Twitter Poll #Poll2Learn : 3 (Purchasing Power Parity )

I have started #Poll2Learn series where we will learn together by poll and explaining my point of view . You are welcome to correct me or provide your input .
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#Poll2Learn : 3

•1 Euro =  1.11 USD and 1 USD = 71 INR and 1 EURO = 79 INR

•Mathematically , 1 Lakh EURO  = 79 lakhs INR , will be highest .

•But , wait , quiz was not to test your mathematical knowledge.

•In Economics , There is term Purchasing Power Parity (PPP)

•Purchasing power parity is a theoretical exchange rate that allows you to buy the same amount of goods and services in every country. World bank releases PPP rate based on basket of items in every country.

•As per world bank current PPP rates are

•1 USD in USA = Around 20 INR in India

•1 EURO in Switzerland = Around 15 INR in India

•If we convert salary based on PPP rate then “25 Lakhs INR in India” will be highest package.

Try site like http://salaryconverter.nigelb.me/ to calculate real salary based on PPP.

Topic Learnt : Purchasing Power Parity (PPP)

Twitter Poll #Poll2Learn : 2

Every option again correct, it defined your risk-taking ability attitude.

Nothing wrong in option "90% chance of 10% CAGR" which was chosen by the majority. But if I have provided another option of "98% chance of 8.5% CAGR" then the same investors might have chosen this instead of earlier one. It might be returns on EPF or PPF. All option return more or less same but Mathematically, 25% chance of 10 times returned would have more return. My motive was not to test your mathematical skill but to self asses our own risk profile.

The equity market is a game of probability and uncertainty. If you have chosen the stock market then I can't satisfied with a return equivalent to safe investment, if I have taken the risk then my reward should also be adjusted accordingly. But, my point is also not to go with "25% chance of 10 times", choose whatever your risk profile and stock market knowledge confidence indicate.

My point is the stock market is a game of probability and uncertainty. Investors should love uncertainty and that is possible only if one doesn't need invested money immediately.

Let's assume one has chosen "50% chance of 20% CAGR" then he should have hawk-eye with patience on the stock market and his stock watch list. If that person gets an opportunity where he comfortably feels it is either "80% chance of 20% CAGR" or "50% chance of 30% CAGR" then he should attack it. It is very easy to say here but really difficult unless one has required knowledge of the stock market.

Only for just illustration purpose, no recommendation, one has Tata Elxsi Ltd in the watchlist of "50% chance of 20% CAGR". If Tata Elxsi gives bad result for next 2-3 quarter and the overall market is in bear market trajectory (especially the auto industry) then the market will give a valuation of the cyclic industry to it. It may go down even below 450. You know 1/3 rd of revenue comes from the auto industry but somehow you do analysis and believe that this dependency is going to be reduced drastically then you can recalculate probability and CAGR to true intrinsic value for long term. If it offers a margin of safety also then one can attack it, but one should have confidence in his analysis.

I prefer portfolio creation with all 4 options in it . Some are risky bets and some are safe .

Twitter Poll #Poll2Learn : 1

I have started #Poll2Learn series where we will learn together by poll and explaining my point of view . You are welcome to correct me or provide your input .

Poll#1
Hindustan Unilever Ltd has ROE around 80% . Which of the following option will be certainly reduce it to around 40% in next 8-10 year? #Poll2Learn

It was a poll so every answer is the right answer. But, I will explain my view.
One word used was certainly. I will go with the change in dividend distribution policy to distribute only 20% dividend.
All other reasons may or may not drop the ROE but reducing dividend will certainly going to reduce ROE.
Formula for ROE 

OR

HUL has earned EPS of around 28 and given a dividend of 9+13 = 22 + DDT = 26.25.
So it distributes around 95% profit in a dividend.
FY19 HUL book value is 36.31 if HUL reduced dividend distribution to 20% of profit then from next year onward book value will increase by 22 , 22+ G  ..................
HUL is so big that it can not grow more than double of nominal GDP or not feasible so management distributes more than 90% profit .
If HUL decides to keep 80% profit then book value will become more than 400 in 10 years . It will be impossible for HUL to earn EPS of 320 on it to satisfy ROE of 80. Even ROE of 40 will be very much difficult.