How To Manage And Sell A Company In An Industry And A Country You Don’t Know

By Anand Sanwal (@asanwal), CEO and co-founder of CB Insights.

From tech in NYC to chemical manufacturing in Nasik (India), here's a guide that hopefully nobody ever needs.

On April 17, 2017 my dad died.

It was the worst day of my life.

It was also the day I started to lead a second company – his company. (Note: the first company is CB Insights.)

His company was in India (a country I knew little about) in the chemical manufacturing industry (an industry I knew nothing about).

On June 1st, 2018, after running his company for 13 months, it was acquired.

While I don’t think most people would ever find themselves in a similar situation (I certainly hope not), I thought I’d share the story and some of my learnings & observations from that time about business, M&A, teams, India, and assorted miscellaneous thoughts.

Life comes at you fast

As I was going with family to cremate my father in a traditional Hindu funeral, someone who I didn’t know came up to me and said in Hindi, “Saab, humara kya hoga?”

That translates to “Sir, what will happen to us?”

I didn’t know who it was.

I assumed it was a worker from my Dad’s factory.

I was a mess at the time.

And I remember thinking to myself, “Why the F are you asking me about this right now?”

But this wasn’t the time for anger or to even to think about this so I just knee-jerk responded in my heavily American-accented Hindi that “Meh dekh loonga” which translates to “I’ll look after it.”

And so at that point, in addition to CB Insights, I knew I was going to run my Dad’s business. To be honest, I had already thought about this possibility when he was admitted to the hospital when the doctors said the situation was looking dire.  

But no matter my age, Dad was always the strongest, smartest person I knew, and so I assumed he’d pull through and things would go back to normal. With him tirelessly working on Atlas, the company he founded, and me going back to CB Insights.

But then April 17th happened.

And now, I was going to run his business.

I was going to run Atlas.

I wasn’t ready for this.

Before we go further, a bit of context on Atlas, my Dad’s business.

The company was recently renamed AIMS Impex, but it started and for most of its life, it was known as Atlas Fine Chemicals. Industry folks know it as Atlas, and my sisters and I grew up knowing it under that name so I will refer to it as Atlas going forward.  

Atlas is a manufacturer of specialty flavor & fragrance chemicals such as coumarin, 6-methyl coumarin, safranal, natural vanilla, and cyclocitral among others. Atlas’ customers include the world’s largest flavor & fragrance houses including IFF, Givaudan, Firmenich, Takasago, and Symrise among others.

Atlas is based 4 hours from Mumbai in a city called Nasik (1.486 million people) and the manufacturing facility is about 35 minutes from Nasik in a small village called Sinnar.

If there ever was a polar opposite to CB Insights, it’s Atlas.  

CB Insights is a technology company.

Atlas is an industrial manufacturing company.  

(note: more on the differences below)

But here we were.

Day 1 in my new gig

I don’t remember the exact day I went to the office for the first time as the weeks after April 17th were a blur of family, tradition, and emotion.

Before even stepping foot in the office, I had asked the team to send me the reports they sent to Dad so I could get familiar with the business.

TBH, I didn’t know what I’d do with these reports, but I figured that acting like I knew what I might be doing might provide some confidence to the team.  

Candidly, my only qualification to run Atlas at this time was that I was the founder’s son.

I had tried to be the good Indian son back in 1998-2000 and work at Atlas so knew the biz a bit in its earlier days, but 18 years is a long time for a business and my mind was jammed with all sorts of other experiences and ideas since then. My time at Atlas was just a distant memory.

In 1998, moving from the fun of NYC to small town India was tough especially as someone born and brought up in the US. Moreover, I was a know-it-all who had all the answers despite just graduating from college and so my dad’s inability to recognize my genius bothered me.

And so after 18 months working with Dad, I left to join Kozmo.com.

(Yes – that Kozmo that spectacularly failed. Clearly, I had great judgment.)

I still wonder what Atlas might have become if I could have figured out how to be more of a student and less of an Ivy League douche when I was working with my dad back then. What kind of duo might we have been?

So, in a strange and sad way, this was an opportunity to finally be the good Indian son and run Dad’s business.

In late April, I finally went to the office.

When I entered, everyone stood up to greet me.  

Nobody called me Anand.

I was referred to as Sir, which is what everyone referred to my father as.

Yup — this felt strange.

I remember thinking this was odd at the time, and during all my visits to the office subsequently, but in many ways, this sort of cultural deference to the unqualified boss’ son is what enabled Atlas to carry on.

I imagine if the same had happened in the US, there would have been many more questions about my qualifications and capabilities. At Atlas, those conversations might have very well happened, but I doubt it. Or, if they did, these questions weren’t directed to me. I got lucky here.

Everyone, for better or worse, assumed I had a clue and was looking for me to develop a plan.

What the F is the plan?

So I needed a plan.  

Not on day 1, but pretty quickly.

Not because anyone was asking for one, but for myself. For Atlas.

How does one develop a plan when you don’t understand the business, the science, the industry, the country, and sometimes even the language? (I have passable Hindi but a lot of the local conversations at Atlas were in Marathi which I don’t understand.)

In my view, there were 4 options for the business.

Option 1 — Run the business and become this huge multi-industry conglomerate

I entertained Option 1 for about 6 weeks. The ill-conceived idea was that I’d figure out how to run both Atlas and CB Insights, going forward with Atlas as the beachhead for a larger industrials business and CB Insights as the first part of a massive technology arm.

Visions of grandeur and all that good stuff.

This was some stupid, naive thinking.  

In India, you see all these families (Ambani, Birla, Tata, Godrej, Hinduja, etc) who are in every potential business line possible. I figured they all started somewhere. Maybe this would be my starting point.

After about 6 weeks of trying to be present at CB Insights, but doing calls every morning at 6am with the Atlas team and emails every evening responding to the team or to Atlas customers, it became apparent that Option 1 wasn’t feasible.

I kept this 6am morning call/evening email routine going for the last 13 months with CB Insights occupying the middle of the day and every other minute of idle brain time. Needless to say, I’ve aged immeasurably in the last 13 months. My desire to build a multi-industry conglomerate died because the idea was just too tiring.

Option 2 — Sell the company for its parts

For a second, I looked at what the company might fetch for its assets. Its land, plant, etc.

I’d never done something like this but I remember hearing about it when Gordon Gecko talked about it in the movie Wall Street so figured, why not?

If the strategy works in movies, it must work in real life too, right?

But this wasn’t a real option ever and was discounted in a few hours.

My dad built this company over 30 years with many of his team having been with him for 20+. Selling the company’s assets, even if feasible, would be me failing his team and him.  

Not going to happen.

Option 3 — Find a young, aggressive, ambitious person to run Atlas

The third idea was to see if there was someone who could run Atlas with some guidance from Dad’s team and me (assuming I could eventually understand the business). And then give this person the ability to earn more and more equity over time.

Essentially, they’d run the company and eventually own it.

This idea was appealing as it’d let my family continue to be involved with the business while also finding someone capable to take it to the next level.

The problem here was that I had no network in India from which to even think about finding someone for this role. I spoke with a couple of candidates via introductions but nothing really stuck for them or me. Moving to Nasik was a challenge even for those in India, but that was just a symptom of not finding the right person.

This would have been an amazing opportunity for the right person, but it wasn’t in the cards.

Option 4 — Run the business until a buyer can be found

Option 4 was ultimately the most practical.  

The challenge, however, was that Dad’s business didn’t have too many natural buyers and was considered a small market transaction making it even tougher.

And so I didn’t have any control on the M&A side of things.  

I focused on running the business and hoped a suitable acquirer would show up. If nobody showed up, I’d keep running it.

I gave myself 3 years to run both Atlas and CB Insights, thinking I could maintain the daily schedule of 6am calls and evening emails with India interspersed, with trips every 6-8 weeks before burning out. 3 years was a completely arbitrary timeline.

About 6 months in, I realized doing both for that long really wasn’t sustainable for a number of reasons — health, family, and it wasn’t optimal for either CB Insights or Atlas.

But I didn’t know the buyer market and couldn’t control it so I focused on what I could control.

And that was running Atlas.

Running a business you know nothing about

Despite Atlas being very different than CB Insights, the answer about how to run it came to me easier than a lot of the other questions I had over the last 13 months.

Or perhaps I just oversimplified it to make a decision quickly.

I decided that business is about growth or margin.

To grow, we could do 1 of 2 things:

• Sell more of our existing products — primarily Coumarin
• Add new products

If we focused on margin, that’d mean focusing on:

• Increasing efficiency in manufacturing
• Reducing expenses

I looked at the financials for Atlas vs peers in the industry and talked to some of my dad’s trusted advisors, and it was apparent that Atlas’ margins were best-in-industry.

Dad was the ultimate bootstrapper.  

Atlas was efficient, and my dad obsessed about margins, foregoing business that was low margin to keep overall profit margins high.

It was clear that focusing on the margin side wasn’t the best place for my time or energy.  

Plus, most of the efficiency to be gained was in the manufacturing process and that is where I was zero value-add. Dad was also the ultimate technical co-founder. I was as non-technical as they come in a chemical manufacturing setting.  

Plus, margin is hard to rally the team around.  

Growth is tangible.

And I needed to paint a picture that the team could see. Improving margin by XX basis points wasn’t going to be what got anyone fired up.

So I decided to focus on growth. Growth not via new products as that would also require Dad, the technical co-founder.

I focused on growth of Coumarin — the company’s primary product.

This was also the only way to run the company that I had a chance of being useful in.

And it was also the way I could show the Atlas team we were doing well. And that I might have some value beyond being the boss’ son.

Selling is something everyone sees, especially in a manufacturing setting. From the workers at the factory to the plant staff, if they see trucks coming in for product dispatches, they know the product they’re making is selling. If the staff in the office is busy generating invoices and fielding customer calls, they see the product is selling.

And while I’m by no means a natural at selling, if armed with the right product, I can sell. And Atlas’ Coumarin was the best in the world.

In the chemical industry, it’s unheard of to be a single product company for 30 years. But Atlas was able to do that because the product is hard to make, and they are the best at it.

So growth it was.

Note: It is worth noting that in a competitive chemical product, margins cannot be ignored. So while growth was the focus, I did focus on major expenses — raw materials, shipping, packaging. But this was only 5% of my time as the very capable team at Atlas managed these expertly.

Growth the old-fashioned way — cold calling and cold emailing prospects and customers

So with growth being the focus, I went about assembling a list of people and firms in the industry I should reach out to.

I went through my dad’s emails to see who he’d interacted with and reached out to all of them.

I visited various fragrance and flavor association and conference websites and took down their member and attendee names and reached out to them.

It wasn’t a particularly structured process, but I wanted those that knew my dad to know that Atlas was still humming and they could rely on us for product.

And for those that didn’t know us, the next time they had a need, they knew they could reach out to us.

This was a lot of cold emailing and cold calling. I have heightened respect for what SDRs do at CB Insights or anywhere. It is hard work. But also incredibly rewarding when someone closes based on your efforts.

At the same time, I also focused on price. Dad had built a high margin business which afforded me the opportunity to try to gain market share by being more aggressive with price.

Coumarin is probably a 6,000 ton product per year. Atlas was about 10-12% of the global market, but we had capacity at the plant that wasn’t being used so I knew we could produce and sell more. There is some supply-demand curve, marginal cost calculation I could have done here, but I didn’t do any of that.

I did some back of the envelope math in my head and had worked out a simple, rudimentary cost per kg formula in Excel to ensure we were always making something on a sale, but I ran Atlas on instinct a lot more than analysis.

Atlas has a great team with lots of experience. I assumed if I was doing something really really dumb, they’d tell me 🙂

In the last financial year (April 2017-March 2018), Atlas had its best revenue in history. In November 2017, we dispatched 100 tons of Coumarin to customers for the first time in the company’s history.

I remember taking mithai (sweets) to the site at the end of November when the 100 ton month happened and celebrating with the team. It was one of the proudest days I’ve ever had professionally. I was incredibly proud of the Atlas team who had seen a potentially company-sinking event happen with my dad’s death in April and who’d kept fighting and doing good work and then just had a historic month.

So, things were going well with the company.

What about a buyer?

The M&A buyers show up

As soon as I took over the business, the calls started coming from interested buyers or their investment banks.  

Dad had already been in discussions with 1 firm prior to his death, and I’d met them once with him. They re-engaged.

The flavor & fragrance industry in India is big, but small at the same time.

Everyone learned about Dad’s passing pretty quickly.

As a result, various buyers expressed interest. I reached out to a couple of our large customers to feel them out.

By the end of July, I had a group of buyers identified.  

I had done some basic research on the space so I understood the players and sounded at least reasonably smart. A report by investment bank Avendus on the flavor & fragrance industry was useful for a novice like me. Atlas was a base ingredient manufacturer. Our likely buyers were either larger base ingredient manufacturers or functional ingredient manufacturers who were interested in vertical integration.

There were 5 buyers that either came to us or that I’d identified and gotten some expression of interest from.

• Buyer 1 – A publicly traded Indian firm that also makes Coumarin at much smaller volumes
• Buyer 2 – An Atlas client who was interested in potential vertical integration
• Buyer 3 – A wealthy family looking to buy a business for their son returning from the US
• Buyer 4 – A private-equity backed chemical company
• Buyer 5 – A family-held chemical company that also manufactured Coumarin

Most of these buyers did not get very far.  

But I had conversations with all of them.

Before digging into how things went with each buyer, it is worth understanding that there were certain criteria I had for a deal which made eliminating certain buyers easy.

My 3 deal criteria were simple:

• They had to take care of the team — I wanted to find a growth-oriented company as ensuring the team that had helped build Atlas would be taken care of was critical.  The biggest factor in any decision was this as I viewed it as intertwined with my dad’s legacy. He spent 30 years building this company with this team. It was important that this be maintained and hopefully taken to the next level. There is, of course, no way to know this for sure and this is where one’s gut and how the buyer across the table makes you feel is important.
• Simple deal — I was not interested in stock in a private company or an illiquid public company or a long earn-out or some other complex structure. Atlas wouldn’t be a big deal for any credible buyer. Complexity wasn’t required. I also didn’t have time to educate a buyer on the space.
• A fair price — When the founder/face of a company dies (my dad), a bunch of bottom feeding parasites can show up. I wasn’t expecting to get a top of the market price for Atlas, but I wanted a fair one. Moreover, the longer I ran Atlas, the more confident I became in my ability to run it. So the price was only going to go up with time.

So now let’s look at each potential buyer.

Buyer 1 — A publicly traded Indian firm that also makes Coumarin at much smaller volumes

I met with one of the execs of this firm along with their investment bank once.  

I shared high-level data on Atlas with them but the conversation ended after that. They were saddled with lots of debt as I could see given they were public and so didn’t think a deal with them would meet the criteria I had on fair price, simplicity, or even ability to take care of the team.

Not a good fit.

One conversation and things were done.

Buyer 2 — An Atlas client who was interested in potential vertical integration

This was a client I’d reached out to.

They were interested in Atlas. We talked a bit and they proposed a deal, but the structure was complicated and so I let this one go. They are a long-standing client and we were far enough away from any deal that it didn’t make sense to engage further.

Buyer 3 — A wealthy family looking to buy a business for their son returning from the US

This was an introduction from one of my dad’s advisors.  

They were a family with a large industrial business and were interested in expanding into new lines as their son was returning to India from the US. (I guess really wealthy people do things like this).

They were super smart and impressive.

The challenge here was that it’d require lots of education about the industry and the probability of success even after investing would be low.

This wasn’t time I had.  

After a couple of conversations, it was clear this wasn’t a fit.

Buyer 4 — A private-equity backed chemical company

This was the firm my dad was already in discussions with. The firm had seen Atlas’ numbers and had actually given an offer to my dad prior to his death. They seemed the most promising at the outset given the diligence they’d already done.

So I met them in May before leaving India.

It was an interesting meeting.

For an hour, they told me all the reasons Atlas wasn’t a great business. I listened as I’m probably too deferential to those older than me than I should be.

And after listening for a while, I asked them, “You’ve told me all the reasons Atlas is such a bad company. So why do you want to acquire it?”

That seemed to reset the conversation a bit.

Ultimately, there wasn’t a fit.  

Part of this may have been culture fit and part of this was likely ownership by PE which complicated decision-making on their side. It’s important to understand the decision-making criteria and process of a buyer when discussing M&A.

The firm wanted to follow their process.  

I told them that process didn’t work for Atlas or me or my family. And I told them that process was what we needed to run. When they said no, I wished them luck and moved on.

I was nervous doing this tbh. There wasn’t a huge list of buyers for Atlas and shutting one of them out seemed at times like it might be foolish. But you have to go with your gut on these things.

Life went on.

Buyer 5 — A family-held chemical company that also manufactured Coumarin

Buyer 5 reached out via the company’s investment banker.  

I’d received lots of calls from bankers prior and I insisted they tell me who they were representing as many were just fishing.

Buyer 5’s banker revealed the company’s name.

I knew my dad had had conversations with them some years ago.

We met in July and there was immediately a better fit.

I explained my criteria, they explained their vision, they put a non-binding offer together that was clean/clear and we got moving on diligence.

The rest is history.

June 1st — Atlas is officially sold

On May 31st, I flew back to India.  It was my 8th trip in the last 13 months.

I landed at 10pm. The offices of Avendus, the investment bank representing Eternis, the buyer, was the first destination.

I arrived at 11pm and we worked until 5am to hash out final details of the deal.

We went away for 4.5 hours to shower and get some sleep and resumed at Eternis’ office at 930am on June 1st. By 4pm that day, the deal was done.

At 5pm, I left Mumbai for the 4-hour drive to Nasik.

The news broke within the industry pretty quickly. During the 4-hour drive to Nasik, folks started calling and WhatsApp messaging me — customers, vendors, etc.  

And so did the Atlas team.

I’d only disclosed the deal conversation to 4 people at Atlas prior.

I was hoping to tell the team on Saturday (6 day workweek at Atlas) in the office so I felt bad that some of them heard about the deal on Friday evening through others.

The next day, I went to the factory and members of the Eternis team came. Manu of the Eternis team addressed the office and factory staff and gave a great view into their goals and their company.

The official farewell

On June 4th, we decided that our family would officially say farewell to the entire Atlas team at the factory. We had everyone from the office come up.

My mom, kids, and wife flew in from the States. I wanted my kids to see what their “Dada” (grandfather) had built at least 1 time before it moved onto the next chapter in its story.

And we wanted to say thanks to everyone on the Atlas team.  

I had prepared a speech in English and my wife translated it to Hindi. My Hindi is not very good so beyond the emotion of this farewell, I was pretty scared of delivering a several minute speech in Hindi. I’d never done something like that.

We assembled in the warehouse, and I stood on top of the chemical mixer and talked to the team. I fought back tears several times during my speech. My Hindi was intelligible enough that I had several others on the Atlas team also crying so I guess that my message was understood.

My speech in English is below.  It was delivered in Hindi, and the video is something I hope to show my kids when they are old enough to understand.

Speech:

My Hindi is not very good so please forgive me if I make any mistakes.

Dad started Atlas 29 years ago. As my sisters and I were growing up, we joked that Atlas was his 4th child.

But in reality, Atlas was less of a 4th child than a 2nd family to Dad.

He loved working with you all. Whether it was increasing production or improving our Sali to Coumarin yield or solving technical challenges to figuring out how to keep Chinese Coumarin out of India to showing the plant to foreign visitors, there was nothing he liked more.

And together with Dad, you all built something very special.  

Many of you have been with Dad for 20+ years. He and you grew up and built Atlas together.

And now, Atlas Coumarin is known globally for being the highest quality coumarin in the world. All the leading multinational companies like IFF, Givaudan, Firmenich rely on Atlas.

Within India, Atlas Coumarin has more than 50% of the market.

And now, there are a group of new products such as 6-methyl coumarin, safranal, and cyclocitral which can make Atlas even bigger.

Of course, as you all know, Dad passed away last April and since then, I’ve been managing what you and he built and it’s been a privilege to do so.

Thank you for everything.

I’ve never worked with a group as smart, talented, hardworking, and kind as you all.

Although I didn’t know much about the business, you all helped me understand things and were patient and understanding throughout. I knew I’d never be able to be 10% as good as Dad but you never made me feel that way and for this, thank you.

And in the last 13 months, we did a lot of good things. In November, we had Atlas’ first ever month where we dispatched 100 tons. I remember coming to the site that day and distributing mitthai and feeling so proud to be part of this team. On the way back to Nasik that day, I remember crying and thinking about how proud Dad would have been of this team for achieving this milestone.

So, again, let me say thank you from me and my family for all of the outstanding work you do and the professionalism and kindness with which you do it.

And now, we’re moving to the next chapter of Atlas. 

As most of you know, Atlas has been purchased by Eternis, a larger chemical company in the fragrance and flavor space.  

There was a lot of interest in Atlas after Dad died. I didn’t like any of those companies except Eternis.

Eternis is family-owned and their personality and nature is similar to Atlas — humble and hardworking. And they are very focused on growth. Their goal is to take 50-60% of global market share for Coumarin.

This means more opportunities and growth for Atlas which I’m excited to see.

With their resources, Atlas can grow to new levels. I also expect that the Atlas team can and will teach them many things from how to improve their yields to their quality to the special style of Atlas jugaad that makes this such a special company.

My family and I are very excited to see where you all and the Eternis team take Atlas and we hope to visit in the future to see how much the plant expands and how big the team gets.

And finally, let me say that I’ve been overjoyed to see the impact that Atlas has had on education in some of your families. Dad always thought education was very important. He started a woman’s college in Rajasthan for this reason. He grew up in small village to a family of farmers. And education and hard work was how he achieved so much.

And as I’ve gotten to know many of you who have been with Dad for 20+ years, I’ve learned that many of you have sent, for the first time, your sons and your daughters on to become doctors, engineers, chartered accountants, and more.

I think this will be one of Atlas’ most lasting impacts on the community. And I know beyond Atlas, my dad was very proud of this given how important education was to him.

I hope that you’ll continue to push your sons and daughters forward in education so that one day, they’ll build the next Atlas.

Again, thank you for teaching me so much about business, India, and what a great team looks like over the last 13 months.

I could not be more excited to see what you accomplish in the future and I know Dad is looking down on us today and smiling knowing that Atlas is going to become even bigger in the years to come.

Thank you.

What was the impact on CB Insights?

It’s a bit unknowable to assess exactly the impact the last 13 months had on CB Insights. We are a big enough company that the show goes on, but we are still not so big that everything is all figured out (not sure that ever happens).

The team continued to kick ass and we had a great year in 2017 growing revenue nearly 100% YoY again.  

But the CBI of April 2017 was 114 people.  

In the last 13 months, it climbed to over 200.  

And so we are a different company.

So I’ll focus on the things that I know I didn’t do well over the last 13 months which may have had some impact, big or small, on CB Insights.

Building relationships with the team — With our growth, I no longer know every person in the company (inevitable at some point). In the last year, I didn’t get a chance to build relationships with those new teammates. I also didn’t get a chance to grow existing relationships within the team.

I missed lots of meetings and one-on-ones — Morning meetings with India or due diligence requests that required immediate attention caused me to miss lots of meetings or reschedule 1:1s. This was bad. I didn’t have my finger on what was going on as I always had before or know about challenges they were facing. I wasn’t providing enough feedback, direction, etc as a result.

Internal communication suffered — Growing to 200 requires we change how we communicate with the team broadly and intra-team. Our methods here didn’t evolve over the last 13 months as much as we probably needed them to. It will be something we figure out now, but we are playing a bit of catch up.

Physically there but not mentally there — My attention in conversations wasn’t where it always needed to be either due to being tired or just focused on something else — either CBI- or Atlas-related.

Overly fast decisions — In the last 13 months, I valued expediency of decision-making more than I typically do. And while I will always believe that speed is a weapon that an insurgent company like CB Insights has on its side, decision-making esp as we scale must be well-considered and communicated. Time was always in short supply and so at times, I got into a mindset of let’s decide quickly without considering impacts to the org or teams or individuals.

Didn’t create & communicate strategic vision/product roadmap of CBI internally — When you’re a smaller company, everyone kind of knows the plan, the vision, even if via osmosis. Also, when you’re smaller and the numbers aren’t as big and the growth expectations are more modest, you can just get to where you need to be by outworking everyone. But as you scale up, hard work is necessary but not sufficient. We need to be more deliberate about the markets we’re attacking, the products we’re building, how we’re going to get there, etc, and we need to communicate and re-communicate that. This didn’t happen as it should have.

Didn’t talk to enough clients — I’d set a goal of 150 client conversations in 2017 (3 per week) and failed on that goal. We were revenue-funded for most of our lives and I continue to believe our understanding of client needs is one of our most secret weapons. And that requires talking to clients regularly about what they dislike about the product, about their workflow, about their ideas, about their problems, etc. I am thankful we have a customer success team that does a great job of gathering this type of feedback. But this is something I am looking forward to getting back to.

Now that I’m back to 200% CBI, I hope to rectify the above.  

Finally, I am thankful to be part of this team. Despite my shortcomings over this last year+, they’ve been patient, kind, and understanding. When my dad passed, many on the team who’d dealt with similar loss reached out with words of wisdom, offers to chat, and support. Special thanks to Jon, my co-founder, for picking up the slack.

The differences between CB Insights and Atlas

While it might seem obvious that a technology company and a manufacturing chemicals company would be different, I didn’t appreciate the difference fully until now.

Of course, being thrown into an industry I knew nothing about increased the perceptions of these differences. I imagine someone who grew up in chemicals or manufacturing would find software equally different or challenging.

From my perspective, here are a few key differences between the two that I observed.

Atlas was much more complex — With China cracking down on pollution, what might that mean for competitors? What is the impact on pricing if a raw material supplier’s plant has shut down? Should we buy more raw material as we think there might be a disruption in the future? If the rupee is getting weaker, what does that mean for our margins? The supply chain considerations alone made it much more complex and there were a lot more exogenous/industry factors that had to be considered than at CB Insights.

Competing on price is hard — Atlas Coumarin is the highest quality in the world, but there are others that make coumarin. And so while some customers pay for that quality, for many, it came down to price. This was a big change from CB Insights where there is no clear substitute for the product or its human analysts which are way way more expensive. In the case of CBI, it’s all about showing a customer or prospective customer the value that the platform can provide and explaining that our pricing reflects that value. That is not possible at Atlas.

Regulatory requirements — This makes sense given we’re talking about chemicals and a chemical plant. But coming from software where you can run your business without really having to ask any third-parties for permission, this was an observable difference.

Long-term product development & planning is a different animal — Having a plan is important in any business. But in chemicals, adding a new product or expanding an existing product is a multi-month or multi-year process. In the last 6 months, the CB Insights team has rolled out patent analytics, market sizings, public company data, new profiles, market map maker and a ton of product capabilities that immediately help our customers and ultimately our top and bottom lines. This ability to stay close to customers and build product quickly for them and see it move the needle is one of the best parts of software. It is much harder (near impossible) to do this quickly in manufacturing.

Touching the product makes it different — At CB Insights, we deliver data to customers. At Atlas, we deliver drums to customers. There is something unique and gratifying about making a tangible product which was new to me. Turning a bunch of raw materials into a finished product and watching them move from step-to-step in the production process is fun to see. Touching the product in the warehouse before it is dispatched to a customer is different. I’m not sure why or how, but it is. When I saw coumarin coming out of the dryer or the mixer and being packaged, it always made me smile. I remember when we started CB Insights, my dad would ask “What exactly are people buying?” And I’d explain SaaS and subscriptions, and he got it. But he’d also say “I like making stuff.” I didn’t understand it at the time, but I do now.

The power of business — I’ve always thought business done right can have a massive impact on society, economies, etc. But with all the recent blather of technology companies changing the world, I’ve become a bit more jaded of late on the impact of business given folks are so quick and cavalier in how they define changing the world. Atlas reaffirmed for me the power of and the good that businesses can do in a community if it’s there long enough. There are several people on the Atlas team whose children have gone on to get degrees and become computer engineers, chartered accountants (equivalent to a CPA), and doctors. Some were the first in their family to do so. This is the type of impact that compounds over time and something that was exciting to see and hear about firsthand.

Thoughts on M&A

I don’t have a basis of comparison as this was the first company I’ve ever sold, but here’s some of my observations/learnings on the M&A process for those who may go through it.

Should I have hired an investment bank? I didn’t have a bank representing me, i.e. I represented myself. Maybe I should have. I had access to data (thanks CB Insights) so knew valuation and transaction multiples. The bankers for the buyer served a project management function so I’m not sure if having bankers on my side would have helped on that front. Bankers might have helped negotiate a bit more, but given this was a small cap deal in India, the few bankers I met who deal in this range of the market were generally not of the caliber that I thought they’d add a ton of value. No clear answer here.

Don’t let lawyers run the process — Lawyers, as they should be, are often about risk mitigation for both sides. But it’s important the parties in the deal be clear on what is valuable to them or understand how big the risks really are so that neither side gets bogged down in details or risks which are unimportant or have a low probability of happening. I think both sides did a pretty good job here in our deal, but it’s something to watch out for as letting the lawyers run the process costs you time and more lawyer fees.

Know your goals. Communicate your goals — One of the things that worked well in this process was stating my goals to buyers upfront, i.e. the aforementioned deal criteria around taking care of the team, a simple deal and a fair price. It helped quickly determine if there was a potential fit with a buyer and also because I was dealing with people in the industry who we might work with in the future, it removed ambiguity and any sense of arbitrariness from our decisions. If someone started talking about private company stock or raising debt or doing dividend recap, I simply reminded them of the simplicity tenet.

Don’t sweat the small stuff — The aforementioned decision-making framework/deal criteria also were very helpful in providing focus for me. If it wasn’t related to those 3 criteria, I tried to avoid worrying about it. This also prevented me from overcomplicating things at times which was incredibly helpful.

“That’s industry standard” — This is one of the phrases to watch out for in negotiation. When a term cannot be defended on its merits, often the catch-all is “that’s standard in deals” or “that’s industry standard” is often trotted out by lawyers and bankers. That’s BS. Everything is negotiable, and just because others have gone with some nebulous standard doesn’t mean you have to. Again, that doesn’t mean negotiate for sport on every little thing, but it does mean that things should be supported with logic and reason and not the intellectually lazy “just because.”

Conditions Precedent (CPs) — These are the conditions that have to be satisfied prior to a deal being closed— after the purchase agreement is executed but before it is closed, i.e., the money hitting the bank account. Pay attention to what is in the CPs and ensure you understand them, that they’re all meaningful, and that they can be achieved.

Don’t do zero-sum negotiation — I believe both parties felt good about this deal and that was because the negotiations were generally solutions-focused. There wasn’t a zero sum mentality of “For me to win, you must lose.” I found this to be constructive throughout and made the general process more pleasant. Note: I wouldn’t describe the M&A process as fun, but I do think minimizing acrimony is good. We mostly avoided that.

Thoughts On India

India is an amazing place.

India is a complicated place.

Here are some simple, non-ground breaking thoughts.

Regulatory overhead is still steep — India’s regulatory overhead is mostly well-intentioned but ill-defined. There are so many licenses and permits required but even experts in the industry can’t agree on what is what and what is required. Websites, especially regional ones, are not updated or clear.

The World Bank ease of doing business rankings are below. India jumped 30 spots so things are clearly getting better, but there is still a lot of work to do. Overall, I’d say I found things at the national or federal level much better defined than at the regional level.

This uncertainty creates angst for businesses as you never really know if you’re compliant with all the rules. It makes an M&A process much more difficult needlessly. Checklists here would be amazing.

Women in the workforce are going to be a game changer — 2 of the 4 key management personnel at Atlas were women. Atlas is what it is because of their contributions, and this transaction wouldn’t have occurred without their steady hand. I’m impressed with my dad’s foresight here, especially in a city like Nasik, which is not as cosmopolitan as the big cities.

But throughout the process, whether it was at Atlas, or our lawyers or our bank or various other parties related to the deal, I found the women I worked with to be among the most responsive, smart, and able to get isht done. India remains a very patriarchal society but change is steadily coming here which will unlock an immense amount of talent.

There are lots of middlemen — In B2B, there are lots of consultants and brokers in India involved in everything from regulatory approval to pricing of materials to selling of scrap metal. Technology has been shown to be good at disintermediating middlemen. I think there is a lot of opportunity to use technology to do this in India. I’ve noted a bunch of ideas down for the future.

Traffic is soul crushing — Mumbai traffic is an absolute horror. Everyone there seems to have become used to it with 1.5- to 2-hour commute times each way becoming normal. With smartphones and technology, one can still be somewhat productive, but the amount of personal productivity lost here on a daily basis is unfathomable. And this will only get worse. I’d imagine that a progressive employer who figures out a remote work strategy might be able to recruit and retain really great talent.

There is so much opportunity — India is messy and complicated and the traffic is ridiculous and there is a whole litany of “things wrong with India,” but there is so much good there. As an Indian-American, I often focused on all that was wrong with India before (viewing everything from an American lens on how things should be). Managing Atlas for 13 months made me see this and also revealed the immense opportunities there in business, in education, and more. I’m excited to explore those in the future.

Thoughts on Technology & Data

It’s worth mentioning the impact of technology & data on me in the last 13 months.

I could not have done this deal or managed Atlas without technology. Here are some of the technologies that made my life easier.

Google — Dammit. Google is amazing. When researching some esoteric Indian regulation or trying to find flavor & fragrance companies who might be customers, Google was my go-to. Google Sheets was also powerful for collaborating with the team.

WhatsApp — India runs on WhatsApp. Also, the calling feature saved me tons of money when I had to call India from the US or vice-versa.

Dropbox — The Atlas team and I used this to organize documents before sharing it in the deal room.

SecureDocs — This was the deal room software I used. The software just works. And their team was incredibly responsive. The sales folks weren’t pushy and were helpful. And the pricing was transparent and reasonable. Big fan.

YesWare — To send mail merges, absolutely critical.

Data — Going in without a banker to these conversations could have been intimidating but I had data so I knew deals, valuations, etc. It was good to be a customer of CB Insights for a bit.

Thank you’s

There are a ton of people to thank for all they did. Here goes. I apologize if I forgot someone.

Family — First, my mom for her strength and for trusting me. She is the unheralded co-founder of Atlas. My wife who has been managing a career and 2 kids almost solo for the last 13 months and who would listen without judgment to me when I was frustrated or overwhelmed. My kids who got used to me being on the phone every morning talking to India instead of having breakfast with them.

The Atlas team — As I said above, although I’m 10% as smart as my dad, you never made me feel this. Even after his death, Atlas kept humming because of your work. Many of you worked with Dad for 20+ years. It was good to work with you all directly to see firsthand how special of a company it is. Thanks especially to Mrs. Lakhpatwalla, Priti, and Nathe for all their help on this deal. Thanks as well to Abhay for constantly selling and talking to customers and to Kiran for driving so expertly throughout India and never once getting into an accident (driving in India is intense for those unfamiliar). Thanks to Mehetre and his leadership in the factory as well as to Jadhav, Nitin, and Anand in the plant. We have a group of veterans and young new stars that I’m excited about on the production side. Thank you to Pareshbhai for his friendship and steady advice on accounting and finance matters.

The CB Insights team — This is a special company with an amazing team who continued to kick ass despite the impacts of my sometimes mental and physical absence.  

CB Insights newsletter readers — Since my dad’s death, the only constant has been the CBI newsletter. I didn’t miss a day since he died (although I’d queued up several prior so I was not writing them real-time for a while). Your pie charts, funny commentary, and even the haterade have always been a nice break.

The deal players — M&A deals are a good amount of work and given the stakes and long hours can probably bring out the worst in folks at times. I can say I left the negotiation/experience with great impressions of everyone involved. Thanks to Manu and the Eternis team (Chetan, Ram, Rahul) for always being true to their word and a class-act. Thanks to the Avendus team, who although representing Eternis, were always solutions-focused and fair. Thanks to the Majmudar team (Kritika, Amrit, and Sinjani) for their work and counsel as our lawyers. Thanks to Geeta of Kotak Bank for always figuring out a way to get things done even at the very last minute.

Finally, thanks to everyone for putting up with me always being tired.

The Seven Pillars of Gold: The Golden Dam Is About to Break- by baron king

You need to own gold, and you need to own shares in companies that find and mine it. I’ll lay out seven reasons below in what I’m calling the “Seven Pillars of Gold.”

There’s some overlap between each of the pillars. In fact, it’s fair to say that many of the reasons to own gold actually segue back and forth, bumping into each other. But it’s possible to lay out seven distinct ideas. Here they are:

Pillar One:

Oil prices are rising. Doubtless, you’ve noticed it if you’ve filled the fuel tank in your car with gasoline in the past nine months. From 2015 to late 2017, we enjoyed a three-year respite from the olden days of $100 oil, but now oil has decided to get up off the mat. From a price in the $40 range a mere six months ago, we’re now into the $70s per barrel, and higher prices are forecast. Of course, oil means energy, which means that higher oil costs will translate into higher prices for just about everything, not just at the fuel pump.

More costly energy will be a core component of inflation throughout the economy. That is, it will cost more to drive your car, for farmers to grow food, truckers to transport that food, for businesses to buy supplies ranging from paint to roofing shingles. That, and it will cost more to move all the other goods that support the economy. You know that cost is always “passed along” to us, the consumer. That kind of “energy-based inflation” is nearly unconstrained.

Indeed, energy-based inflation will eventually work its way all through the economy. Rising energy costs are a type of inflation that we saw in the mid-2000s, during oil’s previous run-up to $130 per barrel in 2008. Then, though, energy costs were squashed by “importing deflation” from low-priced overseas goods. But that trick has played out. Americans haven’t experienced gut-ripping energy-based inflation in perhaps two generations, since the late 1970s and early 1980s. But when higher oil prices really pull into port, the ripple effect of inflation across every part of the economy will weaken the dollar’s purchasing power. We’ll see it in higher gold prices.

Pillar Two:

Interest rates are rising. According to the Congressional Budget Office (CBO), interest on the national debt is among the fastest-growing parts of the federal budget. In fact, by 2028 — just 10 years from now — the federal budget will spend more on interest payments (about $1 trillion per year) than on defense (currently about $800 billion total). Rising interest rates will crowd out most everything else in the federal budget, from defense to air traffic control to national parks. The budget money just won’t be there, because so much will go to pay interest. The only workarounds for Congress are less spending (ha!) or just open the spigots and roll with higher annual budget deficits.

Any way you cut it, the dollar — and the Federal Reserve’s unique powers of “money creation” — will surely be in play to wallpaper this mess. Again, we’ll see reduced purchasing power and higher gold prices.

Pillar Three:

The petro-yuan. China has begun trading for oil in yuan launching its so-called “petro-yuan.”. Here are the facts. China is working hard to abandon the dollar as an instrument with which to pay for oil. It’ll use its own currency, the yuan, where and when possible. Currently, China’s petro-yuan contracts are what are called “long-dated,” meaning they commence in September 2018. (Four months is “long” if you’re trading.) In this respect, the Chinese are taking things slowly at first; no surprises.

China’s ultimate goal is to convince Saudi Arabia — one of China’s top three oil suppliers — to take yuan in exchange for oil and thus to abandon the 45-year link of Saudi oil to the petrodollar. If the globally dollarized oil trade takes a hit, it means many more bad things for the purchasing power of those “dead presidents” in your wallet or bank account.

Here’s the good news in all this. If you understand the implications, you are already several months ahead of the broad market on this. You have time to buy in on gold and miners. The entire setup is overall favorable for gold.

Pillar Four:

Currency wars. We’re already in the midst of “currency wars,” along the lines of what Jim discussed in his 2010 book of that title, available here. We see daily skirmishes in this war. That is, the war is being fought via oddball valuations for trades like dollar-yuan, dollar-ruble and such. In fact Iran’s national currency all but collapsed. Why? 

These types of monetary competitions are built around the very real understanding that nuclear-armed nations cannot afford to fight old-fashioned kinetic wars with each other. No battleships and bombers, but large, powerful nations can still play other games such as cyberwar and attacks on the other nation’s currency. 

The currency war idea is ripe to hatch in the sense that Russia and China (among others) have accumulated immense amounts of gold over the past decade or so. Russia in particular is quite transparent about its national gold reserves, and Russian spokespeople make no secret that the gold is intended as a defense against dollar hegemony. We’ve visited this idea many times here in Gold Speculator, such as here and here.

One of Jim’s theses in Currency Wars is that Russia and China could team up to combine their respective gold resources and create a rival currency to the dollar. If the world trading system had an alternative to the dollar, it’s hard to imagine that the scenario would favor the U.S. dollar. Usage would likely decline to some level from decades past, along the lines of the chart below.

In other words, per this chart, the dollar has had a run-up in its percentage of world trade over the past 45 years. Looking ahead, if the dollar loses even some of its status as the world’s “reserve currency,” we should definitely expect to see its value decline and gold prices to increase.

Pillar Five:

Tariffs, sanctions and potential trade wars. With global trade, it’s fair to say that everything is related to everything else. Lay a higher tariff on Chinese steel and China taxes U.S. soybeans. Ban exports of high-tech chips to China and China might ban exports of rare-earth magnetic powders to the U.S.

The “era of dollar supremacy is fast ending. We no longer live in a unipolar, post-Cold War world in which the U.S. reigns supreme.” Indeed, to a large degree, the U.S. owes its current global economic and political dominance to a unique, near-accidental correlation of forces at the end of World War II in 1945. It’s a long story. The short version is that the most destructive war in human history created the greatest economic engine that the world has ever seen. Post war, the U.S. was like the proverbial phoenix rising out of the ashes. It’s a massive, complex historical process, of course, but the point to keep in mind is that the postwar world — certainly that world for the U.S. — is coming to the end of its long, 73-year run.

In other words, we’re living through the decline of the U.S.-dominated globe. Other nations, and even entire regions of the rest of the world, are rising, new phoenixes from their own beds of ash. America’s share of global wealth is shrinking. By some estimates, the United States accounted for roughly 50% of global output at the end of World War II… It has fallen to 15.1% today.

Now President Trump is using tariffs, taxes, sanctions and policy changes to try to rearrange the global trading dynamic. But global trade has evolved over the past four generations. Trump may or may not succeed in his quest to rearrange the elements of the U.S. economy, to “Make America Great Again.” But if our nation is going to get into a trade war, you better have some gold in the vault..

Pillar Six:

War. We’re living in a time of risky geopolitics, right at the edge of true war. Wars cost much “silver,” as the ancient Chinese scholar Sun Tzu once noted. As he wrote, “if the campaign is protracted, the resources of the State will not be equal to the strain.”

Now, consider the global scale of current saber-rattling, from the Baltics to the Black Sea, from the Persian Gulf to the South China Sea, Korea and more. If you read the news, every one of these places ought to be familiar worrisome names. More specifically, consider how NATO has expanded right against Russia, drawing wrath from the latter. Or think about Ukraine, where recent fighting has killed tens of thousands of soldiers and civilians. I barely need mention the Middle East, from Libya to Syria to Afghanistan.

 It’s fair to say that U.S. forces are already “fighting” against Russians, in a manner of speaking, via full-fledged electronic warfare in the skies over Syria. Meanwhile, on the other side of the globe, The National Interest reports that Adm. Philip Davidson, leader of the U.S. Pacific Command, says, “China has already taken control of the South China Sea.”

So the short point is that we’re living in a world that’s quite close to real war, not just “currency wars.” And gold prices tend to spike on rumors of war, let alone when the shooting begins. One way or another — near-war, fight a war, win a war or especially when a side “loses” a war — it’s not good for the dollar. Come war, and rumor of war, we’ll see the value of dollars decline and gold prices increase.

Pillar Seven:

Peak gold. In a world where demand for gold is likely to rise for a wide variety of reasons, there will be less of it available to buy. Longstanding problems with new gold discovery — namely, that fewer companies are spending the kind of funds required to make big impacts. The lack of investment and how large companies are spending big bucks simply to stand still in terms of output. Even large gold miners are actively planning to shrink output to focus on profitability.

We’re “there,” at the peak of gold production, for a while to come, barring some sort of technical revolution — which might happen, but we’re not there yet. When I look at the landscape for gold, I see the results of the lack of past exploration and development, and in consequence, few new mines coming online. Main line producers high-graded in years past to make numbers look good, and now they’re paying the price.

It’s accurate to say that gold output globally has plateaued just now; it’s likely declining in years to come. The result will be higher prices for gold and for companies that mine it.

So there you have it: Seven Pillars of Gold. Seven reasons why gold prices are geared to rise, benefiting metal owners and well-run miners that can pull yellow metal out of the ground.

Gold price has been dammed up for a while, via all manner of manipulations. But that golden dam is ready to break. All the debt, the bad policy, the war dangers, the lack of investment and new output… It’s a prime setup for buying power to rush into the precious metal space.

How Long Until the Next Recession?

Successfully predict the start of the next recession, plus or minus a few months, and you stand to make a lot of money. Not only can you reposition your portfolio towards bonds and cash – typically the best place to be during periods of economic malaise – but you can also sell your stocks at or near the market’s peak.

In fact, if your primary objective is to invest in sync with the primary trend of the market, then predicting the onset of a recession is your most important task. This is because the primary trend of the market typically follows the economic business cycle.

The current expansion is one of the longest on record, which has led to many calls for its prompt demise. But as we all know, expansions don’t die of old age, they die of excess … typically triggered by some type of Minsky moment.

This is an important fact to understand because there is a very real difference between the length of an expansion and the rate at which excesses build. If excesses in the system build rapidly, our economic expansion can come to an end quickly. But if a recovery is slow and monotonous, tending to much more closely track the long-run growth rate of the economy, then it can last a long, long time.

The team over at J.P. Morgan has done an excellent job tracking the length and growth rates of recent economic expansions, and this information is summarized in the two charts below.

On the left, we can see that the current expansion is the second longest in history, lasting 107 months (through May 2018). It just recently surpassed the now third-longest expansion in history, which began in the 1960’s and lasted 106 months.

Now that this expansion has secured the silver medal, the question becomes whether or not it will make a run for gold. The longest expansion in history was the technology-fueled 1990’s boom, which lasted a full 10 years or 120 months. That means the current expansion must last at least another year to take the crown. Will we see that happen?

If you were to look only at the left chart above, you might be tempted to say no. In fact, you’d probably be inclined to begin paring back equity exposure to this market. After all, we’ve had quite a run, from a duration perspective – why bother pressing your luck?

But there’s a vastly different view of this expansion to explore and that has to do with cumulative real GDP growth. We can see this in the right chart above.

This chart shows how quickly the economy has grown during historical expansions, and as you can see, the current expansion (light blue) appears to be an outlier. Even though this expansion has lasted nearly nine full years, in terms of real GDP growth, we haven’t even matched many of the prior shorter expansions.

Now, real GDP growth is not a perfect proxy for the amount of “excesses” building in the system, but it does tell us that there’s something uniquely different about this expansion. As such, we shouldn’t be too surprised if other characteristics, such as length, differ as well.

Here’s something else to consider. According to the Minneapolis Fed, the current expansion has seen GDP rise by a total of 21% from the end of the last recession in June 2009.

If we assume a nine-year expansion to make the math easy, then we end up with an arithmetic average growth rate of 2.33% per year during this expansion.

Of course, the math geeks out there will quickly point out that an arithmetic average doesn’t take into account the effects of compounding, and consequently will overstate the growth rate. So we can also calculate a compound annual growth rate (CAGR) which works out to 2.1% over the nine-year period.

Now ask yourself this: What is the long-term growth rate of the economy? 2%? 3%? 1%? No offense, but you’re probably not that great at predicting economic growth rates, so let’s check in with some other sources.

The chart below shows the Federal Reserve’s collective estimate of long-term real GDP growth, and as you can see, over the last few years the projected long-term growth rate of the economy has fallen to just below 2%.

I realize that many of you don’t trust anything the Fed says or does as a matter of principle, so let’s get some additional opinions. Last summer the Congressional Budget Office (CBO) estimated that potential GDP growth would average 1.8% over the ensuing decade. As for private sector economists, those recently surveyed by the Wall Street Journal put that figure at 2.2% per year.

So we’ve got 1.9% from the Fed, 1.8% from the CBO and 2.2% from private sector economists … let’s average them and call the expected long-run growth rate of the economy 2%.

If that really is the case (no one knows for sure because GDP growth is a function of labor force growth and productivity growth – with the latter being very difficult to forecast) then think about the possible implications for this economic expansion.

If the long-run growth rate in our economy is currently 2%, and we’ve been growing at a rate of 2.1% for the last nine years, then we’ve basically matched the long-run growth rate of the economy. If that’s the case, then we really aren’t seeing the type of economic overshoot that is usually followed by a severe recession.

Recessions happen because our economy experiences a boom, which takes it too far above the long-run growth rate – a situation that is not sustainable. The recession, or economic contraction, is the period during which the economy falls back to this long-term growth line. But here’s the kicker: If there is no boom, there’s no recession …

The ultimate goal of a “managed” economy is to maintain slow and sustainable growth over time. Our history of booms and busts has shown that we’ve been exceptionally bad at this, but is it possible that by luck or accident we’ve actually accomplished it over the last nine years?

Even if we have, this does not guarantee that we won’t see a recession in the next couple of years, but it certainly makes interesting food for thought. And if we do have a recession, perhaps it’ll be more benign than in previous cases.

Those who have followed my work over the years know that I spend a good deal of time monitoring so-called leading indicators. These are economic data sets that tend to roll over in advance of approaching recessions. Without getting into the details (we’ll save that for a subsequent article) I think it’s safe to say that aside from a flattening yield curve, almost none of these leading economic indicators are flashing warning signs.

That doesn’t mean that asset prices are immune from further declines, but it does suggest that the risks of a major bear market remain low, at least for the next six months or so.

As for when the next recession may hit, the following chart shows survey results done by the WSJ, but I wouldn’t pay much attention to it.

Trying to forecast ANYTHING further than a year or so out is a fool’s errand, as we live in a very dynamic and chaotic environment. The better bet is simply to remain open-minded and diligently watch for the telltale signs that will accompany the next inflection point.

4 Biggest Myths of Indian Stock Market - by Stallion Asset

These are 4 Common Indian Stock Market Myths you should definitely know about.

Myth #1 -There is absolutely no doubt that Warren Buffet is one of the best investors the world has ever seen but there is a common myth that he buys stocks and holds it forever as he himself once said that his favorite holding period is forever. As per Research done by John Hughes (Prof at University of California) of his holdings from 1980-2006 (Twenty six years) he found that the average holding period for Warren Buffet was only 1 year, with approximately ONLY 20% of stocks held for more than two years. About approximately 30% of stocks were sold within six months of purchase.

A lot of Investors know that Warren Buffett owns Shares of Coca-Cola  but only a few Investors know that the Stock price of Coke was 43$ in 1998 and the Stock price is Same at 43$ today. (20 years later).

Conclusion of Myth #1- Warren Buffet only holds 20% of Stocks for more than 2 years and not all good companies are good stocks.

Myth #2 – Indian Equity is the Best Asset Class Ever- Nifty Started in 1994 and since then it has given a return of 10% CAGR which is 3% higher than the prevailing FD Rates of 7% but did you know that in 1995 the FD Rates of SBI was 13%. You could have easily beaten the Index  by  investing  in a long Term Fixed Deposit. 

Secondly, you might have seen people comparing Gold and Sensex. When Nifty Started in 1994, the Sensex was 4400 and Gold was also 4400. Today Sensex is at 35000 whereas Gold is at 32000, not a lot of difference!

Conclusion Myth #2 – Diversified Asset Allocation decreases volatility of Returns though overall portfolio returns were not impacted much

Myth #3 – You probably might have received a Whatsapp forward that an investment of Rupees 10,000 Invested in Wipro in 1980 is worth 500 Crores today – Well have you ever received a message that an Investment of Rupees 10,000 in Wipro in year 2000 (18 years ago) is worth only Rupees 5,000 today? (-50%)

Conclusion Myth #3 – Market clearly Moves in Trends and Cycles hence we at Stallion Asset believe that Buy and rotate works better than Buy and Hold approach.

Myth #4- MutualFundSahiHai- It is True that Mutual funds have performed well and given 11% CAGR in last 10 years which is 3% better than the Index but did you know  that the returns of Mutual Fund unit holders is just 4% CAGR in the last 10 years (Rough Calculation from AMFI Data till December 2016). According to Industry data, 43% of  Retail Equity Mutual fund Investors changed their Scheme or sold their unit within 1 year whereas 62% sold mutual fund within 2 years. How much time you spend in a equity mutual fund is more important than “Kaunsa Mutual Fund”.

Conclusion – We don’t wish to undermine any asset Class but we want to highlight the reality of different asset classes. We at Stallion Asset believe that there is a lot of money to be made in the Indian Stock Market as we grow from an economy of 2.5 Trillion$ to 5 Trillion $ in the next 8 years but we need to select the right stocks. Indians will not double their use of sugar or tea in next 8 years, they would definitely buy more Air Conditioners, more Mutual funds, More Cars etc.

The Chinese Tech Stocks Taking Over The World

There are some sectors of the stock market that investors consign to the scrapheap because they believe money goes there to die.

Not too long ago, investing in Chinese stocks was considered a big gamble and certainly not for the faint-hearted.

Investors mainly feared that an overheated Chinese economy was about to implode and drag down these stocks.

Meanwhile, Chinese companies such as Alibaba Group (NYSE:BABA) and JD.com Inc. (NASDAQ:JD) were perceived as havens of counterfeit goods who could never be able to compete with the likes of Amazon Inc.(NASDAQ:AMZN).

Volatility in the space was sky-high and few wanted to touch it.

But years of neglect finally led to an unintended consequence--U.S. stocks became very pricey with valuations that were well above historical averages, while their Chinese peers looked much cheaper with strong growth to boot.

 Suddenly value investors and bargain hunters turned to the Middle Kingdom.

Chinese Brands Break Into Top Ranks

It therefore comes as little surprise that Chinese companies are now joining the ranks of the world's most valuable brands--a space that has mostly been dominated by America's top brass.

Giant e-commerce player, Alibaba, and leading Asian investment holding conglomerate, Tencent Holdings (OTCPK:TCEHY), have joined the likes of Alphabet Inc. (NASDAQ:GOOG) and Apple Inc. (NASDAQ: AAPL) in the top 10 of Brandz' Top 100 Most Valuable Global Brands for 2018.

The top 10 companies in order of brand value are as follows:

Source: Brandz.com

This marks the first time that two Chinese companies have made it in the top 10 of that vaulted list, and it’s no mean feat given the numerous challenges facing Chinese brands.

Doreen Wang, the head of BrandZ, says that younger consumers are increasingly falling in love with Chinese brands and helping to change how these brands are perceived. As a result, more Chinese companies are moving from being mere household names in their native country to global icons and powerhouses.

Last year, Tencent was ranked 8th but managed to climb to 5th after a 65-percent improvement in its brand value that brought its new brand value to $179 billion--a good 36 percent of the $500-billion market cap company.

Tencent made history last year by becoming the first Asian company to cross the $500-billion valuation mark ahead of even Alibaba. The company comprises a hodgepodge of internet-based platforms and super-apps that range from information and gaming to social media and artificial intelligence. Its largest social media network, Weixin(WeChat), boasts nearly a billion monthly active users.

Tencent also owns a slew of personalization services, online payment systems and a popular video streaming service quite similar to YouTube.

TCEHY stock is up 43 percent over the past 12 months, outperforming popular Chinese ETFs such as the Kraneshares CSI China Internet ETF(KWEB).

TCEHY vs. KWEB 12-Month Change

Source: CNN Money

Meanwhile, Alibaba, the Amazon of China, is the latest Chinese addition to the world's most valuable brands. The company has been rapidly gaining ground in emerging markets including Brazil, Chile and Latin America as well as Spain, Israel and South Korea where its AliExpress ecommerce platform has been growing in popularity. This has helped Alibaba post impressive growth numbers that have even been eclipsing those by its American peer.

Alibaba though is keen to develop its own identity separate from Amazon's, and insists it has no plans to copy the latter's highly successful Prime subscriptions but instead plans to roll out its own model. The company says it will also focus on franchising brick-and-mortar retail locations.

BABA vs. AMZN 12-Month Change

Source: CNN Money

This has helped BABA stock to match the growth by its more popular cousin, AMZN.