in Congress, we don’t even read it. And we don’t talk about it. We don’t attend the seminars. We just don’t think that it’s helpful to have a view. Now that’s very different than many investment organizations.
 I’ve seen presentations in many investment management organizations where it’s customary to substitute top down analysis for common sense. First, they start with what’s going to happen in the universe and then keep narrowing it down…. You’ve got this great averaging of IQs operating in a largely offsetting fashion. Charlie and I think that just tends to be nonsense.
 If you’re right about a business, there are going to be all kinds of factors that happen next week, next month, next year and so forth. But the really important thing is to be in the right business.
 The classic case is the product right here. Coca-Cola went public in 1919. And they sold stock at $40 a share. The interesting thing about it is that a year later, the stock was down to $19-1/2. Sugar prices had changed after World War I pretty dramatically. So you’d have lost half of your money one year later if you’d bought it when it first came public.
 But if you owned that share today and had reinvested all of your dividends, it’d be worth about $1.8 million. We’ve had depressions. We’ve had wars. Sugar prices have gone up and down. A million things happened. How much more fruitful is it for us to think about whether the product is likely to sustain itself and its economics than to try to be guessing about whether to jump in or jump out of the stock?
 A lot of people made money owning that stock for a long period of time. And that’s how people make money – not trying to anticipate natural events and then decide whether they want to be in Coca-Cola or something else.
 If you’re right about the business, you’ll be right about your investments over the long term.
 Buffett: The other stuff –advisory letters about political trends and all of that sort of thing, I don’t know anybody who’s ever really made any money by doing that.
 Charlie, do you know anybody who’s made money doing that?
 Munger: No…. And I don’t like listening to it either.
 Buffett: You see how receptive and broad minded we are. And bear in mind that we’re at our most receptive at this meeting….
 You can always sit down and list a hundred favorable or a hundred unfavorable factors affecting the economy or the market. The weight you put on any particular one and whether it’s on one side of the ledger or the other may reflect what you ate for breakfast that morning, your political views or a whole bunch of things.
    We’ve just never found it useful to try and think in those terms.
      3. No opinion on the markets.  [OID June 1994. Page 19]

Buffett: You may have trouble believing this, but Charlie and I never have an opinion about the market because it wouldn’t be any good and it might interfere with the opinions we have that are good.
  If we think a business is attractive, it would be very foolish for us not to take action on it because of something we thought the market would do or anything of that sort – because we just don’t know. And to give up something we do know that is profitable for something we don’t know and won’t know just doesn’t make any sense to us.
 And it just doesn’t really make any difference to us. I bought my first stock around April of 1942 when I was 11. We were in the middle of World War II at the time. And our prospects didn’t look all that good. They really didn’t. We weren’t doing all that well in the Pacific at that time – although I’m not sure that I factored that into my purchase of three shares. And just think about everything that’s happened since; the advent of atomic weapons, major wars, a President resigning, inflation and all kinds of other things.
 To give up what you do well because of guesses about what’s going to happen in some macro way just doesn’t make any sense to us.
 Buffett: The best thing that could happen from Berkshire’s standpoint – and I’m not wishing it on anyone – is to have markets go down a tremendous amount. If you asked us next month whether Berkshire would be better off if the whole stock market were down 50% or where it is now, we’d tell you that we would be better off if it were down 50%. We’re going to be buyers of things over time. If you’re going to be a buyer of groceries over time, you’d like grocery prices to go down. If you’re going to be buying cars over time, you’d like car prices to go down.
 We buy businesses. We buy pieces of businesses – stocks. And we’re going to be much better off if we can buy those things at an attractive price than if we can’t.
 We don’t have anything to fear. What we fear is a long, sustained irrational bull market. As Berkshire Shareholders – unless you own your shares with borrowed money or might be selling them in a very short period of time – you’ll be better off if stocks get cheaper because it means we can do more intelligent things for you than we could otherwise.
 Buffett: We have no idea what’s going to happen. And we wouldn’t care what anyone thinks – least of all us.
  Munger: If you’re an agnostic about macro factors and, therefore, devote all of your time to thinking about the individual businesses and the individual opportunities, it’s a way more efficient way to behave – at least with our particular talents and lack thereof.
 Buffett: If you’re right about the businesses, you’ll end up doing fine.
 Buffett: We don’t know and we don’t think about when something will happen – we think about what will happen. It’s not so difficult to figure out what will happen. It’s impossible in our view to figure out when it will happen. So we focus on what will happen.
 Coke in 1890 or thereabouts – the whole company – sold for $2,000. Its market value today is $50-odd billion. Somebody could have said to the fellow who was buying it in 1890. “We’re going to have a couple of great World Wars. There’ll be a panic in 1907. All of these things are going to happen. Wouldn’t it be better to wait?”
 We can’t afford that mistake.


Friday, 18 April 2014

Update on Shree Rama Multi-Tech Limited

The open offer of Shree Rama Multi-Tech Limited closed on February 04, 2014 and the money for accepted shares was credited on February 14, 2014. After a series of lower circuits , the stock price settled at 3.10 and I sold all my unaccepted shares on February 28, 2014.

You may access my earlier post on this case here.

The acceptance ratio for the offer turned out to be 36.35%. The ratio turned out to be poorer than both the ratios of 54% and 43% which I thought to be highly probable and worst case scenarios respectively. So, in effect a far larger number of shares were tendered in the offer than what I had expected. 

The probable reasons for the lower than expected acceptance ratio could be :
(1) my overoptimism about a higher acceptance ratio in the first place 
(2) lower number of "dead" or "brain dead" investors 

Conversely, I was able to sell the unaccepted shares at Rs 3.10 which was far higher than Re 1 which I had inbuilt in my workings. 

Overall, the trade resulted in a marginal profit of 2.33% after all costs; over an average holding period of 25 days.

Was this trade a disappointment ? Well, I don't think so. The returns may not have been in line with my expectations but it was a beautiful trade. A set of such opportunities over a lifetime should result in very satisfactory returns in aggregate.

Friday, 4 April 2014

The Next Great Market Opportunity- Sanitation for India's Poor [From the Blog of Bill Gates]

From the blog of Mr.Gates :  "According to a recent World Bank report, inadequate sanitation costs India nearly $54 billion a year – equivalent to 6.4% of India’s GDP. Some smart people are starting to realize that on the flip side of this economic penalty is a big economic opportunity. As the World Bank report notes, improving India’s sanitation infrastructure could be a $152 billion market." 

Phew ! That's a huge sum of money coming off and for the poop.

Mr. Gates is certainly not interested in the money or the market opportunity that the sanitation market provides. He is interested in the societal, health and environmental benefits that an affordable, safe and a hygienic toilet can provide. By throwing an anchor of opportunity, he is nudging people to work on world class but affordable solutions which can cure the ills the sanitation market suffers from. 

"Four out of 10 people worldwide don't have a safe way to poop. Find out why we need a toilet revolution. We need new ideas to help reduce disease and find new ways to turn crap into valuable stuff, like fuel, fertilizer, and fresh water." And what a way better to solve than to throw a problem; and challenge people to come up with innovative ideas having the potential to be turned into nice pile of dollars.

Where does Cera Sanitary fit into this ?

Well, with around 63 crore people in India not having access to affordable sanitation, there is a long runaway ahead for Cera and other companies involved in the sanitation industry.

But the 63 crore people will probably be the first time owners of a toilet in their homes. Will they be the potential customers for Cera ?

Some of them would be immediate customers, especially people who can afford to have Cera's products but never had the willingness to have a toilet at home. Others will follow suit with the passage of time, increase in the purchasing power, enhancement of aspirations and social proof.

What does Cera need to do in order to cash the opportunity ?

Cera ought to keep a laser focus on its operations, remain alert to the changes in the technologies
[toilets consuming less water, waterless urinals etc.] even though the rate of change is expected to be small and have enough supply in time to meet the demand.

Sunday, 9 February 2014

Work Outs, Richard Zeckhauser & The Curious Case of Shree Rama Multi-Tech

Special situations [workouts involving mergers, de mergers, open offers and other similar corporate actions] occupy a very special place in my mind and my investing philosophy. Working on special sits for me is akin to forensic science. Looking for information, finding out clues and working out the case is like solving a murder case or finding out a lost artifact.

I have worked on such cases in the past and made a few good, a few poor and a large number of mediocre investment calls. I introspected and concluded that although the cases provided a lot of mental kick, they did not provide the commensurate financial returns. A lot of work-outs were illiquid, large amount of capital could not be deployed and returns were not good enough. In a nut shell, the return per unit of effort or time spent was not adequate.

Thus, I wrote the following 4 point checklist to weed away the poor or mediocre situations and concentrate only on the ones which are promising.
  1. Downside protection. The work out should provide immense downside protection. The odds of making 3 times the investment if I win and losing 100% of it if I lose, will not classify as a special sit. [All options would classify as special sits with this criteria]. I may invest my money with the above odds but I will not look at that situation as a workout.
  2. Liquid. The workout should be liquid enough to deploy/withdraw money in a reasonable period of time.
  3. Absolute Returns. The workout should have an expected absolute pay-off of atleast twice the bond yield. [minimum 15% absolute return in today's terms]
  4. Conviction to put atleast 10% of the portfolio. The work out should be so good that I get convinced to deploy atleast 10% of my portfolio.
Looking at my historical investment book and also analyzing the above filters over the last few months, I think that 95% of the potential corporate workouts would not pass one or more of the above criteria. A lot of time and mental energy would thus be saved by simply avoiding those situations and concentrating on the good ones [or waiting for the loose balls in cricket parlance].

Prof. Sanjay Bakshi shared a paper titled : "Investing in the Unknown and the Unknowable" written by Richard Zeckhauser. It's one of the most fascinating papers I have read and it opened my mind to the world of great investment possibilities. You can find the paper here. The paper runs into 41 pages but the first few pages contain most of the ideas. If after reading some pages, you start hallucinating like Darsheel Safary of Taare Zameen Par, you can put the paper to rest without missing a lot of action.

Scanning the corporate announcements a few days back, I came across the open offer of Shree Rama Multi-Tech Limited. The offer was under litigation since 2005 and was recently cleared by SEBI after a decision by the Supreme Court. The offer price was 18.60 and the market price was 8.50. I read about the situation and formulated my thoughts in this document.

I think the situation was similar to "Head I win, Tails I don't lose much" strategy propounded by Mohinsh Pabrai with some UU characteristics thrown in. I thoroughly enjoyed working on the case; whether it will lead to financial gains or not only time will tell.

Disclaimer : No recommendation to buy or sell the stocks discussed in the blog.