- I would certainly advise you to read the entire thread and understand the ‘context’ in which the statement was made before passing your judgement about other peoples’ statements.
- The comment was made with regards to investing in 0 debt companies which doesn’t lead to wealth destruction. Also – I never said Kaveri Seeds is a bad company. As for wealth destruction, great businesses can destroy wealth as well. (If you invested in Infosys at its peak in 2001 – you needed to hold it till 2008 peak to just get your capital back. In my book that’s wealth destruction, not sure what your definition is)
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Since you’re talking about price levels of buying. Let’s take the case of an investor buying Kaveri Seeds on 1st June, 2015 at Rs. 950 after it declared it’s FY15 results. At that point the company has a
4 year revenue and profit CAGR of 48% and 63% respectively. 0 Debt and ROE > 30% with a P/E of 22.
In any sensible investor’s mind this company is not expensive with such great growth and profitability unless you have insider information about the company’s future growth. At best, you’d think if the growth stops, I shouldn’t expect any great upsides. So as the Q1 FY16 results roll in with a PAT of negative 2-3% YOY, that certainly shouldn’t be the end of the world as it was never trading at an exorbitant P/E of 70-80+ !
But you know what – markets think differently and slash this 0 debt company’s Market Cap by half! -
Losing 50% of your capital within 4 months of investment may not make a company bad but it would take several years of great results before it matches any other good investments (17-20% CAGR) apart from the emotional stress that the person would go through. And the point is 0 debt doesn’t save the company from huge downsides!
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