Section 1 – The practice of fundamental analysis 

  • How analysts make investment calls? 
  • About the book
    Section 2 – About the Finance Lab
  • About learning insights and developing intuition for investing
  • How historic valuation multiple trends help
  • Algorithm and market patterns that work
    Section 3 – Making investment decisions
    Reading financial statements
  • Understanding size, growth, margins, hygiene and establishing investor interest
    Making forward projections
    Finding Equity Levers
  • Material information, spotting the change, what to look for in news/ analyst reports, how deep should you analyze a company, how to find multi baggers?
    How to assign multiples
  • The basics of valuation, mathematical quirks of trailing PE, valuation multiple thumb rules, the 2 aspects of forward P/E ratio, Price Earnings Growth (PEG) basis, finding historic valuation range, assigning forward multiple, the data patterns we like
    Concluding Important Points
    About us

Section 1 – The Practice of Fundamental Analysis

Fundamental Analysis is a holistic approach to study a business and assess stock performance. This requires basic level skills in accounting, financial analysis and valuation. The fact that there are millions of successful investors tells us that expert level knowledge is not necessary in these disciplines to succeed as an investor. Having said this, investors do need to develop a strong common sense to judge business trends and build skills to identify market patterns which then help in taking strong conviction investment calls. These financial and economic patterns can be learnt by anyone interested in markets by regular observation and practice. It is well known that human beings learn faster through pattern recognition as opposed to text book narratives. This book and the specially designed Finance Lab enable data pattern recognition.

Some notable examples of successful market patterns in fundamental analysis

Before we start, lets examine a couple of examples of Earnings Data Pattern.
Example 1 –Sport King India Ltd
Share price has increased from Rs 800 to Rs 4000 currently. A 5x (times) increase in 6 months. This increase is contributed by substantial increase in net profits - from Rs 10 cr per quarter to Rs 80 cr per quarter. An 8x increase in profits.

Data source: www.equitylevers.com/financelab, a unique finance terminal for valuation multiples
If you track companies, as part of earnings data pattern, this company would have come up. From January 2021 onwards, the earnings data pattern would show this as a potential buy. Of course, some understanding of the business drivers will be necessary (discussed later). Despite sharp increase in profits and price, notice that PE has remained at around 7 times and accordingly continues to hit upper circuit even as recently as August 12, 2021. (see chart below, last column)

Example 2 –​  Maruti Suzuki India Ltd
Share price has remained range bound over past 4 quarters at around Rs.6,000 - Rs.7,000. Also profits have remained range bound and has further taken a sharp fall in current quarter.

The lack of growth is clearly visible and valuations high when viewed as a trend line. This company would not show up on the earnings data pattern.

Who can benefit from this book and our Finance Lab

Learning to think of “probable future outcomes” and also have the flexibility to keep changing opinions based on new events and information is a key skill for the field of investing.   This skill is best developed through observation and practice.  We have incorporated a number of new features to enable learning and practice of investing as described in the picture below. (More on this in Section 2)  

Our application based approach will help the following users.

Finding historic valuation range - As we have discussed, historic valuation tables are very useful and provide good indication of how market assigns valuation multiples to different companies. Here is the table below our Finance Lab for Maruti Suzuki for the last 10 years. It shows growth, ROE and P/E ratios for past 10 years.

Data source: www.equitylevers.com/financelab, a unique finance terminal for valuation multiples

From the above data, it is easy to observe the below points:

In our expert videos section will cover many companies and their valuation observations that you can watch and learn.

“You don’t need to predict how everything will play out. Just master the next step and continue moving in the right direction”James Clear.

There is risk to investing. Future is uncertain and it is impossible for any one to fully understand what will happen. Jeff Bezos, the famed founder of Amazon.com has said he makes an investment decision if he can build reasonable clarity (60%) about likely future outcomes. This holds true for markets most of the time and we have to invest basis 60- 70% clarity about the future.

Additional practical thumb rules:

As you will note, most of the above is observational skills and not complex financial or accounting or business knowledge. These skills can be built within 1 month by learning from examples and systematically tracking and analysis. This will set you up on a fun- filled journey into continuous learning and successful investing.