VALUE INVESTING IN NEW ECONOMY

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VALUE INVESTING IN NEW ECONOMY

If we see the recent trend in valuation of corporate it seems that old school of valuations are becoming obsolete now. 

·        Low PE

·        High Dividend yield

·        Price to Book

·        EPS

·        CEPS

The above parameters are no more benchmarks in determining the value of a corporate. Now, it's the story which determines the valuation. See the recent example of the JIO dealings. You will observe that JIO is selling a story and the world's renowned investors believing in the story. You may agree or you may not, the consensus of pessimists & optimists determine the value of a company. See another example of BYJU'S. The company has a revenue of about Rs.3100 cr.  Its valuation is estimated around 10 Bn USD!  PAYTM is having a value of approx. 15-18 Bn USD. There are numerous examples; ZOMOTO, UBER, OLA, look at their valuations.  Facebook, Amazon, Alphabet, Microsoft & Tesla all are listed like anything which we never imagined.  If we apply old school fundamentals, you might not agree with these valuations. Despite of all denial, story and perceptions are the major constituents for valuing now. Old London School of Economics’ theories no more are being followed as of now. Back in the day, in Brick-mortar businesses the prices were determined by demand-supply equilibrium.  Now valuation of technology supported business modules/products is governed by supply side only. What you supply in the market backed by story discovers the price and whatever the price may be, it is sold.

Economic evolution is taking place. The sick and old economy is being replaced by new versions through the virtue of innovative concepts and knowledge. More and more start-ups are coming up with innovative ideas. Funding through venture capitalists have been coming out aggressively to encash the contemporary concepts. Value investors are feeding off knowledge pools to discover business ideas which are the need of modern era.

 "Knowledge Pool" consists of a number of people with unique expertise to give a proper shape to new concepts. So, value investing is now becoming an art. Investment definition is changing. People are not bothered about yields on their investment anymore. Rather, they are looking ahead for value creation. Think twice before investing! Why aren’t you to be a value investor in this new economy for creating wealth? New economic theories will be re-written while discarding the old ones meanwhile it is fair enough to say that old-style value investing doesn't work anymore.

~Rajendra Jhanwar



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