January 2017

The twelve most silliest things people say about stock prices ~ Part III

value investing, Peter Lynch Quotes, Pictures, Common Mistakes, Speculation, Trading, Gains, Losses, Indian Stock Markets  “All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don’t work out” ~ Peter Lynch ~ One up  on Wall Street.

 I have been reading ‘One up on Wall Street’ ~ Peter Lynch. The book is a classic and a must read for people interested in value investing.

This Part III is in continuation to earlier parts and thus completes the twelve most silliest things people say about stock prices as mentioned in the book. 

The earlier posts cover the previous 8 points of the common mistakes committed by investors which you can read here : Part I & Part II

I hope this trilogy will help you in your investing journey.

Thank you Peter Lynch for the wonderful book and  common sensical approach to stock investing.  Enjoy (points 9 through 12)….

9. What me worry, Conservative Stocks do not fluctuate much…
Peter Lynch gives examples of Utility Companies. Two generations of investors grew up on the idea that they could not go wrong with the Utility stocks. You could just put them in safety deposit and cash the dividend checks. However with the nuclear and the base rate problems, suddenly the nuclear plants became expensive and stocks fluctuated wildly over a couple of years.

Companies are dynamic and prospects change. There simply isn’t a stock that you can own and you can afford to ignore.

Near home, FMCG Stocks have always been considered conservative stocks with relatively low beta and good dividends. However, over the past 2 years most of the FMCG stocks have considerably outperformed the index. The valuations are stretched and stocks have literally become multi baggers. Can these stocks be considered be conservative any longer? Is anybody’s guess….

10. It’s taking too long for anything to happen
“PostDivesture Flourish”, a term coined by Peter Lynch, which means that after considerably waiting for a stock to do something, you give up, and when you finally sell the stock, the price of the stock starts to flourish and move northwards.

I have experienced this when I gave up on LIC Housing Finance in mid 2009 after holding the stock for almost 3 years. The stock went up almost 5 times in the next 2 years.
Learning ~ Do not give up on the stock if all is well with the company and the reasons for which I bought the stock have not changed.

The stock markets tests patience and rewards conviction.

It takes remarkable patience to hold on to an idea / stock that excites you, but which the market largely ignores. You begin to think everyone else is right, and you are wrong. But remember, where the fundamentals are promising, patience is more often than not ~ rewarded.

11. I missed that one, I will catch the next one
This is such a common mistake committed by a large number of investors.
Page Industries is one such stock, which has given phenomenal returns to investors over the past 3 years, and continues to do so. Investors who missed out on Page Industries are trying to catch onto other seemingly similar stocks like Lovable Lingerie.

This is a mistake because the performance of Page Industries is based on various factors like the company management, capital structure, earnings growth, streamlined and strategic supply chain, brand image, brand power and brand recall value, customer loyalty, vendor relationships, pricing power etc which is difficult for another company to imitate. The other company should be judged on it’s own merit for investment purposes.

It’s always better to buy the original good company at a higher price than to jump on to the next one at a bargain price. (Same logic applies when buying real estate as well…. I will talk about my views on real estate some other time though…)

12. The stock’s gone up, so I must be right or Vice Versa.
Peter Lynch terms this as the single greatest fallacy of investing. Believing that when the stock price is up, then you’ve made a good investment. Investors confuse prices with prospects.

If you purchase a stock at Rs 100 and it moves up to Rs 105, investors take comfort from this fact, as if it proves the wisdom of their purchase. Nothing could be further from truth. Investors commit mistakes based on this fallacy ~ Either selling a good company at a loss, believing that they committed a mistake or holding on to bad apples if the prices are up post the purchase.

Remember the Stock does not know that you own it.
Unless you are a short term trade looking for 20 odd % gains /loss the short-term fanfare means absolutely nothing.
A stocks going up or down after you buy only indicates that there was someone who was willing to pay more or less for the identical merchandise. That’s it

You can read the earlier posts here :  Part I & Part II 

With this I lay to rest the 12 mistakes committed by investors with the hopes that you, can avoid these common mistakes and in the process become a successful investor.

Happy Investing!!!

October 2012

Philip Fisher Quotes ~ The time to sell…

Common Stocks Uncommon Profits, Philip Fisher Quotes, Value Investing, Stocks, Mutual Funds, Speculation, Trading

I don’t want a lot of good investments; I want a few outstanding ones. If the job has been correctly done when a common stock is purchased, the time to sell it is almost never.” – Philip Fisher

Widely respected and admired, Philip Fisher is among the most respected and influential investors of all time. His investment philosophies introduced almost 5 decades back are not only studied and applied by today’s finance professionals, but also regarded by many as gospel.

Business, Investing & Leadership Quotes

September 2012

Herd Mentality ~ Charles Mackay ~ Quotes

Extraordinary Popular Delusions, Madness of crowds, Charles Mackay Quotes, Herd Mentality, Stock Investing

Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one ~ Charles Mackay

Extraordinary Popular Delusions and the Madness of Crowds is a history of popular folly by Scottish journalist Charles Mackay, first published in 1841.

Among the bubbles or financial manias described by Mackay are the South Sea Company bubble of 1711–1720, the Mississippi Company bubble of 1719–1720, and the Dutch tulip mania of the early seventeenth century. (some tulip bulb varieties briefly became the most expensive objects in the world during 1637)

A great book …. worth a read…

<<Finance, Management, Investments for the rest of us>> 

August 2012

6 key principles of persuasion by Robert Cialdini

Persuasion, Influence of Persuasion, Robert Cialdini, Branding, Marketing, Sensory Marketing, Perception,

6 key principles of persuasion by Robert Cialdini

This book (Influence :The psychology of persuasionRobert Cialdini) is on my pending list of books to be read and noting this down in my blog. The book talks about psychology, persuasion and how and why we make decisions when we say Yes

The 6 principles are as follows :

Reciprocity – People tend to return a favor, thus the pervasiveness of free samples in marketing. Example of Ethiopia providing thousands of dollars in humanitarian aid to Mexico just after the 1985 earthquake, despite Ethiopia suffering from a crippling famine and civil war at the time. Ethiopia had been reciprocating for the diplomatic support Mexico provided when Italy invaded Ethiopia in 1935. The good cop/bad cop strategy is also based on this principle.

Commitment and Consistency – If people commit, orally or in writing, to an idea or goal, they are more likely to honor that commitment because of establishing that idea or goal as being congruent with their self image. Even if the original incentive or motivation is removed after they have already agreed, they will continue to honor the agreement. For example, in car sales, suddenly raising the price at the last moment works because the buyer has already decided to buy. Cialdini notes Chinese brainwashing on American prisoners of war to rewrite their self image and gain automatic unenforced compliance. (Read on cognitive dissonance.)

Social Proof – People will do things that they see other people are doing. For example, in one experiment, one or more confederates would look up into the sky; bystanders would then look up into the sky to see what they were seeing. At one point this experiment aborted, as so many people were looking up that they stopped traffic. ( Read on the Asch conformity experiments.)

Authority – People will tend to obey authority figures, even if they are asked to perform objectionable acts. Cialdini cites incidents such as the Milgram experiments in the early 1960s and the My Lai massacre.

Liking – People are easily persuaded by other people that they like. Cialdini cites the marketing of Tupperware in what might now be called viral marketing. People were more likely to buy if they liked the person selling it to them. Some of the many biases favoring more attractive people are discussed.

Scarcity – Perceived scarcity will generate demand. For example, saying offers are available for a “limited time only” encourages sales.

~ source wikipedia

July 2012

Top 10 Books ~ Value Investing

Top 10 Investment Books, Warren Buffett, Benjamin Graham, Mckinsey, Jeremy Siegel, Philips Fisher, Charles Munger, Robert Schiller, Peter Lynch,

Here is the list of the top 10 books for value investing :

 If you are interested in value investing, then these 10 books should form a part of your library. They are gems and contain pearls of wisdom. Enjoy (The listing in no particular order):

1. Security Analysis ~ Benjamin Graham
2. The Interpretation of Financial Statements ~ Benjamin Graham
3. Common Stocks & Uncommon Profits ~ Philip A Fischer
4. Stocks for long run ~ Jeremy J Siegel
5. The Intelligent Investor ~ Benjamin Graham
6. Valuation ~ Measuring & Managing the Value of companies ~ Mckinsey & Company
7. Poor Charlies Almanack ~ The wit & wisdom of Charles Munger
8. Irrational Exuberance ~ Robert J Schiller
9. One up on Wall Street ~ Peter Lynch
10. The essays of Warren Buffett

Some other books of interest : 

~ Financial Shenanigans : Howard Schilit~Jeremy Perler
~ The Little book of Valuation : Aswath Damodaran