Business analyst Rattan Joneja believes that the quintessence of a successful investment is to understand the worth of a company and urges everyone to learn the importance of creating value to excel in the world of investing. By Khushbu Kirti
An entrepreneur and venture capitalist, Rattan Joneja’s work mainly focusses on the application of creating shareholder value to corporates and mergers, divestitures and acquisitions.
He is also the founder and CEO of CoValue Technologies Pvt Ltd. Co Value is an application with an aim to empower investors and businesses, to create wealth.
His recent book, Value It Up: Simplifying the Art of Intrinsic Valuation, takes the reader on a journey of learning about intrinsic valuation. With real-life investment success stories that draw instances of how value can be a key determinant of investment decisions narrated by celebrated investors. The book can be used as a helpful ladder of understanding the world of investing, and is designed for investors, analysts, stock market researchers, business students, or just anyone planning to enter into the field of stocks and investing. It is divided into 22 chapters where every chapter is aphoristically framed with quotes and concepts supported by the life story of a celebrated investor.
Read on for excerpts from an exclusive interview with the author:
Please give us an overview of Value It Up: Simplifying the Art of Intrinsic Valuation.
Value It Up is a book that simplifies and elucidates the ‘Art of Valuation’. The book focusses on the key growth drivers of any given stock to explain the concepts of Intrinsic Valuation with real-world examples and computations.
What was the inspiration behind the book?
Primarily, most investors are investing based on price and momentum without understanding any concept of value. The subject is not as difficult as people think it is. It is a simple subject that people need to understand while making investments.
I wanted to bring this concept forward in a very straightforward and lucid manner, particularly, since the number of investors across the world are increasing.
Your book is a fast-track programme for learning business valuation. Give us a brief as to how it will benefit this era of entrepreneurs.
In today’s start-up world, entrepreneurship is all about Capital, Capital, and Capital. It is difficult to build and survive without significant capital. Be it an old economy company or a new age start-up, an entrepreneur needs to understand the value of what he/she is building.
The quintessence of successful investment is to understand if the market is ignoring anything and how the market is valuing, thus, making it essential to understand the worth of a company before investing.
At the end of the day, you may be more valuable than you think.
So many entrepreneurs today end up diluting so much equity even after having a successful venture. Thus, it is very important to determine how much capital is required during the journey of a company and what will the existing founders /shareholders left with at the end of each stage of the company.
For existing companies, there are many decisions and value-creating strategies that need to be taken such as divestitures, mergers and acquisitions, going public share repurchases, business model changes, and so on, for maximising value where valuation is the key decision-maker.
Fortunately, the current generation is trying to be more informed about healthy investing. However, due to the lack of prior knowledge, there's not much to start with.
What will you suggest to an aspiring investor (also an amateur) to begin with? Should they read books or just track the market mindfully, or both?
Both, actually! Every investor needs to do a lot of reading. Even celebrated investors like Warren Buffet today spend most of their time reading and learning. Reading is a must, and they have to read books, news, companies and annual reports simultaneously and give equal importance to all.
They need to track the market too, to analyse what signals the market is giving, or if the market is behaving irrationally.
When does the stock market become harmful, if at all?
The stock market in the long term is not going to be harmful and will continue to grow. It becomes harmful when people start building expectations more than what the company can achieve.
Forming of bubbles in a sector, for instance, valuation of companies without meaningful earnings built on narratives, which when it does meet expectations, which can lead to stock prices crashing. We have seen what happened during the dot com bubble and you may see it in some new-age companies in this era.
When markets start pricing stocks for high growth rates, value growth duration and improvement in margins that are not achievable or not sustainable, it may all lead to a bust.
In bull markets, the stock markets start valuing stories. When stories fall short, the markets will punish them.
Why, in your opinion, do schools not talk about real-life stuff like mental health, taxes, or investing?
Very few business schools cover business/investment valuation in depth. There needs to be a significant time and depth required to teach and promote the understanding of the subject. It is very briefly touched upon and not explained in greater depth.
Similarly, teaching taxes requires a lot of time and schools can’t cover them all in their course. And, so, specific courses and books play an integral part in enhancing knowledge in these subjects for people who really want to understand them.