Tuesday, January 13, 2015

Past follies: Voltamp transformers

This is a classical case of missing the basics. This was another 2010 disaster for me.

Here is the learning:

  • A highly competitive industry with no pricing power is a bad idea - the numbers in 2010 looked good as the investment cycle was up and India was not seeing the slowdown.
  • If a company has net after tax margins below 10% then even a high ROCE is dangerous as it is capturing a very small fraction of the value it generates. Chances are pricing power is low.
  • Recession proof - Nothing is 100% recession proof but some companies fare better than others. In this case this is a highly cyclical industry.
  • Market share and brand - I did not pay enough attention to this.
  • NO Checklist means the latest piece of information that you have seen is what gets higher weightage - checklist is a must
  • Being cheap on P/E does not mean the stock is cheap as the earnings maybe a flash in the pan.

Overall over a 5 year period the stock has lost 15% or so.