[Newsletter] High ROCE means higher returns?, 5 Good Reads, and Market Overview

🔆 Saturday Coffee Newsletter

• Market Overview: Top Indices & Asset Classes

• Quantifying Quality: Does high ROCE convert to better returns?

• Good Reads: 5 good reads on investing & finance

• Pop Quiz: Answer and win a cool prize!

What’s up with markets?

Brent Crude has risen by 13% in the past month and is now trading around $84. Nifty 50, Gold and Silver cooled off a bit this week while USDINR gained a little.

Pharma sector was up 4.8% this week followed by Realty and Healthcare sector. Over all timeframes, the best performing sectors are the ones that are usually out of favour in the markets - Realty, Media and PSU Banks!

Quantifying Quality: Does high ROCE convert to higher returns?

Last quarter, there were 484 mentions of ROCE in the filings of just the 50 Nifty companies.

ROCE stands for “Return on Capital Employed.”: how well a company is generating profits from its capital. It is considered a critical part of the puzzle of finding quality businesses.

But the key question is - to what extent did high ROC translate to shareholder return?

We did a longitudinal analysis spanning ten years centred on classifying companies on the continuum from high to low ROC and looking at their shareholder returns.

The objective was to see what patterns emerge that might be considered generally acceptable to the way the stock market rewards shareholders.

Here’s what we found.

**Read: **​The impact of Return on Capital on Shareholder Returns

What we are reading

100 practical tips for improving various aspects of life including possessions, productivity, health, success, rationality, relationships, and avoiding hazards. Read: 100 Tips for a Better Life

Emotional biases can adversely impact financial decision making. Here’s a few to be mindful of. Read: Don’t Be Your Own Worst Enemy

Everything follows natural cycles of growth and decline, from mountains to companies to individuals, so constant awareness and intervention is required to maintain stability actively. Read: Everything Is Cyclical

Successful investing requires nuanced analysis rather than simplistic pattern recognition, as every company and situation has unique complexities. Read: Stock Picking is a Game of Nuance

Are we entering a period of perfect storm? A combination of production constraints, rising demand and geopolitics are playing out. Read: The New Great Game – Geopolitics of Critical Minerals

Pop Quiz

Identify this colloquial term.

Like many English monarchs, William III was short of money, which he attempted to rectify by the introduction of the much-despised Window Tax. As the name suggests, this was a tax levied on the windows or window-like openings of a property.

Taxes are rarely popular, but the Window Tax, which was considered to rob the citizens of very stuff of life, that is, light and air, was singled out for particular loathing. People went to great pains to avoid paying it and many windows were bricked up for that reason.

This term which describes blatant and unfair overcharging has its origin in the above story.

Identify this two word term.

Hit reply to this email and answer.

Each week, we randomly pick one winner who gets something cool!

Last week’s winner: Manjeet

Last week’s answer: Reliance Retail

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