Past year was a good one for me in terms of learning. And i want to share some key ideas I inculcated in my framework for investing, and would love to have readers feedback.

-Thinking about the E in P/E. Many times we err to take the current steady state earnings of the company for granted and attach a multiple to it. We should think rigorously about how robust/sticky are current revenues and earnings, before  thinking about growth.

E.g When RS software started plummeting, i was hearing from lot of market participants that its getting cheap on FCF yield, p/e etc. Now we are seeing that   companies revenues and profits have started declining, hence it was a futile exercise to attach multiples to previous year’s earnings.

-At times we get carried away by the fancy of investing in turnaround stories/high growth sunrise sectors. My sense is we should wait for some kind of visibility to show in quantitative data, meaning, sales and profit figures.

-Learning deeply about one particular subject/ industry. Your mental strength will be tested during times of market turmoil, and it serves good to have a good sense of business value and focussing on it.

“A certain amount of immersion in a topic will provide disproportionately more insight than an executive summary.” Silver, Nate

-Some “first principles thinking,” a mode of inquiry that relentlessly pursues the foundations of a problem …

Collating key facts independently..First forming a hypothesis and then using qualitative and quantitative data to support/deny it.

e.g Is the demand secular/cyclical, runway for growth, disruption threat etc

-Markets are rapidly expanding in many sectors we are seeing domestically e.g Dairy, Jewellery, Advertising, Pharmaceuticals etc but the consolidation has to happen sooner or later, or already happening in some micro markets, see how good is your company’s  resilience to competition.

-Missing forest for the trees …Its good to go deep into a subject but don’t fall into the familiarity trap that if you know too many details about the company, your thesis is strong …Don’t lose sight of the key questions.

-Keeping the idea pipeline rich, where you may not invest but keep a track of certain business and key factors to jump in at the opportune moment. Or a you may feel like a exiting a holding when certain factors go wrong and having your next best idea ready comes in handy.

-Liquidity in portfolio is good , it gives you an option value for opportune times in the market.

-Paranoia is good … Keep visiting your key points in the thesis again periodically as most of the times understanding of a company increases with time for which you have been invested.

P.S. Interaction with lot of fellow investors have helped me shape my thinking on  above mentioned areas and i am deeply thankful to them for sharing their wisdom in a more than generous manner.