Morgan Housel’s podcast with Howard Marks

All projection number on excel sheet looks promising. But one need to be cautious more about weaknesses of the business when one is paying very high price to buy it ! –
Big red flag: Company business is highly depending on the government. Most of land lease deal is with government and change in government could have serious impact on this company!

Most of locations has seasonality and fixed cost is going to remain round the year for maintaining it. Company has increased more fixed cost (man power, etc.). Promoters are not focused on core business earlier they entered in TV business and now they entered in advertisement business, etc.

Do you plan to buy the regular Tata motors shares with the proceeds? I had purchased the DVR shares in Dec 2020 for 75. Had no intention to sell. But now it looks like if I held onto the DVR, I have to pay more taxes so I sold them. The PE seems cheap and with the cancellation of DVR the EPS of regular shares get a 18 percent or so gain. That would make the PE

Portfolio Update:

I’ve made a slight adjustment by reducing my exposure in Caplin Point, bringing it down from 20.90% to 19% following the recent run-up in its price. I’m reallocating this capital to acquire a small position in Transteel Seating Technologies Ltd, an interesting SME stock.

Brief Thesis:

Transteel Seating Technologies Ltd. operates in the office furniture space, particularly focused on ergonomic seating solutions. With the increasing trend towards hybrid and flexible work environments, there’s a growing demand for quality office furniture that combines comfort with durability. Transteel has a solid reputation for delivering innovative and affordable products, and they’ve recently shown strong growth in both revenue and market presence.

What excites me about this company is its potential to scale, given the ongoing shift towards remote and hybrid work setups. More companies are investing in ergonomic office solutions for their employees, and Transteel seems well-positioned to capitalize on this trend. Additionally, their focus on design innovation and direct-to-consumer sales channels could help them maintain competitive pricing while expanding their market share.

While still a small player in the overall furniture market, Transteel has the potential to leverage its niche positioning, innovative product line, and a growing brand presence to achieve substantial growth over the coming years.

I’ll continue to monitor their performance closely and look forward to seeing how they execute on their growth plans.

I totally get where you’re coming from—those reasons are exactly why I got into the SME space myself! But lately, I’ve found myself a bit more cautious, and here’s why:

1. Quality of Information: Sure, there’s more information available today, but with SMEs, I’m not always confident about how accurate or transparent it is. Sometimes their financials feel a bit shaky or inconsistent, and that makes it tough to really dig deep and trust the numbers.
2. Liquidity Issues: The low trading volume in these stocks can be a double-edged sword. It’s great when you’re buying undervalued stocks, but not so much when you want to sell, and there just aren’t enough buyers. That can make exiting a position tricky and potentially costly.
3. Governance Risks: I’ve noticed that corporate governance can be hit or miss with SMEs. There’s always that worry about the alignment (or lack thereof) between the promoters and the minority shareholders. It makes me think twice, especially when it comes to trusting the management’s decisions on how they handle money or related party dealings.
4. Funding Constraints: Many of these companies struggle with access to capital, especially during tough economic times. This can limit their growth and, in some cases, even threaten their survival. I’ve also seen instances of frequent equity dilution to raise funds, which can really hurt returns for those who got in early.
5. Sector Risks: SMEs tend to be concentrated in a few sectors, which can be pretty cyclical. I’ve seen this especially in manufacturing or real estate—one bad turn in the economy or policy shift can hit hard. So, there’s a bit of a risk in being overexposed to these fluctuations.
6. Hype and Overvaluation: In bull markets, it’s easy for some SMEs to get caught up in the hype and end up overvalued. It’s exciting at first, but I’ve seen corrections that are brutal when prices snap back to reality.

Don’t get me wrong, I still believe there are hidden gems in the SME sector, and I love finding them! But I’m trying to be more selective now, looking for companies with solid governance, a real competitive edge, and a sustainable growth path.