Tag - Investment Planning

December 2015

How to avoid investing in MisManaged Companies – Understand Balance Sheet

How to avoid investing in mismanaged companies, Misallocation of capital, Successful Investing Tips

Most investors keep looking for the magic investing mantra which can keep compounding returns. Many burn their fingers by getting into wrong companies. The first step of successful investing and to avoid investing in MisManaged Companies is to Understand Balance Sheet of a company.

A balance sheet, also known as a “statement of financial position,” reveals a company’s assets, liabilities and owners’ equity (net worth). The balance sheet, together with the income statement and cash flow statement, make up the cornerstone of any company’s financial statements. If you are a shareholder of a company, it is important that you understand how the balance sheet is structured, how to analyze it and how to read it.

Here is a great starting point from Investopedia to understand reading a balance sheet. Another article talks about the due diligence that should be followed before choosing a stock to invest is another checklist which the investors should always keep handy when doing a first cut analysis before giving a ‘pass’ and research further.

Bala writes about a wonderful article on Misallocation of capital  which gives examples of why to avoid investing in companies which misallocate capital.

When you start looking at a balance sheet, a quick first cut analysis can help you eliminate researching further if you come across these common account red flags…

The Indian stock market, in aggregate, carries a relatively high risk that a minority shareholder will not realize the value in a listed firm because the controlling shareholder (or promoter as they are known in India) will appropriate value for himself, leaving little on the table. The risk is higher relative to certain other stock markets mainly because of limited regulation. In addition, lax enforcement indirectly encourages such behavior. Kimi writes on how one can avoid such landmines in his elaborate article peppered with examples.

Successful investing is all about avoiding the companies/ sectors/ industries which are mismanaged and going aggressively after the good ones…As Charlie Munger famously said “Tell me where I’m going to die, that is, so I don’t go there.”…..

Happy Investing….

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!!!!!

December 2012

Start saving for retirement as early as possible

Start saving for retirement as early as possible, magic of compounding , Invest early, Retirement planning tips, Investment planning tips.

Chains of HABIT are too light to be felt …. until …… they are too heavy to be broken ~Warren Buffet

Saving and investing for a prosperous retirement is a basic financial hygiene habit, which if postponed to a later date, can have disastrous and painful financial implications… Take a look.. Numbers don’t lie…

X, Y and Z are salaried individuals working for a reputable Company  and they all plan to retire at the age of 60.

X is 30 years old and is married with one child. He has set himself a retirement fund target of Rs. 1 crore.

Y is 40 years old and is married with two children. He has also set himself a retirement fund target of Rs. 1 crore.

Z is 50 years old and has also set himself a retirement target of Rs. 1 crore.

X has 30 years to achieve his target, Y has 20 years and Z 10. Assuming the return given by their investments is 12%, the following table shows the monthly investments that all three men will have to make if they are to achieve their retirement targets.

Age Years left Retirement fund target Annual return expected

Monthly investment required

X 30 30 Rs. 1,00,00,000 12%

Rs. 3,277

Y 40 20 Rs. 1,00,00,000 12%

Rs. 10,975

Z 50 10 Rs. 1,00,00,000 12%

Rs. 45,060

As we can see from the above table the more time the individual has to invest, the lower the monthly investment amount required to reach the target will be. So it is always a good idea to start saving for retirement as early as possible.

So, start investing early, it makes a hell lot of difference. And if you are in your golden years and had not planned in your hey days ~ the least you can do is advise your young loved ones to do so.. Stay wise..