October 2012

Returns from various asset classes for the period 1979-2012

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Returns from various asset classes for the period 1979-2012
Investment
Returns in %(average annual)
Rs 10,000 invested in 1979 becomes in 2012
 
Bank deposit
8
1,36,902
Gold
8.7
1,75,000
PPF
9
 1,87,285
Stocks (BSE sensex stocks)
16.5
18,50,000+ Tax free Dividends (@ Sensex Level 18500)
Over Long terms, Equities have outperformed, the other asset classes by a handsome margin. However, having said that it requires tremendous patience, discipline, good advise, serendipity  and avoiding some costly mistakes in between to achieve those returns. 
 
The ERLI Principle sums it up very well ~ Invest :
 
– Early
– Regularly
– Long term perspective
– Intelligently
 
More on Investing Process and Costly Mistakes to avoid.

Warren Buffett on Investing in Gold

Warren Buffett Quotes, Gold Investments, Value Investing, Fundamental Analysis, Asset Allocation, Financial Planning

Buffett’s disdain for gold as an investment asset is very well known. Here is a quote from one of the world’s greatest investor on investing in Gold :

Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head. ~ Warren Buffett

September 2012

Prediction or Protection ~ Basis of Investing ~ Graham Style

Prediction , Analysis,  margin of safety concept , Basis of Value Investing, Stock Picking, Benjamin Graham Style, defensive Investor, Diversification

Basis of Investing

We invest in the present, but we invest for the future. But unfortunately the future is always uncertain 

  • Inflation and Interest rates are undependable
  • Economic Recessions come and go at random
  • Geo-political upheavals like war, commodity shortages & terrorism arrive without warning
  • fate of individual companies and their industries often turns out opposite of what investors expect.
Analysts and financial shenanigans keep busy forecasting and urging retail investors to invest based on projections.
As per Graham, though, investing on the basis of projection is a fool’s errand. He goes on to say that the forecast of so called experts are less reliable that the flip of a coin.
So, what is the alternative.
Graham goes on to suggest that it is in the best interests of the investor to invest on the basis of protection. 
What exactly is basis of protection? Well… It simply means
(1) Do not overpay for a stock and  
(2) Avoid overconfidence in your own judgement.
It’s a simple, yet a brilliant insight for successful investing ~ requires patience and discipline~ yet rarely followed and largely ignored by a vast majority of investors :
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– First, Don’t Lose… Losing some part of the money is an inevitable part of investing, and there’s nothing you can do to prevent it.
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An intelligent investor must take the responsibility upon himself to ensure that he never loses most or all of the capital whilst investing.  
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– The Risk is not in the stocks ~ Guess what ~ It is in ourselves.
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Graham expands this concept as the ‘Margin of Safety’ ~ which he has acknowledged as the core philosophy of his success….More on this concept, Risk, Investor Psychology and Uncertainly later…..

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