Aditya Birla Fashion and Retail – Good Brands don’t equal Good Business?

This post is not BUY/SELL/HOLD advice but a statement of my personal analysis and opinion.

  • NSE: ABFRL is one of India’s largest fashion retail companies with Madura (premium) and Pantaloon (value) house of brands.
  • ABFRL’s brands include household names that capture the entire gamut of discount and premium customers, including in-house and foreign brands such as Van Heusen, Peter England, Global Desi and Forever 21.
  • ABFRL has the ownership / perpetual license of its brands unlike competitors like Future Fashion and Retail and Shoppers Stop. Intangible Assets.
  • These intangible assets however are not translating into improved ROCE (Return on Capital Employed) and this is not a source of competitive sustainable advantage
  • We can blame the industry structure and the value conscious Indian buyer who prefers substitutes to brands when it comes to discretionary spending such as apparel. The discount disruption by online players like Myntra and Amazon has spoiled the buyer and changed industry structure.
  • We can also blame the huge debt on its books and asset-heavy (rent is 600 crore) model of its brick and mortar retail format, which leaves little in terms of EPS for stock price appreciation.
  • To give you a sense of the enormity of debt, the company reported post-merger, a Goodwill of 1795 crore (which includes Pantaloons, Madura and Forever 21) but the debt with accrued interest stood at 1881 crore.
  • Premium brands do not necessarily lend to margins – Compare ABFRL with Kewal Kiran that manufactures discount brands such as Killer Jeans. Kewal Kiran has an OPM of 15% while ABFRL with its premium brand portfolio clocks under 10%. What matters more is getting the right product-market mix and returns on operating assets.
  • Even in the same omnichannel format, COGS is 93% of sales while Future Lifestyle Retail (Central, Brand Factory etc.) manages costs more efficiently (COGS 90% of sales).

Thoughts on the post-Merger Future

  • Investing decision depends on 2 factors –
    • How you feel the Industry Structure will evolve, i.e. will it move towards omnichannel or stay focussed on heavy discount online sellers?
    • How will the post-2015 merger between Madura and Pantaloons play out in terms of producing operational synergies?
  • If Industry moves towards omnichannel presence it will benefit ABFRL due to its presence across segments and geographies. However Amazon has recently tied up with Shoppers Stop and this will provide stiff future Omnichannel competition.
  • The Madura (menswear) component of ABFRL business is EPS accretive but the Pantaloons (womens/kidswear) business is loss-making. The future depends on how effective the turnaround of Pantaloons will be.
  • The future depends on the effectiveness of operational synergies arising out of the merger between Madura and Pantaloons (See below)
In 2015, Madura merged with Pantaloons under ABFRL (after de-merging from AB Nuvo), this raised margins and asset turnover temporarily but it is again going down, i.e. Merger is still not creating synergies

Thoughts on Relative Valuation

  • Enterprise Value / Net Operating Revenue and EV / EBIDTA ratios are both twice that of Future Lifestyle, which is reasonable given the Debt to Equity of ABFRL is also twice that of Future Lifestyle. This seems to indicate Market is not giving a premium to ABFRL over Future Lifestyle inspite of its “premium brands”. The brands also in turn are not giving any incremental ROE benefit to ABFRL.
  • The market is not discounting future operational synergies from the Madura / Pantaloon merger. Perhaps it doubts the execution capabilities of AB group (Other group companies like Grasim, Hindalco haven’t created investor wealth) or is just put off by the debt on books.
  • Both Future Lifestyle and ABFRL will be beneficiaries of a secular uptick in consumer growth due to operational leverage but Future Lifestyle may benefit much more (See below).
As opposed to ABFRL, Future Lifestyle has lightened its assets and increased turnover. It is also debt-lite. Operating leverage will impact EPS much more directly here.

Earnings Quality

  • On Jan 9th, 2018, the CFO S. Visvanathan has resigned to pursue a career outside the Aditya Birla Group, or so the group said in a press release.
  • In 2016-2017, the Cash Flow from Operations went up from 310 to 418 crore.
  • The DSO and Inventory Days also went up in the period and so did the Days Payables Outstanding which very conveniently shows a decrease in cash conversion cycle.2018-01-21_17-54-37
  • These ratios may suggest favorable trade terms, vertical integration or may warrant a deeper dive to check for financial controls for ABFRL.


This post is not BUY/SELL/HOLD advice but a statement of my personal analysis and opinion. I do not have any position in stocks mentioned in this post.

I am not registered with SEBI under SEBI (Research Analysts) Regulations, 2014. As per the clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”. No BUY/SELL/HOLD advice is offered on this blog, in any form whatsoever. Views expressed are my own and not of my employer. Stock Markets are very risky and can cause a permanent loss of capital. You should seek professional advice.

How the levy of Import Duties can help MSMEs in 2018 (The less obvious reasons)

In late 2017 after a long wait green shoots have appeared in stock market earnings, giving hope that current high market valuations may finally be sustainable. The bad news is that 2018 brings with it an expectation of an increase in crude and other commodity prices key for Indian Industry.

This is very bad timing for the economy, particularly small industry which is already reeling from demonetization and GST and is very sensitive to raw material prices.

Among finished goods listed above, the Government of India has also recently imposed duties on steel and cooking oil. I am not sure if these protectionist moves can be termed as a case of central planning overreach or a timely intervention but there are both obvious and less obvious reasons to why a levy of import duties now is critical to protecting small companies.

Globalization as a cause of NPAs

This is a controversial statement but if crime is looked through the lens of intent Essar, Jindal and Bushan Steel did not intend to default on their loans. In other words, manslaughter is not murder. They were not guilty of causing NPAs.

Capacities were being built by these steel makers with the intent to expand business – easy access to loans was just a covenience they enjoyed thanks to political patronage and poor lending controls at banks.

Then the slowdown in steel prices happened. A duty on steel at that point in time may have helped insulate industry and banks. But Chinese steel was dumped in India impacting the turnover of the companies and making them non-viable. The capacities these companies built gathered rust and banks that had financed them took an enormous hit on asset quality.

Credit Situation for MSMEs is tight

A result of the NPA situation is banks are not in a position to lend or are not willing to lend to MSMEs. This raises the cost of capital for MSMEs who must rely on internal accruals to finance growth. Internal accruals in turn depend on their margins which will be under pressure if 2018 sees a major uptick in commodity price inflation.

Operating Leverage is a Necessary but not Sufficient condition for MSMEs to thrive

Lets admit that most MSMEs are involved in downstream value chain activities and commodity businesses. This in turn means their margins are low and are highly dependent on raw material prices as they have little pricing power with their buyers and little bargaining power with their suppliers.

Operating Leverage is one key competitive advantage they can hope to build in their commodity businesses but a major percentage of their costs is still variable.

To give an example – Plastiblends (NSE: PLASTIBLEN), which advertises itself as India’s largest manufacturer and exporter of Colour & Additive Master Batches and Thermoplastic Compounds for the Plastic Processing Industry has 80% of its cost structure as variable costs – its margin being highly dependent on the price of crude. Plastiblends has the highest economies of scale of any plastic master-batch manufacturer in India and even then it has a huge sensitivity to raw material prices.

In a scalable business the average cost of creating the products and/or services fall as the volume of its output increases.

But in the case of rising commodity prices, Operating Leverage will not be very useful for such companies as each additional unit produced will cause an increase in average costs, irrespective of capacities at hand. (Even if somehow they can borrow at reasonable cost of capital from the reluctant banks to build sufficient capacities).

Since smaller MSMEs cannot retain their margins in the face of increased raw material prices they will not be able to transition to becoming larger players like Plastiblends, or even worse, will not be able to survive. This is obviously a very bad scenario for Indian MSMEs and the job market.

Final Thoughts

ROIC or Return on Invested Capital is a degree of attractiveness of a business. ROIC is described as the operating margin multiplied by asset turnover. In other words, the two components that define a company’s fitness are the ability to charge a high spread between price and actual cost, and the ability to generate sales from a small base of invested capital. Import Duty helps protect ROIC of MSMEs by removing competition from cheap import substitution, so if the spread cannot be maintained in a scenario of raw material inflation – the sales of MSMEs atleast can be sustained.

Alibaba didn’t grow in a vacuum, neither did Maruti Suzuki. Government protectionism helps create large home grown industries but for MSMEs under Make in India it may well be a matter of survival.

Fineotex Chemicals: Stock Market Recursion

This post is not buy/sell/hold advice. Please see the disclaimer at the end before reading further

The Indian stock market has all types of companies. The deeper you look down the spectrum of market capitalization, the stranger things you will find, growing away from the analyst spot light. Fineotex Chemicals Limited (FCL) is one such micro-cap company. With only 72 employees on its rolls in India, FCL operates in the attractive space of speciality chemicals competing with foreign MNCs that dominate the space of textile finishing.

Textile speciality chemicals is a high margin business as textile finishing and processing is a key value chain activity for textile companies but forms only a small portion of their total costs – putting companies like FCL in a comfortable niche. Customer retention in this business is high, due to high switching costs and involvement and R&D is a key differentiator.

But what is really interesting about FCL is that it is a proxy play on the growth of the Indian stock markets. See below for the latest quarterly results.


What’s unusual about the above schedule?

Out of the Non-current assets, Financial Assets (Investments) is more than Property Plant & Equipment!

Further, the company has 11 crores investment in land and property.

So what’s the real business here? Chemicals or investing?

See a partial snapshot (the full roll was too big and printed on the AR in landscape view!) of stock market investments made by the company from their annual report.


See the names of other smallcaps – Vardhman Acrylics and Vidhi Dyestuffs, which are also speciality chemical companies and competing peers of FCL. The company also has a ton of mutual fund investments. A key risk with thise type of balance sheet is that a deep stock market correction will prove a doubly whammy for FCL investors. Perhaps this partly explains why FCL trades at a Beta of 1.8, which is a very high indicator of volatility.

Thoughts on September Quarter Results

While maintaining healthy margins, thanks to pricing power in textile finishings and low input costs from crude prices, the company has struggled to grow its topline. This quarter the company has shown improvement, albeit marginal, in the standalone revenues and a slightly more impressive growth in consolidated revenues (FCL has subsidiaries in Malaysia and the Middle-East).

The EPS has grown by 25% in the standalone September Quarter 2017 over September 2016 results. It is fair to take same calendar quarters for comparison to adjust for cyclicity in demand. Its standalone PE is currently trading at 27, which puts the PEG at slightly more than 1, which is cheap compared to peers in the speciality chemicals space, especially considering FCL’s sustained high margins over the years.


This post is not BUY/SELL/HOLD advice but a statement of my personal analysis and opinion. I hold a position in FCL so my views are biased.

I am not registered with SEBI under SEBI (Research Analysts) Regulations, 2014. As per the clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”. No BUY/SELL/HOLD advice is offered on this blog, in any form whatsoever. Views expressed are my own and not of my employer. Stock Markets are very risky and can cause a permanent loss of capital. You should seek professional advice.

Investing in Road Infrastructure stocks? Here’s one strategy.

This post is not buy/sell/hold advice. Please see the disclaimer at the end before reading further

While the goose of private capex has been cooked, the Government of India is taking every step to boost public spending on infrastructure.  The focus is currently on roads. In 2015-16, NHAI awarded about 50 projects to build 2,624 kilometres of roads. A budget of US$22.35 billion has been set out by the Indian Government for infrastructure projects, for which highway construction will play a major part.

As Bala writes in this brilliant piece infrastructure companies have many moving parts that make them unsuitable as buy and hold investments, not least of which are – cyclicity, incalculable extraneous and confounding factors such as commodity prices and the lumpy, often misleading nature of their earnings.

On the other hand Infrastructure is one of the handful of sectors in this market that shows earnings visibility and a clear growth highway ahead.

So how to negotiate this paradox?

Proposed strategy: PROTECT DOWNSIDE RISK (And the upside will take care of itself)

Since the opportunity size is so large, if we can find companies where the downside risk is protected, it should be profitable. Let me lay the downsides for you and the mitigating techniques while researching potential Infrastructure companies to invest in.

Risk 1: Uptick in Commodity Prices leading to Working Capital Problems

Commodity prices are cyclical and have been in their trough for the past two years. It is expected that the uptick in key commodity prices will begin from 2018. Steel, cement are some critical inputs for the construction sector.

Steel – In the recent years India has imposed anti-dumping duty on steel and China has rolled back on capacities. This suggests domestic steel may go up in price.

Cement – Cement is priced by a cartel of producers in India. Further the government has put it in the 28% GST category.

This is sure to increase burden of raw material costs on Infrastructure companies.

Mitigation: Find Companies with Low Leverage and low P/B

Like any sector emerging from a multi-year downturn, most infrastructure companies are currently saddled with debt. Take the following precautions:

  1. Consolidated earnings – When screening companies, check both the standalone and consolidated balance sheet. Construction/Infrastructure companies in India tend to be conglomerates with diversified interests in power, real-estate and (sometimes) loss making foreign subsidiaries. Always check the consolidated financials to get a real picture of financial health.
  2. Price to Book value – use this metric for relative valuation as P/E can be misleading, given that earnings are lumpy (more on this later) and P/E does not capture bloat in balance sheet
  3. Mix of project/order type with the company – While leverage is not a disqualifier in itself, too much debt on the books puts some companies out of the competition for BOT (Build-Operate-Transfer) projects. BOT projects have higher risk of exposure to commodity price related working capital problems. On the other hand BOT projects have higher entry barriers than hybrid and EPC (engineering, procurement and construction) models that require upfront commitment from the government to take on 40% of the burden of costs. It follows logically that EPC models (where the government takes on the full burden of working capital) will face more competitive bidding than BOT projects, which will enjoy higher margins. Companies with low leverage and healthy balance sheets will enjoy a huge advantage to bid and successfully execute BOT projects.

Risk 2: Lumpiness in Earnings

The public infrastructure sector has one key buyer: government. The project lifecycle is long with 100% buyer concentration. This impacts the nature of orders – sometimes you win the bid, sometimes you don’t.

Additionally, infrastructure companies can record “revenues” as time of the order or at time of complete transfer of ownership and risk. Accounting distortion is common in this sector.

“Lies, damn lies and statistics”

Mitigation: Look at Cash EPS and Execution History

While the EPS of the company can be misleading. Cash EPS, which is a measure of Cash Flow from Operations / Dilute Equity outstanding would be a better measure of the health of the company. Again, due to the lumpy nature of infrastructure orders – do not look for consistency in Cash EPS but rather, its relative value compared to EPS.

Execution history is important. Companies that have suffered cost overruns in the past due to poor capital allocation or working capital management can be avoided. A leopard and management, rarely change their spots.

In Sum: The past is not the future

Road Infrastructure itself is a Rs 7-lakh crore opportunity. NHAI has 62000 crores worth of bids up in the next 6 months. Funding for Infrastructure is cheaper than it was in the past – interest rates are lower offering companies with debt significant relief in their existing interest payments while taking on new projects. Further, the Reserve Bank of India (RBI) has allowed companies in the infrastructure sector to raise External Commercial Borrowings (ECB) with a minimum maturity of five years and with an individual limit of US$ 750 million for borrowing under the automatic route.

Further, risk of input costs and overruns have been transferred from the building company, to the government under the Hybrid Annuity Model (HAM) and the EPC (engineering, procurement and construction) model. So the company executes and keeps the money, which is not trapped in working capital. We may be at the cusp of a unique wealth making opportunity in the stock markets. Stay vigilant.


This post is not BUY/SELL/HOLD advice but a statement of my personal analysis and opinion. I hold road infrastructure stocks so my views are biased.

I am not registered with SEBI under SEBI (Research Analysts) Regulations, 2014. As per the clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”. No BUY/SELL/HOLD advice is offered on this blog, in any form whatsoever. Views expressed are my own and not of my employer. Stock Markets are very risky and can cause a permanent loss of capital. You should seek professional advice.

Kriti Nutrients and Sanwaria Agro: Soya and Edible Oils back in focus

This post is not buy/sell/hold advice. Please see the disclaimer at the end before reading further

Soya products and the edible oils are areas I have been closely following. India imports  67% of its demand for edible oil. This is economically unsustainable due to several reasons. There are a few key factors about the industry:

  • The demand for edible oils is inelastic and insulated from macroeconomic conditions as cooking is a basic need for survival.
  • India has failed to be self-sufficient in edible oil production due to misaligned incentives for farmers and low agricultural efficiency, which causes Indian soya to be globally uncompetitive in prices.
  • Soya has applications beyond cooking oil in cattle feed (poultry), food proteins, value added products (like soy milk).
  • China is driving the global demand in soya and increase in prices of the raw material.


The Indian government unfortunately has not recognized the importance of self-sufficiency in cooking oils and has not made it a policy priority. However with GST and the financial demise of large listed companies like Ruchi Soya, the space has opened up for smaller organized players with good balance sheets like Madhya Pradesh based Kriti Nutrients. I would prefer companies based in M.P and Maharashtra as they have the competitive advantage of sourcing Soya from local growth belts.

The financial health of Cooking Oil and Soya companies has been tenuous. Edible oil and Soya products is a low margin and commodity business. Bad macroeconomic and industry conditions have wiped out many companies big and small (e.g. Ruchi Soya). Only a few remain investment grade.

The cyclicity in the business is through the supply side – introduced by dependence on raw materials like Soya and Sunflower. The production of edible oils and soya products is subject to the vagaries of the monsoon and Indian agricultural conditions. The demand side itself is not cyclical as cooking oil is in demand around the year. This makes companies with good inventory management stand out.

Kriti Nutrients : Improving on all parameters

Due to these factors discussed, it is also wise, when investing in the edible oil sector, to look for companies that are not pure play edible oil manufacturers but look to be mini-FMCG or food processing companies – thus diversifying their risk.

Kriti Nutrients: Offers products such as Soya flour, Sunflower oil and produces Soya liechestien for Nestle (probably for use in their baby food products). Kriti management though conservative has shown an intention to launch value added products albeit slowly. With access to M.P’s soya-belt, they are well positioned to capture new product categories like Soya milk and protein foods when the market is made. It also makes me believe they are a good acquisition or partnership candidate for large FMCGs like Britannia and Nestle. Fun fact: Inventory turnover of Kriti Nutrients is better than Nestle’s. All of this is not discounted in the price as Kriti trades at multiples that are normal to the edible oil industry.

Sanwaria Agro: The company is more of a food-processor than Kriti Nutrients, which leans more towards being an edible oil company. In addition to edible oil and soya chunks; Sanwaria offers flour and even basmati rice. The price has run up significantly in the past few months.

Sanwaria Agro, Investor Presentation

In sum, a few reasons to be bullish about the edible oil/soya product businesses are listed below:

  • Unorganized to organized: GST pushes the unorganized market towards an organized market benefitting large and mid-sized listed players with low leverage and good inventory management
  • Push to pull: Domestic demand will see growth as the country moves towards self-reliance in edible oil and competitively priced soya products
  • The business has emerged out of a multi year down-trend, so valuations are reasonable
  • Reliance on monsoons is going to decrease and agricultural incomes are set to rise incentivizing farmers to grow soya and edible oil cash crops – securing supply side cyclicity
  • Protein intake increasing in a vegetarian country and the addition of value added products will see increased demand for soya chunks, tofu and other soya proteins as well as soya milk in the medium to long term
  • Health and quality consciousness: Soya oil is healthier than its counterpart – mustard oil, which is the dominant variety of cooking oil in India


This post is not BUY/SELL/HOLD advice but a statement of my personal analysis and opinion. I hold Kriti Nutrients since lower levels so my views are biased.

I am not registered with SEBI under SEBI (Research Analysts) Regulations, 2014. As per the clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”. No BUY/SELL/HOLD advice is offered on this blog, in any form whatsoever. Views expressed are my own and not of my employer. Stock Markets are very risky and can cause a permanent loss of capital. You should seek professional advice.

Making a quick buck in the market ..??

Bala writes about how greed and FOMO can lead one astray in the stock markets. Also a lot of other insights on the impact of sector rotation, industry cycles and structural fundamental changes that fool investors. Like always, people who catch the trend early make money at the expense of others who get stuck in price and time corrections. The more things change, the more they remain the same.

Source: Making a quick buck in the market ..??

Bitcoin above $3000. Is it too late to buy Cryptoassets?

NOTE: This post is NOT Buy or Sell advise. Cryptocurrencies are very volatile, are subject to legal / regulatory risk and also carry a risk of permanent capital destruction.

Bitcoin went past $3000 as “segregated witness” or Segwit, the latest version of its open source code is days from locking in to the nodes on its blockchain on August 8th, 2017.

Segwit aims to solve Bitcoin’s long standing scaling problem and serves as a positive fundamental trigger to its price. For stock investors, imagine capacity expansion without the capex. True to fashion, the market bought the rumor before the news and pushed the price above the last all time high of $3019 in June.

This move caught many technical analysts by surprise, as Bitcoin – honey badgerlike – continues to shrug off bad news and humiliate market oracles. I think what is most significant is that the long-term underlying bullish trend has been confirmed this week, which means the odds of a major Bitcoin “crash” have plummeted and a $5000 to $10,000 Bitcoin price is now in sight.

Suprise! While the RSI and other momentum indicators suggested a correction the breakout in the simple moving average confirmed the direction of the trend.

So is it too late to enter? Bitcoin has no intrinsic value. The fair price is unknown. The market price is determined by demand and supply. It has gone up too much too fast. It’s in a bubble. All of this fear, uncertainty and doubt is legitimate but not in the ways one might think.

Bubble valuations (aka the Price has gone up too Fast!)

Every generation has a bubble. Tulips. Dotcom. Unicorns. Cryptocurrencies are the bubble of the coming generation. We are in very early stages of price discovery of a completely new asset class which is still dismissed by a majority of old street finance as a pyramid scheme or vaporware. Banks buy bitcoins only to pay off future ransomeware attacks. Hedge funds are only now beginning to show interest. Equity investors are still to enter. If it is a bubble, it is a bubble that is yet to grow until it floats regal and mountainlike before the thunderous pop.


So has the price gone up too much? Bitcoin was in a bear market from 2014 to 2016 and the anchoring/recency bias makes us fear mean reversion.

Here are Bitcoin’s historical returns since Satoshi Nakamoto wrote the famous white paper:

2011: +1500%

2012: +399%

2013: +5400%

2014: -43%

2015: +37%

2016: +130%

2017: +220%

Notice the trend? The trend is your friend and Bitcoin can be the long trade that changes your life.

What are you buying when you buy Bitcoin?

Don’t buy what you don’t understand. For the non tech savvy, the blockchain is not an easy concept to comprehend. Buying Bitcoins is roughly analogous to buying:

  • A share in protocol/infrastructure of the future de-centralized internet. Like buying CISCO shares in early years.
  • A scarce asset. Like buying Diamond before De-Beers, because there is no central authority or control on price or inflation schedule.
  • The energy and time units that go into mining. Mining Bitcoins gets progressively difficult as Bitcoins grow scarcer (the supply being strictly capped at 21 million). It is expensive to set up a mining rig and involves large amounts of power consumption.

Besides at just 21 million in total supply, with scope for no more to be created, Bitcoin is scarce

Bitcoin is an Experiment. A community without a leader. A cult in thrall to the idea of a world without centralized authority.

An absurdity about this peer-to-peer currency meant to act as store of value is that the developers of the original protocol were idealistic libertarians. Satoshi Nakamoto, the founder of Bitcoin is a myth. No one knows who the real Satoshi Nakamoto is because he chose to shun recognition and remain anonymous (with his stash of Bitcoins worth billions now of-course). In spite of its de-centralized nature, there is an almost cultlike ownership of the protocol by its many participants many of whom are not in it for the money but to achieve their goal of disrupting the financial status quo and making payments truly peer-to-peer without trusted third parties. Their counter is that the trusted third parties like banks could turn untrustworthy and rogue as banks and governments are wont to do. Governments can issue currency as legal tender and declare them illegal overnight. Governments can confiscate your assets and nullify your property rights.

Remember George Orwell’s 1984?

‘It exists!’ he cried.
‘No,’ said O’Brien.
He stepped across the room. There was a memory hole
in the opposite wall. O’Brien lifted the grating. Unseen, the
frail slip of paper was whirling away on the current of warm
air; it was vanishing in a flash of flame. O’Brien turned away
from the wall.
‘Ashes,’ he said. ‘Not even identifiable ashes. Dust. It does
not exist. It never existed.’
‘But it did exist! It does exist! It exists in memory. I remember
it. You remember it.’
‘I do not remember it,’ said O’Brien.

Memory holes were furnaces in which the Government burnt all records of a person’s existence. The distributed ledger of the blockchain is the exact opposite of the dystopian memory hole. Every transaction, every record of your property rights will be recorded on every node on the blockchain. O’Brien and his cronies cannot destroy the memory of you – without destroying every node. Indestructible memories interred in memories like fractals.

This radical de-centralization is an altruistic idea that makes your investment in Bitcoin a part of a militant albeit greater cause.

A dyed-in-the-wool speculator may ask – why do I care for these outlandish ideas or cultish early adopters? Remember these early adopters are like promoters in a listed company. The early developers and miners fanatically hold on to a significant stash of the total Bitcoins in supply. Block and wallet data shows they have been hoarding and not selling – which reduces the potential downside risk on your investment and leads to upward pressure on the price. This is the same affect as gold and silver that for the most part ar no longer in circulation except on exchanges.

Bitcoin is Honey-Badger

Bitcoin is thick skinned, like a honey-badger. A great humiliator of its naysayers. Back in June people predicted a hard fork of the main chain would lead to uncertainty, following it up with platitudes that the market hates uncertainty. But what the market hates most of all is people who are certain they know how the market will behave (I am guilty and have burnt my fingers) and Bitcoin has proved that in spectacular fashion.

The hard fork happened and Bitcoin’s price stayed firm in the 2700+ USD range. It achieved the opposite of what was predicted that the market cap would be reduced by the market capitalization created by the forked currency, i.e Bitcoin Cash. The fork actually made existing Bitcoin holders richer by giving them a free Bitcoin Cash for each Bitcoin in their account creating $7 billion of helicopter money overnight.

I will leave you with the below links and images to stress the survivability of Bitcoin and how the potential of this new asset class is still not properly understood.

DGhL4hhUAAIZkZO (1).jpg

The KISS of Altcoins. Keep it Simple Stupid

While investing in Cryptoassets other than Bitcoin – or altcoins – it helps to keep it simple. What I like about Bitcoin is it doesn’t pretend to be anything more than a scarce store of value and does a great job at it (de-centralized control, scarcity, fungibility, increasing difficulty to mine). Monero and Litecoin similarly are good projects that seek to be stores of value.

Personally for me, Ethereum seems like a complicated protocol and investment albeit with great leadership and community.

Ethereum’s main challenges are –

1. Security (It’s turing complete)

2. Scalability issues

3. Untested new design

3. Economics (Confusing inflation schedules, ICOs)

Bitcoin has lower downside risk from hacks and inflation. It can imitate ethereum’s “smart-contracts” functionality using a concept called sidechains.

Apart from Bitcoin, which is king, in my strictly personal opinion I see significant scope of adoption for the following protocols:

Monero – What Bitcoin used to be, only more secure. Use in the dark web/grey market business offers some downside price protection.

Litecoin – The silver to Bitcoin’s gold. Runs on Bitcoin’s chain. Popular with miners and Bitcoin users. Fast. Solid development team.

NEO/Antshares – Technically most sound, on paper. Backed by corporates. KYC compliant, which is a huge deal in China.

Ethereum – Its popular with the South Koreans (the early adopters of all cryptocurrencies) and is being promoted as an alternative to Bitcoin, which I do not believe it is.


Price discovery is a work in progress. Cryptocurrencies are illiquid, unregulated, listed on limited exchanges and this makes them subject to price manipulation.

Final Word

Here is some great advice from a venture capitalist from Matrix Partners on how to invest in Cryptoassets. Do click and read the full thread. I could not put it better.