What is important is to understand the business from few angles like:

Management Quality
Business Quality
Valuation
Growth Visibility
Competitive Advantage & it's position in industry.
Margin of Safety
RISKS???

How imp is UNDERPAYING? Have it being reflected in recent investment decisions?

One imp thing to note is if a business is good at a very obvious level, et al RoE>20,
net cash, consistent growth, high fcf/eps, comp advit would rarely be available at
a low price. Does it, then make sense to still invest a portion of portfolio in such a
business? Not expecting great returns, but atleast 15-20% cagr?
Next equally imp thing would be to identify companies that are in the process of
being 'obviously great' business. Businesses scaling up, D:E improving, wc capital
reducing, margins improving, etc. The improvements are rather slow and gradual,
but over a certain period of time can lead to a bigger impact. (Frog story)
So identify great business at fair prices AND/OR WIP-Great business at undervalued
price.
To break it down further, how do you judge the business quality?
First obvious step would be fundamental analysis of numbers.

QUALITATIVE ASPECTS
HOW DOES THE COMPANY MAKE MONEY?
Is it within your circle of competence (CoC)
Do you really understand the BUSINESS and the INDUSTRY? Can you? Willing
to do invest time and scuttle butt? (Relate it MA's CASE Model)
QUANTITATIVE ASPECTS (Relate it to MA's CAT Sheet. )
RoNW, RoCE, >20
D:E = 0 or else very low.0.05 etc. - can this be compromised with for
growth, esp if debt is showing a reducing trend?
Working capital should be low or showing a reducing trend. Low wc is a sign
of business strength.
OPM, GPM, NPMconsistent. Great if growing. Unless cyclical business.
How is the cashflow generated? Where does the generated cashflow go? Can
it fund its own growth? Does it have enough reinvestment opportunity?

COMPETITVE ADVANTAGE?

Mostly qualitative, but try and support with quantitative data. High GPM for pricing
power, high market share, or in general gaining market share.
ONE OF THE MOST IMP THINGS I UNDERSTOOD IS THAT THE MOAT IS NEVER
STABLE. IT NEVER STAYS AS IT IS. IT IS IS ALWAYS CHANGING, SO IT IS EITHER
GETTING STRONGER DAY BY DAY, OR DETERIORATING. THINK OVER IT.
Understand the business and question it on following lines:

How is it better than its competitors?

Why would it continue to make money at the same profitability or more?

One of the imp things I realised is not to look for specific source of moat
right at the onset. Like instead of looking for comp pref, or network effect etc.
specifically can lead to a manufactured moat or a perception bias of some kind.
Rather one should study the business and on understanding it realise there is a
moat and why.then the source would be only a matter of naming the moat.
Another imp thing I think is how can it be disrupted? Both moat and business
analysis includes it.
Also study industry here. Not just indian also global depending on the target market
or growth if company looking into exporting.
VALUATION:
ONE OF THE MOST IMP THINGS HERE, HIGHLIGHTED IN BOTH VALUEPICKR AND
PROF GREENWARLD'S LECTURE IS WHAT MAKES YOU THINK YOU ARE ON THE RIGHT
SIDE OF THE TRADE?
WHY IS MARKET VALUING IT THE WAY IT IS BEING VALUED?
WHAT ARE THE CHANCES OF REITERATION?
REITERATION WOULD GIVE YOU MUCH MORE RETURN THAN JUST EARNINGS
GROWTH.
FOR INSTANCE, MATURE AND DISCOVERED BUSINESSES WOULD GIVE RETURNS
ONLY IF EARNINGS GROW.
UNDISCOVERED BUSINESS CAN GIVE X TIMES RETURNS THANKS TO REITERATION.
SO GIVE THOUGHTS TO WHY WOULD BUSINESS COMMAND HIGHER VALUATION IN
FUTURE?
WHAT KINDS OF BUSINESS COMMAND HIGHER VLAUATION TODAY?
WOULD YOU BUSINESS BECOME THAT KKIND OF BUSINESS IN FUTURE?
-Decide how to value a company. If data is available, obviously use historical. Try
and assess which of all that has more relevance. Like ev/sales or ev/ebit or ev/ocf.
Dont just stick to pe.

Then think about assets or earnings. Most of the business you would like to
invest in would be valued on earnings as there is more scope of superior
returns.

If decided, then for dcf give extra thought for growth rates and especially
terminal value. Also understand how unreliable it can be. Also price to dcf
makes more sense so checkhow many times is it being valued, and how much
would you be willing to pay?
NGV? P or ev/ngv? V imp to understand how much are you paying for growth?
regression, etc? abv or rca for some value instances?

GROWTH VISIBILITY:

One of the things you would have to spend extra efforts on as this is kind of
not considered much in ma.
You cant earn if the company does not earn. What is the total market size?
What is growth ethat canbe achieved? What would be the hindrances in the
growth?
Atleast have some medium term growth visibility and long term
understanding at basic level of possible disruptions, etc. or how to track.
This again would have to check competitiors position in market and what are
they doing.
Define ceertain parameters alongside growth or business drivers that need to
be racked frequently. Every 6 months or so.

MARGIN OF SAFETY :
Why Mos? Because you can be wrong? Mostly because a slight change in any of the
assumptions would change your valuations drastically. So I think we need not focus
much on the Mos thing, as long as we have got the growth rates right. In the sense I
believe it is more imp to have MOS in the growth rates itself than in the
UNDERPAYING.
But that would mean I am undervaluing and not underpaying. Wrong.
I should be able to correctly identify the intrinsic vallue range and then UNDERPAY.
Need to think on this.
I think it is very imp to correctly arrive at value and make decsions based on that as
otherwise you would ot have conviction on the valuation as at the bcack of the mind
youwould think you have been conservative with growth rates so I have
undervalued so can be tempted to overpay. Respect the valuation you do.

NEVER OVER PAY. Overpaid in cupid. Now even with the max growth, the returns
wwould be ltd to 15-20%. Makes no sense to take the kinds of risks you took for just
15%.
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