According to a recent New York Times article, Bruce Springsteen’s music catalog was sold for $550 million. According to Billboard, after deducting costs of production and distribution, about 20% of revenues, the master recording and publishing catalogs earn $17 million per year.

We had written in March about inflation creeping into the economy. It is now clearly visible in the data, as well as anecdotally. The Federal Reserve Chair is now considering the possibility that inflation may stick around for a while.

We have spoken earlier about investing in Public Sector Units (PSUs; government owned and controlled companies), and why they should be avoided, as a thumb rule, by long-term, fundamental investors with small capital. Today’s reaction in IRCTC’s stock starkly illustrates the point.

Many people think that an important benefit of investing in the public equities market is that they can withdraw or liquidate the investments at short notice. While investing, the liquidity in equity markets should at best be viewed by the long-term investor as a marginal benefit. It’s not a good primary reason to invest in the stock market. If liquidity is a priority, we should keep our money in a bank account or fixed deposit.

The Price-Earnings – or PE – ratio is used very often by investors and financial analysts to gauge the price level of any given company’s stock. It is the ratio of the price of the stock to the earnings per share of the company in any given year. In very broad terms, all else being equal, the lower the PE of a share, the cheaper it is considered to be, and the higher the PE, the more expensive it appears. This is a very broad brush. All else is not equal.

If you follow the Indian securities markets, you may often come across news about SEBI appealing an SAT order on some case or the other.

Our Fund Manager, Rishi Gupta, was invited to speak by the Pune chapter of the World Zarathushti Chamber of Commerce on Wednesday, August 25, 2021. The topic of his talk was “Where To Not Invest”.

The video is posted below.

https://www.youtube.com/watch?v=Oe6TI4EmpW0&t=1s

Total bank credit in India as of July, 2021, was 109 lakh crores. Between bank credit and corporate bonds, it is bank credit that does the heavy lifting of providing debt capital to commerce in India. Total outstanding commercial bonds are only about one-third of bank credit (33 lakh crores in 2020). This includes bonds issued by banks themselves.

The Securities and Exchange Board of India (SEBI) has introduced the concept of “accredited investor” to the Indian securities markets. Accredited investors will not be subject to minimum investment thresholds for Alternative Investment Fund (AIF; minimum investment one crore rupees) and Portfolio Management Services (PMS; minimum investment fifty lakh rupees) investments.;

In the AIF regulations, SEBI has defined Accredited Investor [individual] as

The world is a complicated place for companies. Commercial, social, ethical, environmental and governance issues intersect and intertwine in many different ways. Companies and investors often talk about “doing good” and making “ESG” goals a priority. Governments try to enforce doing good through measures like mandatory CSR (corporate social responsibility) allocations.

Our contention is that it is not easy to identify or measure how much good or bad is being done by a company.

IPOs are highly marketed events. There is an entire intermediary ecosystem that is built to package and sell an initial public offering. These intermediaries have their incentives aligned with the sellers of the IPO. The sellers are either the existing shareholders, or the company itself that is issuing new shares. On the other hand, the buyers in an IPO are all the investors that are generally present in a public equity market, which includes individuals or retail investors.

SEBI has recently revised its reporting format for Portfolio Management Services (PMS) to include more detailed information regarding their operations and performance. This is a good step towards furthering transparency in the asset management industry and is intended to help the investing public in their selection of the right product or service for their portfolio.

Shepherd’s Hill has completed 10 years of investing in the Indian equity markets. It is a significant milestone for any investment organisation. We would like to acknowledge the completion of the first decade by sincerely thanking all our clients, partners and teammates for making it possible to achieve our ongoing objective: to provide investors in the Indian equity markets with protection of capital and superior long-term returns.

The world economy is a huge and complex organism with many, many moving parts. Predicting macro-economic trends – growth, interest rates or currency fluctuations – is a hazardous profession.

The Bloomberg article linked below is a good description of how a change in one corner of the world may affect something seemingly unrelated in a completely different sector and country.

Continuing from last week’s discussion about the difference between volatility and risk, here are comments made by Warren Buffett on this topic at the 2007 Berkshire annual general meeting:

… Volatility is not a measure of risk.

… people who have written and taught about [risk] do not know how to measure risk.

For the long-term value investor, volatility is not risk. This is a very important concept in the investment business. Many people, from analysts to aggregators of performance, from traders to teachers of corporate finance, use volatility as a stand-in for risk. Numerous conventional measures, such as the beta of a stock and the Sharpe ratio of an asset, incorporate the volatility of returns into the analysis of risk and “risk-adjusted” returns.

The US Federal Reserve just released the minutes of its April joint meeting with the FOMC (Federal Open Market Committee), in which one sentence talks about reducing the pace of monthly asset purchases (up to $120 billion) that the Fed has been making since the Covid crisis began. The Fed’s asset purchases are used to ease liquidity conditions and boost the economy.

A recent report by Kotak Institutional Equities observes that almost 70{fa12a1ddfd2e9511e425ffa82d03ff10cf8f6b496ca27868adfa8056076e54a2} of the portfolio of mutual funds and more than 70{fa12a1ddfd2e9511e425ffa82d03ff10cf8f6b496ca27868adfa8056076e54a2} of portfolios of other financial institutions like banks and insurance companies is invested in just 40 listed companies.

In our previous post, we talked about portfolio churn and how it can be a good indicator of the quality of an investor’s process and portfolio. Similarly, the liquidity or churn in the shares of an individual company can also be an indicator of a different type of quality.

Portfolio churn is an important indicator to consider when assessing the quality of a fundamental long-term investor’s process.

Portfolio churn can be calculated as the value of sells (or buys) in a given year divided by the average value of the portfolio during the