A Short Story About Monkeys & Goats – To Convince You To Buy Stocks of Only Good Businesses

Markets are making new highs. And increasing number of people around you are discussing about stock markets these days. Though we still haven’t reached a point where housewives start discussing stocks, there does seem to be an underlying current in market, which is making people believe that it’s easy to make money in stock markets.

I know that most people won’t agree with me if I say that it’s best to bet against the crowd in stock markets. Even though the same has been advocated by Warren Buffett when he asks us to Be fearful when others are greedy and be greedy when others are fearful.

So frankly speaking, there is no point in trying to convince someone who has already made up his/her mind to invest in a rising market. So instead, what I feel is that it’s more important for such people to understand something else…

Read the story and you will understand…

Monkeys Goats Stock Markets


Note – This story isn’t quite the same as the monkey story you may have got in one of those chain-forwarded emails.

So there was this village where one day a man appeared and said that he wanted to buy monkeys. He said that he would pay Rs 100 per monkey. The villagers caught all the monkeys in the neighbourhood and sold them to him for a hundred rupees each. Soon another man appeared and said that he would pay Rs 200 for each monkey. But there weren’t any more monkeys around. They were all owned by the first man. So the villagers went to him and said that they were willing to take the monkeys back and return his money. But the monkey owner was unwilling to sell. The villagers raised the offer price to Rs 150 per monkey, then Rs 175 and finally to Rs 199 but the man just didn’t want to sell, even though he clearly didn’t have any use for the monkeys. Eventually, just to see whether he would sell, they offered him Rs 200 but he still refused.

The villagers were puzzled by this. Finally, one of them figured out that there must be someone else who was going to come to the village and offer even more money for the monkeys. Convinced that this was the real explanation, they went and offered the man Rs 300 for each monkey and sure enough the man accepted. Joyous at having landed such a good deal, they quickly paid him off before he changed his mind and took possession of the monkeys. The man went away with his money and lived happily ever after. The villagers waited for the next buyer. And waited… And waited… But no one ever appeared who wanted to buy a monkey.
But wait.

If you think you’ve guessed the moral of the story, you are wrong because the story isn’t over yet.

There was another village nearby. In this village a man appeared one day and offered Rs 1000 each for a goat. Now goats were valuable, but not as much as a thousand rupees so the villagers sold the goats to this man. A similar thing happened here too. A second man appeared, offered Rs 2000 for each goat, the first man refused and eventually the villagers ended up buying the goats back for Rs 3000 each. Here too, the two men disappeared and no one ever came and offered so much money for a goat again.

But there was a difference.

Goats aren’t monkeys. They could be milked every day and the milk was good and healthy. Even the goat droppings could be used as fuel (not sure of it though). When the goats eventually grew too old to be milked, the villagers could kill them for mutton. All in all, it wasn’t a complete disaster.

But the monkey-owners were not so lucky. Since these weren’t demat monkeys, they actually had to be kept in one’s house. The monkeys ate too much, shouted and shrieked all day and sometimes bit people.

Eventually, when it became clear that the monkeys were worthless, their owners abandoned them and tried to forget about their losses.

And that’s the Moral of the Story.

In the stock markets today, there are good companies that are overpriced and there are worthless companies that are overpriced. If you are going to be a fool and pay absurd prices because you think that a greater fool will appear in the future, make sure you buy a goat and not a monkey.

Note– The story is sourced from here.
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Hindustan Unilever Ltd (HUL): A good business is not always a good stock

HUL is an example of a great business. It has a portfolio of famous FMCG brands that every Indian uses atleast once a day. Who wouldn’t recognize Lux, Lifebouy, Kissan, Rin, Surf, Axe, Close Up, Dove, Fair & Lovely, Sunsilk or other HUL brands? With Indian growth driven primarily by domestic consumption, there is no question whether HUL, with all its powerful brands, is well positioned to take advantage of this growth or not. Even respected stock research houses are claiming that ‘HUL is on a path of sustainable growth with the help of its powerful & diversified brands and thus they maintain a Buy rating on the Stock once again.’


HUL Hindustan Unilever Limted
HUL – A good buy?
But we beg to differ from everyone here. We are not convinced that HUL is a good BUY at this price. With HUL at Rs 530, there are some facts which suggest that it may not be the best time to buy this stock:
  • HUL is commanding a P/Emultiple of 50. This is highest multiple it has ever commanded. FMCG companies generally trade at high PE multiples. But a PE=50, doesn’t seem sustainable.
  • With a 3 year growth rate of 4.63% in Sales & 2.02% in Profits, a P/E of 50 does seem irrational.
  • If we check HUL’s PEG Ratio with Current PE=50 & G=15% (though past records stands at less than 5%), we get a PEG=3.33. And a stock having PEG>1 is considered to be overvalued.
  • Another way of looking at PE=50 is that investors expect HUL to grow at 50% per year in future. And common sense says that this is insane. With a company of HUL’s size, a 50% growth rate is like Elephant running at 300kmph!! 🙂

So what are your views?

Disclosures: No Positions in HUL. But if we had already purchased HUL years ago and had big capital gains built into the stock, we wouldn’t sell it even if it was overvalued. This is because we believe in power of doing nothing in stock markets. 🙂

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