Module 00 · Solutions

Warm-up

E00.01 Price: what the last buyer paid. Intrinsic value: the present value of the cash the asset will deliver to its owner, at a rate reflecting the risk. Margin of safety: the gap between price and estimated value, judged relative to the uncertainty of the estimate. Variant perception: a well-founded belief that differs from the expectations embedded in the price.

E00.02 (1) What is the business? — business-model and industry analysis (Module 05). (2) Is it a good business? — returns on capital, moats, governance (Modules 04–05, 09). (3) What is it worth versus its price? — valuation and reverse DCF (Module 06).

E00.03 Value (Graham; Klarman); quality/compounders (Buffett, Munger, Fisher); growth (Lynch; T. Rowe Price); GARP (Lynch); special situations (Greenblatt); activism (Icahn; in India, Unifi/IiAS-style engagement); long/short (Robertson, Steinhardt). Any four with a correct pairing.

E00.04 Behavioural (investors over-react to news and extrapolate); structural/time-horizon (institutions cannot hold through a two-year thesis; index rules force flows); informational (small companies are not covered); analytical (the information is public but the work to interpret it — forensic, unit-economic — is not done).

E00.05 Outcome vs process: a good outcome can follow a bad decision (luck) and a bad outcome a good one. Over many decisions, process quality determines results; judging by outcomes alone teaches the wrong lessons.

Core

E00.06 (a) Sizing must survive long feedback delays and estimation error — fractional Kelly and max-loss rules rather than edge-optimal sizing. (b) Skill cannot be read from a year's P&L; it must be judged from process quality and calibration over many decisions (journals). (c) Written process (memos, thesis-breakers, checklists) substitutes for the market's immediate feedback: it is how you find out you were wrong before the price tells you. Rubric: one concrete consequence per part; mention of feedback delay in (b); mention of pre-commitment in (c).

E00.07 A 25% target implies ~12 pp of annual alpha over the index; the base rate for individual investors and most professional funds delivering sustained double-digit alpha is very low (SPIVA India reports show most active large-cap funds trail the index over 5–10 years — verify current figures). Base rates: SPIVA India scorecards, mutual-fund category returns (AMFI/Value Research), academic studies of retail returns. The claim needs either an identified edge (small caps, special situations, a process) or a smaller target.

E00.08 You would need the full population of stocks that looked like the winners at the time (same approach, same signals) and their outcomes — including the ones that went to zero — to compute a hit rate and expected return. The book shows only the survivors, selected after the fact; it cannot distinguish an edge from selection.

E00.09 Related-party note → "read filings" (Module 03; governance in 05.6). ROIC → "analyse the numbers" (04.3). Implied growth → "compare with price/expectations" (06.6). How much to buy → "decide and size" (11.4). Dealer inventory → "understand the business / scuttlebutt" (05.7).

E00.10 Model answer (numbers as in the preview): value ₹320 (06.3); bull/bear ₹416/₹168 (06.4); price-implied growth 14.1% (06.6); ROIC 12.0% and incremental ROIC 4.6% (04.3); receivable days 96 (04.4); CFO/PAT 72% (04.7); Beneish −2.14 (09.6); forensic Amber (09.7); governance score 7 (05.6); WACC 12.19% (06.2); size 4% at ₹260 (11.4). Rubric: at least eight numbers correctly mapped.

E00.11 Fictional companies allow statements that are guaranteed to balance, red flags planted deliberately, consistency across 90 lessons, and no risk of stating false facts about real companies or giving advice. The limitation: real filings are messier (restatements, missing disclosures, vendor errors), so every module includes a real-world task to practise on actual companies.

E00.12 Base value ₹320; implied growth ~14.1% at ₹390; 46 tests pass. If the yfinance-dependent example is run, note that a VPN can block it.

Stretch

E00.13 Transfers: implied-vs-realised thinking (reverse DCF as implied growth); convexity (operating and financial leverage as gamma; equity as a call on the firm); carry (lenders' spread; holdco discounts' negative carry); regime awareness (valuation and flow regimes; the capital cycle); sizing by edge over variance; process vs outcome. Does not transfer: immediate feedback and high sample counts (skill is not observable quickly); hedgeability of the main risk (thesis risk is unhedgeable); the ability to scale in and out at will (liquidity in small caps); and mean-reversion instincts on price (a stock down 50% is not "cheap vol" — the distribution may have changed). Rubric: three transfers and three non-transfers, each with a concrete link to a course concept.

E00.14 Any calendar that allocates the module hours from 00.2 across the available weeks, places Mock 1 after Module 03, Mock 2 after 05, Mock 3 after 07, Mock 4 after 09, the final after 12, and starts the capstone in the last three weeks.

E00.15 Typical causes: (1) starting Module 02 without the toolkit set up → set it up in week 1; (2) reading solutions before attempting exercises → a rule: written attempt first; (3) skipping mocks because they are uncomfortable → calendar them with a fixed date. Any three plausible causes with specific countermeasures.

Real-world task

E00.16–17 No model answer; keep the notes. The value is in the comparison after Modules 03 and 05.