Intrinsic Value of a Saree

Laxmi Road in Pune is famous for saree shopping. It is a busy street and overly crowded. It has many saree shops categorized into different sizes, quality, and costs. Here you can buy cheap sarees for daily usage and also designer wedding sarees. Ladies in Pune visit Laxmi road regularly. Hanging around these saree shops, eating delicious street food, and returning home with a few bags in both hands is a memorable ladies' day out for them. They love to visit this place for shopping. In India, saree shopping is a ceremony.

Last week I visited Laxmi road with my wife for saree shopping. Whenever my wife wants to buy sarees, she takes me along. She thinks my choice is better than hers. I also don’t mind accompanying her. I like the exciting environment and the process of saree shopping. I love to watch this activity.

When you enter the saree shop the enthusiasm and energy are clearly visible. The yellow lights inside are glowing brightly. The air-conditioner is throwing a cool breeze. The large-size mirrors make you feel smarter. The Indian-style sitting arrangement welcomes you with hope. The ladies are sitting in different groups. They are talking cheerfully. The salesmen are showing a variety of sarees and are desperately trying to convince them. Few of the salesmen are acting as models by draping in sarees. Heaps of sarees lie in front but the ladies are still not satisfied. They long for more. Their demand is endless. The key here is patience, patience, and extreme patience.

It is hilarious to see the frequently changing demands of these ladies. Their requirements are changing with every minute. They want different cloth materials, peculiar textures, the latest design, unimaginable color combinations, and so on. Before marriage, I used to think that there are only seven colors in this world. However, after visiting these saree shops, my canvas has improved dramatically. Now I know that there are at least ten shades of every color.

The salesman in a saree shop has all the qualities in the world. He is patient to the core. He never gets agitated. He is a keen listener. At the same time, he is a good orator with convincing abilities. He is a born doctorate in psychology. He is an expert in face reading and body language. Just by observing you, he knows your financial capability. From your face, he can quickly discern what is going on in your mind. He is an astute optimist. He will never say no to you. Even if your desired saree is not available in the shop, he will show you a similar saree and convince you that it is the same as what you wanted. As such you have no clue what you asked for. So finally you relent to his wisdom and buy from him.

When you started from home for shopping, you had a budget of Rs. 10,000/- You wanted to buy one maroon color Banaras silk saree with a broad golden border. However, when you came out of the shop, you had a mango yellow paithani costing Rs. 20,000/. But still, you are smiling gleefully! That’s the hidden power of shopping. You spent out of your own pocket and still return happily.

There are hundreds of varieties of sarees in India. More than twenty silk sarees get manufactured here. Banarasi, Balucherri, Kanjeevaram, Aasam, Tussar, and what not. The list goes on. I am sure many ladies will not able to differentiate one from the other. As such most of the silk material looks and feels very similar. The price varies widely from Rs. 1000/- to more than Rs. 1 Lakh. The wise salesman takes advantage of this ignorance. He is the master of this craft. He smartly convinces you to purchase any type of saree at any cost. The best part about buying a saree is that you will never come to know the intrinsic value of that saree. Every time you buy a saree your inner voice tells you that you bought it at a higher price. However, you are not willing to accept this reality. You are well aware that you are duped, but the joy of shopping overpowers this realization.

For a retail investor, buying a stock is akin to shopping for a saree. More than six thousand companies trade on the exchanges. Out of these, only a few hundred are worth investing in. Hence, it is extremely difficult to select a good company to invest in. When retail investors buy a stock, they hardly understand the underlying business of that company. They buy stocks based on tips from friends or from TV experts. Hence, invariably they land up buying a junk company. Due to this ignorance and lack of knowledge, many retail investors have eroded the entire capital. Still, they never learn from their mistakes. The lure to become rich quickly is too tempting to let go.

Selecting a company to invest in is a time-consuming and tedious process. Before buying any stock, it is essential to carry out thorough research about the company and find out answers to these basic questions:-

• What is the underlying business?

• How is the business operated?

• Who are the owners?

• What is the end product? What raw material is required?

• Who are the clients?

• What is the market share of the product?

• What is the competition?

• Is the business sustainable?

• How long will it last?

• Will the company I am buying survive for the next decade?

After this preliminary research, one needs to evaluate the financial parameters of that company like RoE, RoCE, Debt to Equity ratio, PE ratio, free cash flow, and so on. The next step is to find out the Intrinsic Value (IV) of that company. In layman's terms, IV is the true value of that company. Once you have the IV, you buy that stock at a reasonable margin of safety. This margin should be at least 30% below the IV.

But even if you are lucky to buy a good company at a correct valuation, your ordeal doesn’t stop there. It is only the beginning. The market is very dynamic. It fluctuates viciously and your behavior also starts fluctuating with the market sentiments. When the market crashes, the value of your stock reduces by 50%. You are now steering at your losses not knowing what to do. In this fear and anxiety, you sell that good company and book your losses. The hard-earned money is now gone forever.

The stock market is driven by greed and fear. More than 90% of stocks trade higher than IV. This is mainly due to speculative activities. Hence, one must be very careful before buying a stock. If you do not consider Intrinsic Value and if you do not have the correct temperament then it is a sure-shot recipe for financial disaster.

Selecting a good company at a reasonable valuation is a very difficult and time-consuming task. It requires a lot of knowledge and time. It is just not feasible for those who are already bogged down with a daily professional job.

Hence, rather than selecting the wrong company at the wrong valuation and losing money, it is prudent to create wealth by investing in mutual funds. Investing in the stock market through the mutual fund route is much safer and easier. Mind you, you will also get the added benefit of peace of mind. As such health is more valuable than wealth.

The wise old man Warren Buffet said, “Price is what you pay. Value is what you get.”

And yes, next time, do accompany your wife for saree shopping. I am sure you will be a bit wiser.