Fellow Students of Investing: Greetings!
You’ll agree, won’t you, that examples are easier to understand than verbose explanations?
One particularly useful type of example is the analogy.
With analogies, we try to draw similarities between two unrelated fields. You’ll find that some really great thinkers often use analogies.
Example 1: Steve Jobs
“A computer is the equivalent of a bicycle for our minds.”
Example 2: Warren Buffett
Investing is like journalism. You investigate a story from all angles and then draw your conclusions.
I believe we can easily understand Value Investing if we use cricket as an analogy.
In fact, it is such a good fit that many of you came up with unique insights within 5 minutes of sharing this scenario:
Scenario: MS Dhoni is approached by Coca-Cola and Pepsi to sign up as their brand ambassador. You are a sports management professional, managing Dhoni’s commercial interests.
|No.||Name||Main Bhi Dhoni||Value Investing|
|1||Rashmi – 212|
|Look at comparables. Value Dhoni by looking at Tendulkar and Dravid.||Relative Valuation vs. Absolute valuation|
|2||Apurbaa-122||In-form cricketers get more ads.||Earning trackrecord or expectations.|
|3||Upananda-170||Middlemen earn commisions. So more interested in transactions.||Brokerage|
|4||Abhijeet-176||Difference in contract price negotiations.||No one forces you to buy.|
|5||Mrinal – 199||Starry tantrums.||There are more technicalities to investing than mere price. Specific contracts have nuances.|
|6||Bikash – 131||How can I use Dhoni for my ads?||Dividends or captial gains|
|Form vs class of a player||Projections, prospects, consistency|
|8||Sumit-229||Actual benefit from running Dhoni’s ads.||Future prospects realised?|
|9||Nidhi – 203||Worldcup gives good ad space||Economic boom, business cycles and bull-bear cycles|
|10||Purwak – 209||Renewal of contract||Portfolio churn|
|11||Reetika – 150||Fickle mood of indian cricket fans.||Popularity, fads, darling of the stock market, investor pyschology|
|12||Manreet – 84||Rapid change in strategy||New product development|
|13||Nitu – 31||Valuation based on batting average||Valuation based on average earnings|
|14||Neha – 29||All rounder||Diversification|
Task: What unique insights for value investing can you draw from the “Main Bhi Dhoni” scenario?
Incentive: As always, bonus marks are on offer!
Look forward to your wonderful comments, then.
Until next time!