Category: BookReview

As the old saying goes, “The problem of getting experienced is you keep forgetting what the experience was.”

As such, I like to read textbooks as it helps brush up concepts etc

The textbook ‘How to Read a Cash Flow Statement’ as the title suggests is about Cash Flow Statements,How to prepare them etc

It is a very basic textbook and can be a good introduction to beginners.

What I found a bit disappointing, there was not much on Cash Flow Statement Analysis which was the primary reason I bought the book.

Do buy this book only if you are a beginner.

I feel a bit obliged to write a Book Review on this book as it was gifted to me by the co-author Ian Cassel, who is well known for his insightful tweets and work at the MicroCap Club.

The Book takes off from an earlier book-The Intelligent Fanatics Project– and covers the profiles of nine intelligent fanatics, including our very own Dr.Devi Shetty of Narayana Hrudayalaya.

Who or what are Intelligent Fanatics?

As per the Book, “Intelligent Fanatics are CEOs/management teams with unconventional ideas and a fanatical drive to build a high performance organisation”

As one reads the business stories of the various CEOs, some takeaways I personally imbibed:

• Culture is very very important…this is the key difference between companies that survive and that don’t.Indian Private Banks Vs PSUs illustrate this starkly
• Culture of the organization is set by the people at the top…So if the CEO steps down or there is a management change, the culture of the place can change.Good examples in the Indian context-RBL Bank, Safari Industries etc
• Great leaders focus on the customer….try to make things cheaper for them/easier for them.The more the customer satisfaction, greater the customer loyalty and more the growth of the business. DMart comes to mind here.
• Great leaders have great teams.Many times it is easy to make out which investments will look at great, by not looking at the #1 guy, but the middle managements. TCS,eClerx are great examples here.

Do buy this book if interested in identifying intelligent fanatics.

The Book “Fire & Fury-Inside the Trump White House’ is written by Michael Wolff and is creating waves around the world.

Written in a very gossipy style, the Book chronicles the absurd functioning of the Trump White House.

The Book delves into the different characters of the Book and their infightings in a very amusing manner and leads one to believe that truth is indeed stranger than fiction.

President Trump comes across as a complete dimwit and a nutcase in the Book.Apparently, he does not read at all (except press cuttings of himself) and as such,he is influenced by the last person who speaks to him on a particular topic !

In the author’s words, “the President is possibly an idiot and certainly a liar”

The President is also fairly vindictive by nature and this leads him to take decisions which he feels will harm his opponents.

We Indians unfortunately appear to be at the receiving end of this vindictiveness.

The High Tech industry in the US was united in their contempt for Trump and supported his opponent Hillary Clinton with funds,endorsements etc

This has led Trump to wanting to screw Silicon Valley and one way he intends to do it is by stopping H1B extensions-directly impacting around 5L Indians based in the US

Another interesting facet is how Trump and his son-in-law bungled in the Middle East.By directly endorsing MBS,the Crown Prince of Saudi Arabia, they emboldened him to seize power and put half his family in jail

One aspect of the Book I found interesting was the fear of the Trump family of the ongoing investigation of their Russian ties.The markets are probably ignoring the possibility of Donald Trump getting impeached.

Some aspects of the Book relating to American politics-their conservative,alt-right,Jewish-non-Jewish rivalries etc- may bore the Indian reader

The last word on the Book goes to President Donald Trump

I authorized Zero access to White House (actually turned him down many times) for author of phony book! I never spoke to him for book. Full of lies, misrepresentations and sources that don’t exist. Look at this guy’s past and watch what happens to him and Sloppy Steve!

— Donald J. Trump (@realDonaldTrump) January 5, 2018

Do buy this Book if you want a great insider perspective on the Trump White House

The Book-‘The Outsiders-Eight Unconventional CEOs and their radically rational blueprint for success’ is written by William Thorndike.

The Book got the rare honour of being recommended by Warren Buffett in his Berkshire Hathway Shareholder Meeting, 2012

What makes for a good CEO?The answer is capital allocation.

CEOs who can allocate capital well are the ones who are able to reward shareholders.

The Book covers the corporate tales of Eight Extra-ordinary CEOs who were able to generate returns to shareholders in excess of 20% per annum handily beating their peers and the broader indices.

How were they able to do so?The Book offers some clues:

• Getting rid of businesses which gave below par returns
• Focussing on cash,cash and cash
• Running lean operations
• Doing buybacks when their own stock traded below intrinsic value
• Doing acquisitions with cash when their stock traded cheap and with their stock when it traded expensive
• Using spinoffs to generate shareholder returns
• Eschewing dividends as it a tax-inefficient way of using capital
• Focusing on tax saving strategies and post-tax returns
• Incentive structures where employees own shares

While the stories in the Book are of the Titans of American Business such as Buffett,Tom Murphy,Malone etc, there are easy parallels to be found in the Indian context.

For instance, shareholders in PEL have benefited tremendously as Ajay Piramal is a master of capital allocation.He not only got a great price for his pharma business but was also able to deploy the capital effectively

Another example of a CEO trying to allocate capital judiciously and sell non-core businesses is N Chandra,Chairperson of Tata Sons.His moves should improve shareholder returns significantly.

A good example of a super smart CEO using his expensive stock to acquire is Uday Kotak.He got ING Vysya for almost free !

Do buy this book to know which CEOs to bet on.

The Book ‘Share Holder Yield-A Better Approach to Dividend Investing’ is written by well known researcher and fund manager Mebane Faber.

The # 1 job of a CEO is capital allocation.The way he allocates capital determines the success of the company and hence the stock price.

A CEO can deploy capital in only 5 ways:

1.Invest in Existing Operations

2.Acquire other businesses

3.Pay down debt

4.Pay dividends

5.Buy back shares

The Book uses Options 3,4 and 5 to determine the attractiveness of the stock from an investment perspective.

Some financial terms to be noted here:

Dividend Yield=(Trailing 12 months cash dividends)/Market Cap

Net Buyback Yield=(Trailing 12 Months Stock Repurchases-Stock Issuances)/Market Cap

Net Debt Paydown Yield =(Net changes in short &long term debt)/ Market Cap

Shareholder Yield= Dividend Yield+Net Buyback Yield+Net Debt Paydown Yield

Generally,people who invest for dividends use dividend yields as their sole criteria.

While this was an effective tool in the past, changes in the tax structure have made this less tax efficient companies.In the Indian context, we have seen large payouts to shareholders by companies like TCS,Infosys, Wipro etc by buybacks and not dividends.

Net debt payout is also important for shareholders as lesser the debt,lesser the interest costs and more claims of the shareholders on future cash flows.

Hence the author feels a combination of all three gives rise to a better way of measuring the payout to shareholders.

In his research, the author finds that using Shareholder Yield as a way to screen,rank and select stocks offers superior returns with lower drawdowns than just index investing or any of the other methods used alone.

Do buy the book if interested in quantitative methods of stock selection.