Why We Decided to Pick "Black Box Ltd" Now or Why We Were Busy Buying "Auto-Ancillaries Stocks" Since Last 2 Years"? - That's called Second Level Thinking (Think Long-Term)
Our Auto-Ancillaries Bets - Suprajit (Jun'20) @ 131 | Precision Cam (Oct'20) @ 32 | Uno Minda (Dec'20) @ 190 | Fiem Ind (Nov'21) @ 1237 | Kranti Ind (Apr'22) @ 60 | Motherson Sumi Wiring (Jun'22) @ 66
Howard Marks, author and co-founder of asset management firm Oaktree Capital Management, wrote about first and second level thinking (also called first and second order thinking) in his 2011 book, "The Most Important Thing."
Marks' focus was making smart investment decisions, but the principles of first and second level thinking can be applied to a range of workplace situations.
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First level thinking focuses on solving an immediate problem, with little or no consideration of the potential consequences. In Marks' words, "First level thinking is simplistic and superficial, and just about everyone can do it."
But, most decisions need a deeper level of exploration, and this is the crux of second level thinking. When you look beyond the immediate and obvious, you make better decisions that will give you a much better chance of a positive outcome in the long term.
First level thinking might sound foolish, but our minds are programmed to seek the easiest solution, so many of us find it hard to look beyond our initial conclusion. This is especially true if we are pressed for time, inexperienced in our role or field (or overly confident in our abilities), experiencing strong emotions, or isolated from other points of view.
How to apply the technique of Second level thinking:
Question everything. Don't make assumptions, and when exploring possible solutions, always ask "what happens then," to understand longer-term impacts.
Involve others. Speak with colleagues to get alternative perspectives.
Think long term. Consider how the decision will play out at different time points, for example, a week, month or year from now, and whether circumstances might change.
Don't discount options too quickly. Keep all options on the table until you're sure they aren't the right choice.
Keep practicing. As with any skill, the more you practice, the easier it will become.
Now, let me explain rational behind picking “Black Box Ltd” when stock has corrected 58% from ATH of 334 to CMP 139. No one is talking about this in social media (unfortunately they talk about only ‘rocket stocks’).
First of all we do not chase momentum, neither we are hard core follower of “value based investment”. We look for growth at reasonable price and prefer to board a stock when there is visible sign of change.
Let me go straight to the point….
In Sep 2018, when 5G was rolled out in USA, T-Mobile (leading telco in USA just like we have Jio or Airtel etc.) signed a pact with Ericsson to support their 5G deployment. Similar trend will take plan in India too. Ericsson is one of the leading providers of Information and Communication Technology (ICT) to service providers.
Now, In India 5G will be rolled out soon (already under trial). Telcos (Jio, Airtel, Vi etc.) will look for ICT companies for their 5G deployment and one such leading company we picked under Jun 2022 stock idea was i.e., Black Box Ltd (BSE: 500463 | NSE: BBOX) - formerly AGC Networks Ltd (AGC). 5G biz service a $17bn revenue opportunity by 2030 for telcos in India (as per Ericsson)
In fact, Airtel earlier signed up with Tejas Networks Ltd for their 5G rollout under trial phase. That might be the reason why Tata Communication bought Tejas Network or why Vijay Kedia bought Tejas Network (though he was buying it since IPO in 2017 @ 400rs and have seen it falling 90% all the way to 40rs too). Unfortunately, we were never comfortable with the fundamental of Tejas Network hence gave it a pass. Black Box Ltd can beat Tejas Network on almost all the fundamental parameters.
Entry of big tech companies (TCS, Infosys, Wipro, Tech Mahindra, HCL Tech) in the private 5G networks space in India is imminent. Big tech will not do telco the same way that it's been done. Demand of products & services of ICT companies like Black Box will rise multifold.
5G to also ring in industrial / enterprise apps, use-cases across industry verticals, drive IoT growth. In fact enterprise solution companies will also gain due to 5G and one such company listed is Ramco Systems Ltd where Vijay Kedia bought stake sometime back. Again, this company is fundamentally weak and Ramco group itself has no history of creating wealth hence we gave it a pass.
It is not important to ride the trend by picking any tom, dick and harry company. What is more important is to ride the trend on strong, healthy & durable company. When there was hype of semiconductor policy, we found people chasing listed poor quality semiconductor stocks (in fact there is no pure play fundamentally sound semiconductor stock listed at NSE/BSE) hence we decided not to ride this trend unless we get healthy horse.
Hope you can understand the reason for selecting "Black Box Ltd" just before 5G rollout. We don’t want to bet on telcos or big tech (first level thinking), rather we want to be on ICT company (second level thinking) trading at reasonable valuation. This is called second level thinking.
Similarly, If you notice, during 2020-21 when everyone was chasing Specialty Chemical stocks, we were busy buying auto-ancillary stocks like Suprajit Engineering (Jun'20 Pick) @ 131, Precision Camshaft (Oct'20 Pick) @ 32, Uno Minda (Earlier Minda Industries) (Dec'20 Pick) @ 190, Fiem Industries (Nov'21 Pick) @ 1237, Kranti Industries (Apr'22 Pick) @ 60 & Motherson Sumi Wiring (Jun'22 Pick Special Report) @ 66 because we have to think ahead of everyone else and this is called second order thinking. I will write sometime later on what BIG PICTURE we are seeing for auto-ancillary companies and why do we think that next 2-4 years will be great time for such stocks.