Why do we never go down the risk curve in Financials to chase cheap valuations

Silicon Valley Bank in the US has collapsed.  SVB imploded as 3 risks collided

  1. Side effects of excessive money printing came to the fore –> steep increase in the US yield curve as long term interest rates rose from 1.5% to >5% in about 15 months
  2. Highly concentrated depositor base which withdrew large sums quickly
  3. Huge Asset Liability mismatch –> short term deposits were parked in long term Assets (akin to what happened with our Real Estate NBFCs).  Hence, SKB was forced to sell long term assets and book losses when faced with withdrawals at the wrong time, which eroded its Capital base and created momentum for a run on deposits (vicious cycle).

An article that explained what happened is enclosed.

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INVESTMENT THESIS ON NEOGEN CHEMICALS

Neogen is the only company which we continue to purchase even at valuations > 50x TTM PE.
We make exceptions only when a company is at a very early stage of the growth cycle, where there are visible opportunities/triggers for high growth longevity, and we are investing in top decile promoters.

Enclosed is a brief note to explain our thought process underlying this investment.

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