START-UPS 2020: THE FUTURE IS NOT WHAT IT USED TO BE:

START-UPS 2020: THE FUTURE IS NOT WHAT IT USED TO BE:

1. Companies that have established business models, proven revenue, enviable customer database, listed and available at better valuations will be considered.

2. The ad revenue will be hampered for some quarters across all geographies. But the huge customer database will balance the equation for fresh contract rates and not impact entirely the revenues.

3. Companies with high cash reserves will have the muscle to change the business model.

4. Discretionary businesses will have to face a downward valuation ranging from 20 % or more based upon their model and necessity.

5. Business models thriving on cashback and bonus points for redemption will be more impacted on its value and face challenges ahead as traditional early-round VCs will not be generous for a considerable time going forward.

6. Multiple rounds of funding participated by the same set of investors will not be a recurring occurrence.

7. New set of investors who participate in different rounds of funding will help to get fair value in each round.

8. New valuation methods will also be used instead of traditional ones as the regular methods have failed during an event of crisis.

9. Some start-ups will even shut down due to lack of availability of new funding.

10. PE Funds usually invest in start-ups where the cash burn rate will gradually reduce with time, the earlier the better. But in these uncertain times, it is hard to estimate the period of cash burn left in the life of the start-up. Remember, your customer acquisition strategy will need to be reworked since the billing rates, contract life, and escalation clause will all be on the lower side.

11. Time gap between each funding round will increase than before as the maturity period increases naturally during recession; Plus, the cash burn run rate will have to be in control and customers acquisition T&C will be much tougher.

12. Business models will be different between June to Dec 2020 as time decay will affect the business environment on its own.

13. A prudent founder will not regret taking a fast and decisive decision for the rest of 2020.

14. Expenses go up during a crisis, as you have fixed and variable expenses against a dip in cash flow. So, the ratio becomes skewed.

15. Series A will be difficult for the next 8 months.

16. Series B, C, D will be much more difficult as liquidity crunch will force VC’s go back to the drawing board to have a more realistic and achievable valuation for the targets.

17. Start-ups are inherently risky, and statistically most do not break even. The few that do succeed must “cover” for the rest in order for the entire portfolio to provide sufficient returns.

18. VCs commonly hold 5-10 companies in their portfolio. For these reasons, the targeted RoI for early-stage companies are quite high, often reaching 10x.

19. Since the target RoI will now most likely not be achieved, VC’s will have to cover for some portfolio investments that will be devalued or shut down because of COVID-19.

20. VCs will now look to top up good portfolio companies at a discounted price or will target some companies where values have gone downward, and they had not participated in funding round earlier.

21. Any fresh target company will be difficult to pass the litmus test unless the business model is viable for another 10 years or so… remember the VCs will have a challenging 2020 to 2022.

22. Post COVID-19, restrictions and sanctions will make costs go up for another 2 years of the least.

23. Contactless businesses which rely more on AI, automation, online, ioT will be in the radar of VCs and such businesses will slowly go up the value chain.

24. Cost of money will go up and hence pressure will be upon founders to reduce costs and shore up revenue simultaneously. Remember most of the founders have started out in the last decade only and hardly have any idea as to how to operate in a bear market with prolonged recession without much cash at disposable.

25. The 2008 crisis only affected banking and to some extent large hedge funds. Business outside finance and many other sectors in fact started doing well. But 2020 is the stuttering of the economy and the reset button pushed by the authorities that has caught many businesses flat footed or ill prepared for such shocks. Forget business owners, even the VCs were not prepared at all.

26. Start-ups will have to be careful to deploy the capital properly. Venture capital firms will slash investments in money-losing start-ups. This means all the start-ups with negative cash flows and high burn rates could undergo a severe cash crunch in the near term.

27. Without proper funding, there could be a surge of companies that could start failing driving up non-performing loans for banks, and lead to the next big financial crisis

28.   wealth is best compounded by avoiding  large losses. Significant losses are best  avoided by not paying too much.  Smart investors and advisors will now be much more active in choosing the right mix of companies at the right price

29. value-based strategies will hold up much better than growth strategies.

The Birth of a Nation

The Birth of a Nation ( Part II)

2020 has awakened the giant  “ Globalisation” and has sent many countries into think tank mode. 

Does “ Globalisation “ really serve a purpose at the cost of local country growth ?

China adopted a strategy to position itself as the largest trading nation in the world , a place it officially achieved in 2009 and has never looked back since the last one decade.

So what should we learn and improvise “ the outside outlook strategy”  

“ Outside outlook strategy”  actually begins from Inside. 

The country has to find ways to increase trade amongst its own vast resources of people i.e people in order by looking after themselves inadvertently look after the others in the society by way of a chain reaction. When the system is infiltrated by outside sources ( imports) then the chain becomes a victim of outside greedy sources which will invariably ensure the wealth distribution is skewed. 

Technology should play a role to improve the production output and rather not displace the producers of the output. 

Superior human  skills combined with latest technology will be a far better successful model of productivity rather than replacing human skills with newer technology , these can be disastrous in the long run of creating a skewed wealth model. 

So the technology owners become wealthy at the expense of the people who have been replaced and ousted. 

Any country which has a relatively lower cost of production will always succeed in International trade even if they don’t have absolute advantage in production of that goods. 

Lower working class are living in paltry conditions in many of the counties because the system of labour wages is faulty across the board. Most get paid for long duration of hours discounting the per capita output and in some areas of production they get wages based on per capita output discounting the long working hours. 

This skewed system is deliberately favouring the upper class of owners , who don’t want to combine the working hours and per capita output to arrive at a fair wage. 

Unless the lower working class are not paid taking into consideration total real cost of production i.e Time plus Labour , the compensation package is hugely irrational and creates a disoriented wealth. 

Globalization is about the interconnectedness of people and businesses across the world that eventually leads to global cultural, political and economic integration , but the very basic definition has been killed because of policies favouring a wrong method of increasing GDP. 

The lure of easy customs duty to be imposed and collected at source is good income for the local Government , but creditors have put more debt in hands of the consumer and persuade them to avail these products without realising that the real income needed for affording such goods may be likely absent , so in the long run it’s the foreign manufacturers , authorities , creditors who benefit without realising if there was ever a genuine demand for the goods , instead the local manufacturing growth is sacrificed in the long run. What the authorities fail to understand is that the demand has been created for these goods at the cost of huge debt burden on the working class. On the other hand unwanted debt levels have been accommodated by the creditors. 

This economic crisis is a grave threat to individuals, as well as to the stability and future of the country. 

A flood of cheap foreign manufactured imports sold cheaper than comparable local goods during the height of globalisation can be now dislodged to favour local manufacturing. 

Globalisation should have been cultures in succession hand to each other that  flame the torch of human advancement. 

We should learn from the History of the past and shape the future.

It is the lack of faith, the fear of the future, which makes countries turn toward the past. 

Modern” democracies are anything but modern.

To a world desperately in need of change, their forceful stand for status quo gives no other alternative than the acceptance of what they have tried to destroy.

The sincere and bold effort to disconnect from the past mistakes and create a new external approach can only be achieved from internal growth. 

The Birth of a Nation

The Birth of a Nation ( Part I)

The world has seen tremendous changes since 1970  to 2020. That’s a full 50 year cycle which has seen the Gold standard disconnected to  USD , Interest rates being raised by the FED , crash of 1987 , dot com bubble of 1990 , emerging market crisis 1997 , 2008 financial crisis , 2020 Covid 19 crisis and lots more. 

The entire 50 year cycle has witnessed more pain to the local population of the country when the  only focus has been to raise GDP statistics. 

Real economy is all about upliftment of the people and allowing the entire population to grow rather than just focus on increasing GDP to avail more debts.

But remember everything is good till it’s good… it is beyond human to think what can happen if you keep devising plans without realising the consequences.

Every Government ends up being puppets of the craze to increase GDP by way of taking more debts , allowing exploitation of their natural resources by foreign agencies , undermining its own assets, falling prey to cheap external loans , and other standard non variable efforts by simply and blindly copying some other large nations. 

Every country has to build cities , ports , airports , bridges , highways , etc in order to increase consumption which in turn will lead to more consumption i.e increase in consumption of electricity , automobiles , commodities viz Oil , aluminium, copper , steel , etc.

In a second thought all this will help to improve GDP statistics and the countries will have to issue bonds to take care of these expenses. 

Financial institutions, Banks are mandatorily made to buy these bonds. 

Let’s assume all the consumption pauses due to some major events like a covid 19 or some country unable to honour its debt or some major bank engaged in some frauds and unable to repay its customers. All this will lead to fall in consumption and followed by fall in GDP numbers. 

Once this happens, the rating agencies will rush to revise  the outlook of the bonds and its viability. 

So the price of the bonds starts to fall and yields starts going up , so where does all this artificial colouring of your GDP leads to … actually it leads to nothing and the country is saddled with more debts ,potential defaults , falling currency, and more pain in the real economy , when it’s left to look after a large section of ignored rural lower class and working middle class , which faces the brunt of rising inflation during the country’s quest for higher GDP and are victims of the subsequent crisis when consumption reduces and leads to loss of jobs , less savings , more debts , inability to service fixed interest borrowings , etc. 

Countries have all gone out to invite FDI , FPI to increase its foreign reserves, build better infrastructure, increase consumption, increase inflation, increase GDP , and all these only to avail more debts at better interest rates so as to compete with other countries. 

No single country can boast about focusing to improve its real wealth of the local population i.e  to improve the lives of its people by focusing on developing agriculture through technology , taking steps to reduce the deficit in monsoon , and improve its rural economy. All these will lead to a permanent rise in consumption which will last for years to come. 

Large emerging economies like China and India have more than 60 % of its people living in rural areas.

Just focus on improving this side of your economy and the real permanent benefits will be visible. Give this majority of the 60 % population means to increase its earnings and improve savings and then put genuine consumption into their hands , and this will lead to raise in sustainable growth and permanent benefits with long lasting effects. 

Once you have taken care of the majority of your people , countries will no longer need to roll out red carpet welcome to FDI and FPI. These are guests waiting to participate in your growth story. 

But unfortunately FDI and FPI persuades the Governments to improve urban infrastructure so as GDP can improve and the country can avail cheaper debt from superior foreign agencies and this influencing FDI and FPI can juice the country at the expense of its real economy. 

The consumption of the rural economy can prosper and have better long term effects as better agriculture , rural infrastructure growth will lead to an increase in earnings which itself will feed the consumption of this larger population and national debts can be contained in a larger way. 

The story will continue in Part II. 

Stock Opportunities during Crisis

massive opportunities in the stock market will arise because of a major shift in the post-coronavirus economy.

I do really think this is an opportunity to take advantage of the volatility, and take advantage of the market,

I don’t mean to put all your capital at once but I do think layering it in right now is the way to approach.”

This is a great buying opportunity since 2008 -2009 , remember historic opportunities were mainly event-driven,

Legendary investor Sir John Templeton famously said "buy when there's maximum pessimism," which is how some view the experts view the current market amid a wave of selling.

The covid 19 is taking a terrible toll on the global economy, but for stock investors, this crisis is an opportunity to increase the long-term return of your portfolio.

We have to position our portfolio not as virus proof  but as recession proof ; and since this virus will cause a recession. 

Maintaining a long-term time horizon is paramount: Every investment decision we make is from the perspective not of tomorrow but three- to five years from now.

Position sizing:. We are in the early innings of a recession. But since we don’t know how long this will last, we should  diversify across time by employing a micro-focused investment strategy.

Keep in mind that risk for us is not volatility but permanent loss of capital. 

Let’s see a few examples of the affected companies in this crisis ….

Global technology giant Apple has been hit hard from multiple angles thanks to the covid 19 outbreak.

At first, when it was isolated to China, Apple had to close all of its corporate offices, stores, and contact centers in China. Many of the factories from which Apple sources its hardware products were shut down, too. That created huge demand and supply chain disruptions for Apple.

Now, though, the virus has gone global — and the shutdowns that were isolated to China, are happening everywhere. Across the globe, Apple has closed its stores, and its supply chain is being disrupted.

These are big issues for Apple. But they are also temporary issues.

Just look at China. Spread of the virus has died down over there. Apple has re-opened all of its stores. Most of its supply chain has come back online, too.

The rest of the world will follow suit within the next few months. By summer, most countries across the globe will have fully contained coronavirus. Apple will re-open stores. Factories will ramp up production. And the Apple growth narrative will start to fire on all cylinders again, just in time for its big 5G iPhone launch in the back-half of the year.

Cloud technology giant Microsoft has tumbled over the past few weeks on concerns that the rapidly spreading outbreak of coronavirus will kill demand for the company’s cloud computing products.

But, will that actually happen?

Yes , But such pain will be temporary. And, once the virus passes through, companies will continue on their enterprise cloud migrations, and demand for Microsoft’s suite of cloud computing tools will re-accelerate.

Microsoft’s number may get slightly damaged in the first quarter. There will probably also be some damage in the second quarter. But, in the third and fourth quarters, the numbers will be great 👍 (as they usually are).

From this perspective, any and all near term weakness in Microsoft stock is a golden buying opportunity into a company which, thanks to cloud computing tailwinds, is set to be a winner for the next several years.

Remember stock market works on opportunities which are spotted in difficult times , sometimes it takes months and years for the opportunity to be found. 

The greatest returns and outperformance of a portfolio happens if only the stocks are purchased at the right prices. 

So the right price may not be the bottom , but it will be your ticket to long term profits.

History has witnessed that large Fund houses and Investors don’t outperform all the time. But only in subsequent years after a mega event which allows for great buying opportunities.

Credit Market VS Stocks

So let’s see how does the Credit markets impacts the stock market 

SP 500 has retraced almost 27 % from its low of 2190 between 01-03 to 10-04-2020. 

A huge rally in a world when the US economy is set to enter into depression , the FED has single handedly managed to disconnect the stock from all fundamentals and made the SP 500 the most overvalued as it’s forward PE hits the highest number ever recorded.

This PE is the same level the S&P500 held on Feb 2020 , the SP 500 was at  all-time high."

In other words, at the start of the week stocks were valued the same as they were at the February all time highs.

Fast forward to today when the Fed's latest announcement which included purchases of junk bond ETFs and municipal debt which has terminally disconnected risk prices from any fundamental values and instead only the size of the Fed's balance sheet matters.

This has  sent the S&P as high as 2,818. And, in doing so, the forward PE multiple on the S&P has risen from the record 19.0x reached in February to a new all time high of 19.4x.

In other words, the market has never been more overvalued than it is right now.

Stocks exploded higher yesterday on announcements that the coronavirus pandemic appears to be slowing.

This is certainly an exciting development, but unfortunately, we are not yet in the all clear as far as systemic problems in the financial markets.

The debt markets (also called credit markets) are larger and more sophisticated than the stock markets.

With that in mind, the credit markets continue to signal MAJOR problems exist in the financial system. High yield credit has failed to catch a bid and is in fact trending DOWN during the last week.

Bear in mind, these are JUNK bonds, so you’d expect a struggle during an economic downturn. Far more worrisome is the fact that high quality credit (meaning credit for companies that are allegedly well financed/less risky) is ALSO struggling.

Again, the credit markets are signaling something BAD is happening “behind the scenes” in the financial system.

Stocks believe the worst is over, but credit tells us that is not yet the case. And credit is usually right.

The Aging Bull

Let’s understand ‘ The Aging Bull’

While I may be tagged as ‘bearish’ due to my analysis of economic and fundamental data for ‘what it is’ rather than ‘what I hope it to be,’ I am actually neither bullish or bearish. I follow a very simple set of rules which are the core of portfolio management philosophy which focuses on capital preservation and long-term ‘risk-adjusted’ return.”

As a long-term investor, You don’t need to worry about short-term rallies. You only need to worry about the direction of the overall market trends and focus on capturing the positive and avoiding the negative.


as the bullish trend does show on the indices today it’s imperative to rebalance exposures to the market in portfolios recently, , as there is mounting evidence of “cracks” appearing.

The bull market is understandably aged and the weaker fundamental and economic backdrop has a more decisive impact on an “aging bull.”

Therefore, it is extremely important to remember that whatever increase in equity risk you take, could very well be reversed in short order due to the following reasons:

1.We are in the late stages of the bull market.
2.Economic data is weakening
3.Volume is weak
4.Longer-term valuations are extremely stretched.
5.Complacency remains high
6.Share buybacks are set to slow (which have comprised about 80% of the markets bid.)
7.The yield curve continues to flatten, and invert, which applies economic pressure.

We will see what happens over the next couple of weeks.

However, the longer-term dynamics are turning more bearish. When those negative price dynamics are combined with the fundamental and economic backdrop, the “risk” of having excessive exposure to the markets greatly outweighs the potential “reward. “

So what does an Investor do in an Aging Bull Market?

1.Rebalance when volatility strikes. Take steps to maintain the long-term target allocation designed to help achieve your long-term goals. As markets rise, the positions may need to be trimmed and the cash held or reallocated to markets where valuations are better. As markets fall, the opportunity may arise to restore the target allocation.
2.Help reduce price volatility with income-generating assets. Income is a sometimes overlooked component of portfolio returns. To potentially improve the income-generating ability of a portfolio, you can lengthen the duration of your high-quality bonds. Dividend-paying stocks and REITs offer additional streams of portfolio income.
3.Use cash to your advantage. If your portfolio already holds a sizable amount of cash consider investing your cash in case markets correct in the coming months. Another potential strategy is cost averaging, which involves investing cash over time to take advantage of market fluctuations.*
4.Add strategies that can benefit from various market conditions. A bear market can occur with little warning. Adding assets that can profit in both up and down markets may help prepare your portfolio for possible downturns.

We are in volatile times and trending carefully should be the mantra.

Disclaimer : All the information shared is already available in the public domain and has only been compiled as per the topic of discussion.

The 80:20 Rule

Remember Investing is not a competition of trying to find the bottom or the top either…

The rational should be ‘you can have the top 20 % and the bottom 20 % , and I will take the rest of the 80 % in the middle’

This is the basis of the 80/20 investment philosophy and the driver behind the risk management process as quoted by Legendary Baron Nathan Rothschild.

While you may not beat the market from one year to the next,  you will never have to suffer the “time loss” required to “get back to even.” In the long run, you will win.

Yes you may sell early and miss the 10 % before the peak or you sell a little late and lose the 10 % from the peak. Likewise you may start by buying the market 10 % before or after its bottom . The goal is to capture the bulk of advance and miss the majority of the decline .

Buy signals may come early , right on time or late , likewise sell signals may come early or late ….
But the goal is to capture 80 % of the advance and participate only in no more than 20 % of the decline .

So I repeat again Investing is not a competition , but it’s a game of long term survival.

How To Add Exposure

Here are some guidelines to follow:

Move slowly. There is no rush in adding equity exposure to your portfolio. Use pullbacks to previous support levels to make adjustments.

If you are heavily UNDER-weight equities, DO NOT try and fully adjust your portfolio to your target allocation in one move.This could be disastrous if the market reverses sharply in the short term. Again, move slowly.

Begin by selling laggards and losers. These positions are dragging on performance as the market rises and tend to lead when markets fall.

Add to sectors, or positions, that are performing with, or outperforming, the broader market.

While the technical trends are intact, risk considerably outweighs the reward now... If you are not comfortable with potentially having to sell at a LOSS what you just bought, then wait for a larger correction to add exposure more safely. There is no harm in waiting for the “fat pitch” as the current market setup is not one.

If  none of this makes any sense to you – please consider hiring someone to manage your portfolio for you. It will be worth the additional expense over the long term or consider investing in mutual funds and ETF vide SIP.

Disclaimer : All the information shared is already available in the public domain and has only been compiled as per the topic of discussion.

Investment And Finance

To begin with Indian indices was at all time high in early Jan 2020,  Nifty was 12300 plus

It’s lost about 36 % from the all time high and we are not looking into individual shares where the loss has been much higher.

So what really happened between Jan to March was the severe impact of deadly coronavirus combined with other factors …. I repeat the Other Factors which lead to these losses.
Retail investors generally don’t have sufficient information about The Other Factors to take a timely action on their portfolio and they get trapped in this fall.

Remember ‘ Investing is about putting Capital to work when the reward outweighs the risks.’

1. Price fluctuations are part of this market, use them to your advantage to add a stock and do not panic to sell the stock without verification. 
2. Markets are not here to shutdown , it will remain forever, so will be the opportunities, buy a good company at the right price and not a good company at the wrong price. 
3. Never buy on rumours and never ever on overheard talks. 
4. Definition of risks will change when reality hits upon the prices of your investments, so be prepared to buy more or sell if market movements change.
5. Don't chase unnatural profits. 
6. Loose information is freely available in the market, never rely upon them...
7. Don’t blindly follow portfolio managers , newspaper articles , and clone your investments. Everyone has a different agenda behind the same stock, never imitate with half information or verification.
8. A reliable source of information many not be always right or may not be available for the first time, don’t let sensitive data available freely on the Internet or national newspaper affect your decision, as this news may not be true or may have come late to your attention

Investors need to be alert and knowledgeable and well educated before deciding to invest.

Most of the Small and retail investors are new to equity investing, and have never seen a bear market or prolonged phase of degrowth or negative returns.