Tag - financial wisdom

November 2015

Resolve to Achieve Financial Freedom in your life!!!!!

Financial Freedom, New Year Personal Finance Resolution, Investments advise for beginners, Basics of INvestment Philosophy

Martin Seligman author of ‘Authentic Happiness’ and research psychologist has said that there are three parts to happiness : Pleasures, Engagement and Meaning.

Pleasure is the feel good part, the short term happiness of material possessions in life.
Engagement refers to good life involving work, friends, family and hobbies.
Meaning is using our time and strengths towards a larger purpose.
He reckons, that Although all the three are important , it is the last two which make a significant difference.

Now a lot of time we spend goes into increasing or earning money. Hence it is worth figuring out where money and hence financial freedom comes into play in our overall happiness.

Does Higher Income really lead to Happiness though? Is the million dollar question.

When researched , the results are surprising. ?  A study from Princeton University found that a larger paycheck does lead to a happier life—but only to a certain point. ($75,000 per annum to be precise)

What really affects our happiness more than how much we make is our attitude toward money and the way that we handle it. When we hold fast to the belief that money directly determines happiness, life becomes a constant pursuit of accumulating ”more”.

Would winning a lottery make us the happiest people on earth? Harvard Psychologist Dan Gilbert says NO.

He goes on to prove that we human beings are very good at adapting but extremely poor in predicting when it comes to our emotions and feelings.We tend to overestimate the duration and intensity of our future emotions.

For eg: A dream home with all modern amenities couple of extra bedrooms, with a beautiful view gives pleasure for a few months. Before the purchase, we tend to think that the possession will provide everlasting happiness and also experience that the happiness will be the ultimate satisfaction. But the same disappears later. At times it can also possibly have a negative effect on happiness at times.

Even when you change jobs or progress in career he has found out across subjects that in approximately 3 months they are back in the same place in terms of happiness. You can extend the examples to Car , let’s say you buy a porche or a BMW , the impact is the same.

This is one of the most important research subject in behavorial finance. Known as Hedonic treadmill. We work hard, earn more, and are indeed able to afford better and nicer things and yet it dosen’t make us any happier. The deeds and things you worked so hard for no longer make you happy; you need to get something even better to boost your level of happiness.” 

Wouldn’t it be better if we knew exactly how happy a new car, career, house or relationship would make us? It is quite possible if we do the following :

Avoid negative things that you cannot get accustomed to such as commuting , noise, chronic stress
Expect only short term happiness from material things such as cars, houses, lottery tickets, prizes, bonuses.
Accept your present
Aim for as much free time and autonomy as possible since long lasting happiness comes from what you actively do
Follow your passions even if you have to forfeit a portion of your income for them
Invest in friendships

Finally, Understand your relationship with Money. Don’t let money control your life . Rather Get a control over Money.

Have clear financial goals, focus on purchasing assets (rather than accumulating liabilities) and make your assets work along with you in order to achieve those goals. Remember, assets is something which puts money in your pockets, where as liabilities is something which takes money out of your pockets.

Make your money work so hard for you so that you never have to work for money….

Resolve to achieve financially freedom in your life!!!!!

October 2011

Analyzing Financial Statements — What is your perspective?? — Part2

Analyzing Financial Statements ,What is your perspective, Auditor, analyst, Risk Analyst.

Analyzing and trying to get insights from Financial Statement is one of the most interesting aspect. A Financial Statement can be dissected in many ways. We had looked at three angles or lenses thru which these statements can be looked at: Here are three more ways to look at these statements :

4. AUDITOR

An auditor’s primary objective is an expression of an opinion on the fairness of financial statements according to generally accepted accounting principles.  As auditor, you desire assurance on the absence of errors and irregularities in financial statements.  Financial statement analysis can help identify any errors and irregularities affecting the statements.  Also, this analysis compels our auditor to understand the company’s operations and its performance in light of prevailing economic and industry conditions.  Application of financial statement analysis is especially useful as a preliminary audit tool, directing the auditor to areas of greatest change and unexplained performance.

5 RISK ANALYST

Accounting risk results from the need for judgments, estimates, and impression inherent in the accounting system.  Accounting risk increases our uncertainty in decision making.  Accounting risk also involves accounting conservatism.  Assumptions play an important role in accounting measurements, and these assumptions can be too conservative or optimistic.

6. YOU ARE THE ANALYST/FORECASTER

More persistent earnings reflect recurring, stable, predictable, and operating elements.  Your estimate of earnings persistence should consider these elements.  More persistent earnings comprise recurring operating elements. Finding 40% of earnings from unusual gains implies less persistence because its source is no operating.  You can also question classification of litigation gains as “unusual” – they are sometimes better viewed as extraordinary.  The extraordinary loss component also implies less persistent.  In this case you need to assess whether environmental costs are truly extraordinary for this company’s business.  Together, these components suggest less persistence than suggested by the stable and steady growth trend in aggregate earnings.  This lower persistence should be reflected in both the level and uncertainty of your earnings forecast.

Gaining Insights into an organization’s financial statements is also a matter of perspective. Thus analyzing a company from one of the lenses makes a huge difference!!!!!

September 2011

Analyzing Financial Statements — What is your perspective?? — Part1

Analyzing Financial Statements ,What is your perspective,Banker, Investor,Director

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Analyzing and trying to get insights from Financial Statement is one of the most interesting aspect. A Financial Statement can be dissected in many ways. Here are 6 different lenses from which the financial statements can be looked into…..

1. BANKER

A banker is concerned about the company’s ability to satisfy its loan obligations.  Concern about the composition of company’s financing sources is twofold.  First, the greater is owner financing, the lower is a banker’s credit risk.

Second, creditors are also concerned with Adaptec’s other current and future creditor financing.  Creditors often write debt covenants to restrict a company’s future lending, or require collateral in case of default, or limit the amount of dividends payable to shareholders.

2. INVESTOR

As an investor, your review of financial statements focuses on company’s ability to create and maintain future net income.  All the statements are important in your review.  The income statement is especially important as it reveals management’s current and past success in creating and sustaining income.  The cash flow statement is important in assessing management’s ability to meet cash payments and the company’s cash availability. The balance sheet shows Adaptec’s asset base from which future income generated, and reports on liabilities and their due dates to creditors.

3. DIRECTOR

As a member of a company’s board of directors, you are responsible for oversight of management and the safeguarding of shareholders’ interests.  Accordingly, a director’s interest in the company is broad and risky. To reduce risk, a director uses financial statement analysis to monitor management and assess company profitability, growth, and financial condition. Because of a director’s unique position, there is near unlimited access to internal financial and other records.  Analysis of financial statements assists our director in (1) recognizing causal relations among business activities and events, (2) “seeing the forest through the trees,” that is, helping directors focus on the company, and not on a maze of financial details, and (3) encouraging proactive and not reactive measures in confronting changing

—- Continued in Part II

July 2010

Sensex touches 18000 again , two kinds of investors, two different views ….

chart.

“The investor’s chief problem – and even his worst enemy – is likely to be himself.” ~ Benjamin Graham

Sensex is at 18000 once again.

(A) Many Investors who had invested since 2007  when the markets were around the same levels are not happy. Most of them are waiting to get out of the markets when they are able to get cost to cost. Reasoning — they could have got better returns in Bank FD’s in last 3 years.

(B) Many Investors who invested in Markets in 2009 are super excited as almost all their investments have doubled.  Most of these investors have become developed short term view. They believe that they know everything about markets and they can easily generate good returns time and again. Many want to get out at these levels and reenter at sensex 12000 levels only now. They are experts you see.

Greed and Fear works in both the directions of the markets.

Investors who fall in the above categories do not realize the following fundamental rule of nature which is applicable to markets as well : “THIS TOO SHALL PASS AWAY”.

My view is that investors in either of the above categories will probably never be successful over a investment lifecycle of 3 – 5 – 10 years.  Period. Because the above reasoning of exit from market is based purely on market returns and not based on fulfillment of life objectives. And this kind of reasoning falls in the category of speculation.

Do you fall in any of the categories mentioned above…..