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The Musk of a Dynamic Business Model – Part 2

This is the second post and final post of this series. To read the first please go to this link.

One thing that connects both Tesla Motors and SolarCity is renewable energy. Lower oil prices, shale oil, and the huge reserves of oil and gas that have not been tapped into still offer energy sources that can sustain humanity for a few centuries. But the clamor for sustainable energy sources that has gained steam at the turn of the century has meant that our profit maximizing capitalist is looking towards renewable energy. Indeed, the UK even has a green investment bank. But being highly capital intensive as well as offering less energy than what can be produce from fossil fuels, renewable energy is not a particularly attractive option for the capitalist looking for a decent return.

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The Musk of a Dynamic Business Model – Part 1

Elon Musk does not think small. Neither does he think narrow. The South African born entrepreneur has managed to dip his fingers into a number of industrial sectors to varying degrees of success. With SpaceX (Industry Sector: Space Exploration), Tesla Motors (Industry Sector: Automotive) and SolarCity[1] (Industry Sector: Renewable Energy) remaining going concerns, Musk has etched his way into the global consciousness as someone who can achieve whatever he puts his energy into.

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Pat Dorsey – The 5 rules for successful stock investing

I first came across Pat Dorsey when I read The Little Book That Builds Wealth. Prior to that I had no idea about who Pat was. I was blown away by that book. It explained some of the most important issues in investing in the simplest possible language. That is why, when I came across The Five Rules for Successful Stock Investing I had high expectations from it. The book did not disappoint.

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Making banking a public good

Following the financial crisis, the banking model was criticized for being inherently unstable. There were two key reasons for this instability: first, the fractional reserve model in which banks keep a percentage of their deposits within the coffers and lend or invest the rest was thought to encourage irresponsible decision-making. With deposits being insured by the central bank up to a certain limit, moral hazard is a cause for concern. Secondly, the money creation process allows the central bank to create money through the act of lending, or more generally, the utilization of debt finance.  Since money is no longer tied to anything tangible, the central bank effectively has a carte blanche to print as much money as it chooses. What limits its’ discretion is inflation and the fact that the money goes to commercial banks. Banks in turn will have to lend out, but will have to ensure they lend to people who can pay it back. This means that it is incumbent on the borrower to make a sufficient amount of profit from the sales of goods and services. If there is inflation, the value of money will decrease, making goods more expensive. Central banks and commercial banks need to ensure a balance the amount of money in the system with the amount of goods and services.

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Amitabh Singhi and value investing

Are you a student of value investing?

If the answer to the above question is a “Yes” then DO NOT miss the Value Investing Podcast series brought to you by the same guys behind the Manual of Ideas. This podcast series has interviews with some of the top investors of the world including Pat Dorsey (Morningstar), Guy Spier, Robert Hagstrom etc. I also found one with my former boss Caglar Somek of Caravel Management.

However, the episode that I loved the most is the one with Amitabh Singhi of Surefin Investments. I listened to it twice just to make sure I didn’t miss any of the points. Since he specifically invests within India, investors and analysts in frontier and emerging markets will find similarities and important takeaways.

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The potato expedition!!!

Imtiaz Gadar, CFA is the Head of Public Markets at Bank Alfalah, Pakistan. Previously he served as the Head of Research at KASB Securities (Partner of BOA Merill Lynch) as well as JP Morgan. He was ranked as the best analyst in Pakistan four times by Asia Money and the CFA Association of Pakistan. He also served as the Vice President of the CFA Society in Pakistan.

Disclaimer: The post has Urdu in between because English alone would not fully capture the concept. 

Recently, while scrolling through my social media account, I saw a capital markets colleague had shared a picture with his wife where both of them were out shopping. My idle mind suddenly started visualizing what would happen if us capital market folks combined our professional roles with household roles (e.g. shopping). For instance if wife calls husband and asks him to buy 2 kgs of potatoes on the way back to home.

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To Kenya and back

Today I came back to Dhaka from Nairobi, Kenya. This was my first trip to Africa and despite the fact that I didn’t get much of a chance to move around, I thoroughly enjoyed my stay.

Kenya is a country of around 44 mn people in the Eastern part of Africa. Compared to the North (Muslim countries like Algeria, Libya, Egypt) and the  South (South Africa, Botswana, Namibia) the Eastern part is relatively poorer. Kenya’s per capita income of around $1,300 will put it close to that of Bangladesh.

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What I learned from my career so far

Tomorrow I will start in my new role as an Equity Research Analyst (Associate Director) for Exotix. I will be covering banks across Bangladesh, Pakistan, Sri Lanka and Vietnam. For the unaware, Exotix is a frontier market investment bank specializing in illiquid bonds and loans, equities, structured finance and capital raising.

Getting a new job, particularly one with a great team and culture is quite rare. Nevertheless, the challenge lies not in getting the job but doing extraordinary work. The work of a research analyst in my opinion is like that of an artist trying to create masterpieces. You have to produce differentiated reports with unique insights and ideas before others and communicate that in clear language.

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The evolution of an equity analyst

The thought processes of analysts change with time as we get experienced and learn from our mistakes. This is a natural progression even though people will definitely progress to higher stages at different times. Some unfortunate ones will however never progress to the higher stages. Based on my personal experience and books that I read here is my take on the three different stages of an analyst.

Beginner Level

The beginner analyst is usually a fresh graduate with some background of finance, economics or accounting. Even though he or she might have some theoretical knowledge of finance, they seldom can relate the theory with the practical world.

The beginner will almost always put the greatest emphasis on NUMBERS and not the story behind the numbers. Thus there will be a tendency to extrapolate past performances as that will form the strongest basis for future forecasts. Thus we will see that future gross margins are just continuation of the most recent reported gross margins.

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