TechnoFunda Investing
Hackathon – Session 3
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Vivek Mashrani, CFA
@MashraniVivek
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Riding the Tornado…!!!
Technology Adoption Life Cycle
• Supply Chain
• ERP; IT deployment
• Processes
• Branding
• Distribution Network
• Management Bandwidth
• Employee Training
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Tornado = ACCHE DIN
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Earnings + PE Rerating = Secret For Multi-Bagger Returns
Growth Stock
EPS Momentum 4 Loss of EPS momentum
EPS Estimate Revisions Negative Surprise
3 5
Traders; Quant Models Traders; Quant Models
2 6
Positive Surprise EPS Estimate revisions
1 7
Value Stock
Value Stock
No matter how big or prestigious a company is, when fundamentals deteriorate—namely, earnings—
you never know how far the stock will fall.
Source: Trade like a stock market wizard by Mark Minervini
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Spot the Tornado…!!!
Source: Eicher Motors Investor Presentation 2019
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La Opala in an Acche Din phase…!!!
4 to 160 >> 40x
La Opala FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Sales 75 96 115 154 178 223 249 235 259
PAT 2.8 9.0 13 23 30 42 59 62 73 ~25x (2010-2016)
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Dream Run of La Opala…!!
Gr x CAGR
La Opala FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 TTM
Sales 75 96 115 154 178 223 249 235 259 3.5 17%
PAT 2.8 9.0 13 23 30 42 59 62 73 26.5 51%
ROE 7.5 22.4 25 35.3 34.9 29.5 28.1 18.7 15.7 2.1
PEx 15.3 6.8 9.0 14.6 25.1 50.2 56.1 48.0 42.9 33.8 2.8
PBx 1.1 1.4 2.1 4.5 7.7 11.3 14.2 6.9 6.3 5.0 5.6
Mcap 42 63 114 334 751 2,093 3,293 2,986 3,149 2,464 74.2 71%
Source: Presentation by Samit Vartak, CFA at 2nd Value Investing Pioneers Summit – December 2018
Import duties on China, UAE etc. was key trigger for exponential growth
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La Opala Case Study
6 months provisional imposed on 09-Aug-2011
Extended for 5 years from November-2011
Source: [Link]
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Director General of Trade Remedies data
Source: [Link]
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Price Volume impact on Trends
Price Volume Implication for the trend
Scenario 1 Strong Uptrend
Weakening Uptrend
Scenario 2
(Lack of further demand)
Strong Downtrend
Scenario 3
(Extremely Dangerous Situation)
Scenario 4 Weakening Downtrend
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Nocil – Excellent example of volume + trend
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Lower Tops Lower Bottoms – Trend Change
High High
Trend Change Trend Change
LT LT
Low Low
LT LT
LB LB
LT
LB LB
HB
LB LB
Extensive use of this for various patterns and trend techniques..!!
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Higher Tops Higher Bottoms – Trend Change
HT HT
LT
HT HT
HB
HT HT
HB HB
High High
HB HB
Trend Change Trend Change
Low Low
Extensive use of this for various patterns and trend techniques..!!
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Head and Shoulder
Head
3
Shoulder (Left) Shoulder (Right)
1 ?? 5 LT >> Sideways confirmed
X
Downtrend
confirmed
7
2 Neckline 4
Pullback
6
X
Prior Uptrend Target Price
??
??
Volume
Profile
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Head and Shoulder – Criteria & Psychology
§ A prior uptrend is in place; Bulls are in full control signified by higher top at 1 with increasing volume
§ Corrective dip to point 2 making higher bottom; Volume is much lower during dip showing bulls are still in
control and correction is more of profit booking rather than fresh sell-off
§ A new rally starts to point 3 and makes higher top but on relatively lighter volume than earlier top at 1; Sign
of caution; Bulls might have lost some steam but still sell-off has not started, bears still sitting on the fence
§ In the corrective dip after point 3, the support of previous top (1) is broken; This is another warning sign
implying that something is wrong with the uptrend
§ Decline further approaches previous reaction low at 4 forming a neckline which is now strong support zone
§ Third rally attempt starts to point 5 with light volume (should be ideally noticeably lighter than previous two
peaks) and fails to reach the previous top of 3 (forming lower top) implying uptrend is breached and
sideways signal is confirmed
§ The downward movement from 5 breaks the neckline support with heavy volume and closes below neckline;
This signifies that downtrend is in place and bears have assumed full control
§ There is pullback to point 7 with low volume again confirming downtrend is in place (one more lower top)
§ This is then followed by further downtrend with increasing volume
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Rectangles (Channel Breakout)
Breakout
Resistance
Pullback
Consolidation
Channel
Prior Uptrend Support
§ Bulls are in full control during an uptrend, then suddenly it enters into consolidation mode (sideways trend)
§ Sideways can last several weeks on long term charts (longer the channel the better)
§ Relatively the volume is much lower in consolidation channel; Upper band forms resistance and lower band
for support line (can be used to trade during sideways)
§ Upside breakout happens with heavy volume usually breaking upper band; Whipsaws and pullbacks are
normal in this pattern; One should watch-out if this turns to triple top reversal pattern
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Sudarshan Chemicals….weekly multi-year chart…
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Pennants
Prior
Downtrend
Prior
Uptrend
Volume Volume
Profile Profile
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Linde India (Delisting special situation)
THANK YOU FOR YOUR TIME
ALWAYS BE HUMBLE