You see, but you do not observe. The distinction is clear. For example, you have frequently seen the steps which lead up from the hall to this room. Frequently, How often? Well, some hundreds of times. Then, how many are there? How many? I don’t know. Quite so, you have not observed. And yet you have seen. That is just my point. Now, I know that there are 17 steps because I have both seen and observed.
The above by Sherlock Holmes clearly suggests how often we fail to observe and take a callous approach!!
Did you ever read an annual report, post which you were not able to make an investing decision – whether the company is worth investing or not? This typically arises because you may not have an Investment Framework or a Checklist enabling you to ask those pointed questions consciously while reading the annual report.
Framing a Checklist and then executing the same is crucial, since it brings about the difference between Observation and Seeing.
For me as an Investor, one of the first things which I look at in the annual report is Management Discussion & Analysis (˜MD&A), trying to understand Management’s communication – whether they are transparent in their communication, consistent and have some sense of humility.
After all, it enables one to understand the basic nature of your partner to whom you are entrusting your hard-earned money.
Some of the below statements by Warren Buffett clearly demonstrates his humility, transparency and his consistency!! Great epitomes to live by!!
The dumbest thing I could have done was to pursue ‘opportunities’ to improve and expand the existing textile operation, so for years that’s exactly what I did. I went out and bought another textile company. Aaaaaaargh! Eventually I came to my senses, heading first into insurance and then into other industries.
An attentive investor, I’m embarrassed to report, would have sold Tesco shares earlier. I made a big mistake with this investment by dawdling.
To date, Dexter is the worst deal that I’ve made. But I’ll make more mistakes in the future, you can bet on that. As a financial disaster, this one deserves a spot in the Guinness Book of World Records
Rahul Bajaj, the Chairman of Bajaj Auto also succinctly accepts his company’s follies via letters to shareholders in the Annual Report and is a fascinating read!!
Our domestic motorcycle sales in FY 2012 grew by 6.3%. The reasons may be many. Yet, the fact remains that the market grew faster, at over 11%.
We need to ask why should Bajaj Auto have a flat growth in the top line? Or why should your Company, with its outstanding offerings of motorcycles, lose 4 percentage points of domestic market share to 20% in 2013-14?
We have not succeeded in equal measure on the export front – both in motorcycles and three-wheelers. Unfortunately, this has been true for FY2017 as well and, if I may say so, worse than in the previous year.
Now, compare the above 2 with the one below MD&A section of Lanco Infratech:
In spite of CDR package approval and COR approvals, the delayed disbursement and / or partial disbursement of loans, effected the physical progress of under construction projects.
The Steering Committee agreed to the financial assistance by the way of long-term working capital loan (LTWCL) of INR 1,500 Cr. for FY 15-16 and to review the requirements related to FY 16-17 at a later date. However, there was delay in sanction & disbursement of LTWCL.
Clearly self-serving bias from the management reflects that that it had never been their fault anyways!! Company getting into such a dismal situation to begin with was obviously very largely dependent upon management. No wonder, the company got liquidated recently having owed banks close to USD 7 billion of debt!!
Such a high price for the bankers and obviously investors for not having observed!! Some of them were not even seeing, perhaps sleeping on the wheel.
Disclaimer: Please note that these are my personal views. While, I am NOT a registered Research Analyst as per SEBI (Research Analyst) Regulations, 2014, all investors are advised to conduct their own independent research into individual stocks or industries before making any decision. In addition, investors are advised that past stock performance is not indicative of future price action.
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