Authored by: Akankshya Shrestha, Pranaya J B Rana, Rohit Sherchan, and Shreyansh Joshi
The past two months we spent at KPIS has definitely molded us as individuals with better approach to the world of investing. We soaked in a lot of valuable learnings during this period; which we are hopeful will reward us someday. Most importantly, what we learnt will save us a lot of money in the future by avoiding bad investments!
As most of us had never invested in stocks prior to this internship, we thought that investing was simply looking at share prices of companies and if they were on an upward trajectory, they were good investment opportunities and vice-a-versa. We also had little idea about – how to analyze a company. We simply googled the company we were interested in and used basic indicators to come to a conclusion about it.
Our time at KPIS addressed these misconceptions and brought about a shift in our thought process. We started off by grasping the concepts of ‘Value Investment’, which we learned should be the only basis of investment decisions. The key should be to pick out undervalued investment opportunities i.e. companies whose prices are trading below their intrinsic value; which gives us an opportunity to make large gains.
Financial statements and accounting concepts were things that most of us were familiar with, yet we knew little about how to put that knowledge to use to analyze companies and also use them in conjunction with qualitative analysis. We learnt how to analyze companies through a mix of reading annual reports, financial statement analysis, and keeping our ears close to the ground.
We learnt that the fundamental way for us to get started on analyzing a company is to read its Annual Report. Previously, we simply had zero idea about the need to fully understand the business model of a company in order to make sound investing decisions. Through reading Annual Reports, we learned that whenever there is a prospective investment opportunity on the table, the first thing that we have to do is fully understand the business model.
An annual report will merely portray that company’s side of the story. However, its business operations revolve around other indispensable players in the company’s value-system including customers, suppliers (of raw materials), workers, distributors, competitors et cetera. Therefore, only quantitative analysis is not enough and we have to take into account what these stakeholders think about the company in order to make the right investment decision.
Also, while evaluating business models and selecting companies, it is essential that we try and find businesses that have MOATS. If an investment opportunity does not have anything that gives it a competitive advantage to thrive over its competitors in the industry, it is generally not a very good investment.
Given the high concentration of Banking Industry in Nepal’s Stock Market, we spent majority of our internship time analyzing banks. Now, we are comfortable analyzing banking stocks and we are well versed with indicators such as CASA ratio, CD ratio, RoE, Loan Book growth, Earnings growth etc. in order to properly evaluate banks. More importantly, we understand how the links between these key indicators portrays a bigger picture of the company. A big part of this internship has been about drawing links between multiple subjects, concepts, and ideas. This is what we have enjoyed the most.
However, the biggest drawback of the internship has also been that we probably spent too much time analyzing banking industry.
In one of Li Liu’s speeches, he mentions that despite Value Investors making up only 5% of the world’s total investors, they account for lion-share of the profits made by the industry. The KEY to becoming a good value investor is to read a lot (read anything and everything!). The internship has surely instilled in us the habit of reading and we surely have come to realize its importance.
In conclusion, these two months were really valuable to us as we got to learn an array of extremely useful concepts in investing which will certainly guide us in our future investment opportunities. We recommend this internship to anyone who has a hunger for knowledge, is dedicated to continuous learning, and wants to learn investment. We guarantee you that you will emerge a better investor by the end of the internship.