Tag - investor

June 2016

Types of Investors – What type are you?

Types of Investors , Conservative, Aggressive, Risk taker, Risk Profiling, Risk Averse, Savers, Specialists, Speculators

I came across this good article at http://www.threetypes.com/philosophy/investor-types.shtml and wanted to share. It essentially discusses the various types of Investors viz : Savers, Speculators and Specialists and then goes on to explain how becoming a Specialist, is something which generates immense wealth over lesser periods of time , but which also requires tremendous efforts on the part of the investor.

Go ahead and decide which type of investor you are and then invest accordingly. Enjoy Investing…..

Savers

Savers are those people who spend the majority of their life slowly growing their “nest egg” in order to ensure a comfortable retirement. Savers explicitly choose not to focus their time on investing or investment strategy; they either entrust others to dictate their investments (money managers or financial planners) or they simply diversify their investments across a number of different asset classes (they create “a diversified portfolio”). For those who create a diversified portfolio, their primary investing strategy is to hedge each of their investments with other “non-correlated” investments, and ultimately generate a consistent annual return in the range of 3-8% (after adjusting for inflation). Those who entrust their money to professional money managers generally get the same level of diversification, and the same 3-8% returns (minus the management fees).

Savers seek low-risk growth of their capital, and in return, are willing to accept a relatively low rate of return. While there is certainly nothing wrong with striving for consistent returns, what the Saver is doing is really no different than putting their money in a Certificate of Deposit, albeit with slightly higher returns. The bulk of Savers are investing for long-term financial security and retirement. They start saving in their 20’s and 30’s by putting money in 401(k) accounts, mutual funds, and other diversified investments, and in 30 or 40 years, they have enough to retire on.

Savers rely in a single force to grow their capital: time. Because their rate of return is generally consistent, a Saver’s primary mechanism to achieve wealth is to invest and wait. In fact, Savers often use The Rule of 72 to calculate long-term investment growth and plan their retirement. While passive investing is an almost surefire path to a comfortable retirement, it also generally means 30-50 years of work to get to that point.

Speculators

Unlike Savers, Speculators choose to take control of their investments, and not rely solely on “time” to get to the point of financial independence. Speculators are happy to forgo the relatively low returns of a diversified portfolio in order to try to achieve the much higher returns of targeted investments. Instead of just spreading their money across stock funds, bonds, real estate funds, and a variety of other asset categories, Speculators are always looking for an investing edge. Perhaps they get a hot stock tip and try to cash in on the next Google. Or perhaps they hear about all the real estate investors who have made a bundle flipping houses, so they go out and buy the first run-down house they see.

Speculators recognize that they can have higher returns than Savers, and are willing to do or try anything to get those returns. They’re not scared to throw some money in an Options account and try their hand at derivatives trading; or run out and buy a bunch of inventory from a wholesaler they know and open up an eBay selling account. Speculators are always looking for the next great investment; for them, it’s all about being in the right place at the right time, and taking a chance on getting rich. If today’s investment doesn’t work out, there will always be another one tomorrow. (more…)

September 2012

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

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The twelve most silliest things people say about stock prices

As I have mentioned earlier in my blog post, 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 II is in continuation to Part I (first 4 points) which you can read here

Thank you Peter Lynch for your witty points… Enjoy (points 5 through 8)….

5. Eventually they will come back

Peter Lynch gives examples of RCA which never came back even after 65 years. Companies which belonged to Health Maintenance organizations, floppy disks, double knots, digital watches, mobile homes etc could never come back.

In today’s fast paced world of technological changes, there is even a higher chance of companies fading away much faster. Intelligent investing is all about recognizing the changes happening in the industry and then exiting from the stocks, if the fundamentals no longer justify a stake in the business.

As John Keynes has so very rightly said: “When the facts change, I change my mind: What do you do? Sir”

Many investors in this category are stuck with Indian Stocks reeling in High Debt, slowing economy & pressures from Bank are unlikely to come back anytime soon. (Rcom, Rpower, Suzlon, DLF etc.) Many of these companies will have to restructure (or sell off non-operating assets, non core businesses in order to breath freely)…

Suzlon Chart (languishing at all time lows below Rs 20):

The twelve most silliest things people say about stock prices , investing mistakes, Peter Lynch, suzlon, One up on wall street book review, stock investing

6. It’s always darkest before the dawn

There’s a very human tendency to believe that things that have gotten a little bad can’t get worse.

Near home, people who are holding on to Moser Baer have not seen the stock price appreciate a zilch over the past decade.

Moser Baer Chart over the past few years :

Moser Baer Stock Price, Worst Stock Performance India, Investment Mistakes, Technology Stocks, Investing , Trading

Similarly the oil marketing companies have given no returns to the investors over the past decade. (Of course, part of this is due to the policies of the government of regulated oil prices in India).

Sometimes, it is darkest before the dawn, but then again other times is always darkest before pitch black.

7. When it rebounds to Rs 100, I’ll sell

In my experience, no downtrodden stock ever returns to the price at which you decide to exit.

When the stock of Suzlon was falling freely in early 2009 onwards, many investors got sucked into the stock at various levels above Rs 100. Subsequently, the stock kept on going South.

In the equity markets, the investors in general are always in a hurry to take the profits off the table. However when, it comes to taking out the losses, they rely on HOPE.

Again, here when we talk about taking out the losses, it is of the companies which are weak on fundamentals.  In case of Suzlon, currently trading at Rs 18, unless a miraculous turnaround happens, it might not see the 3 digit mark for a fairly long time to come.  The whole painful process may take a couple of years, maybe a decade. And all along you have to tolerate an investment you don’t even like.

Relying on luck way too often in the markets is a sure way to lose money in the long run. If you are less confident on the company, you ought to be selling the stock.

8. The ‘I knew it, If only I could have bought the stock, I could made so much money’ statement

So many investors make this classic mistake.

‘ I knew it…. Colgate, Pidilite, Hawkins, Jubilant Foodworks, HDFC, Titan, Tata Motors etc would rise….If only I could have bought the stock, I could made so much money’ statement’

They torture themselves every day by perusing the ‘Ten biggest winners on the markets’ and imagining how much money they’ve lost by not having owned them.

However the funny thing, the money is still in the bank . They have not lost a penny. This may seem ridiculous thing to mention. But it is notional. Regarding somebody’s else’s gain as your losses is definitely not a productive way to investing in the markets.

In fact, it can lead to blunders, trying to catch up buying stocks which they shouldn’t be buying, and buying the stocks at higher prices in order to get over the guilt. And guess what, this results in real losses.

Part I is here, Part III is here

The twelve most silliest things people say about stock prices – Part I

The twelve most silliest things people say about stock prices , investing mistakes, Peter Lynch, One up on wall street book review, stock investing.

The twelve most silliest things people say about stock prices

As I have mentioned earlier in my blog post, I have been reading ‘One up on Wall Street’. The book is a must read for people interested in value investing.

Peter Lynch brings to us his experience and packs with a punch of humor, wisdom, timeless principles and wonderful examples of all kinds of businesses. Towards the end, there is a chapter on 12 silliest things that people say about stock prices with examples of US Stocks.

I could relate so many similar examples from the Indian Stock markets and so this post and my thoughts are on the 12 silliest things (& most dangerous) things, which people say about stock markets.

I will bring this in 3 parts… Part I is here. Have fun. It is eye opening

1. If it’s gone down this much, it can’t go further down

I’d bet the shareholders of Satyam (now Mahindra Satyam), Suzlon, Reliance Communication (RCOM), Reliance Power (Rpower), DLF etc were repeating this phrase just after the stocks kept dropping. The phrases which people use are “I am a long term investor”, “You have to be patient in stock markets”, “These are blue chip companies”. During the unraveling of the Satyam scam the shares fell to 11.50 rupees on 10 January 2009, their lowest level since March 1998, compared to a high of 544 rupees in 2008. Investors purchased at various levels on the stocks way down.

There is simply no rule hat tells you how low a stock can go in principle

2.  You can always tell when a stock hit bottom

Peter Lynch says ~ Bottom fishing is a popular investor pastime, but it’s usually the fisherman who gets hooked. LOL

RCOM (and many other erstwhile super stocks with weak fundamentals) bottom was never successfully found by investors. Over the past 4 years these stock has successfully managed to do create only new bottoms.

If it is a turnaround story, then there has to be a solid reason to pick a stock. For eg: the balance sheet shows Rs 50 as Cash per share and the stock trades at Rs 53. Even then, the author mentions that the stock might take years to pick up steam.

3. If it’s gone this already, how can it possibly go higher?

This is one of the favorites of the analysts who frequent the News Channels. However consider the stocks like Asian Paints, Titan Industries, Page Industries, Hawkins Cooker , Trent Industries or Pidilite Industries etc.  These stocks have strong fundamentals and strong earnings & profit growth. They continue to beat the markets quarter on quarter. The fundamentals catch up with the price and so the market values them slightly higher than the rest.

Many investors do make the mistake of parting away with the stock just when a strong uptrend in underway. In reality successful stock investing is & should be a boring activity. However investors go in for action in the hopes of getting the stock at a lower price. Unfortunately, in case of fundamental stocks, that never happens. Recently, Hindustan Unilever has moved from 350 to almost 500+. Many investors whom I know have already parted with the stock at 400 levels and they are ruing the fact.

4. It’s only Rs 3 a share: What can I possibly lose?

How many times have you heard people say this? People assume that buying a Rs 8 share is less riskier than buying a Rs 50 stock.

Case in point .. Kingfisher airlines, Indowing Energy, Sujana Towers, Moser Baer etc. All these high flying stock of 2007 Boom phase are trading in single digits for last 2 years now 

The fact of the matter is that whether the stock costs Rs 50 or Rs 5, if it goes to zero you still lose everything. If it drops to 50 paise, the results are only slightly differen

The investor who buys at Rs 50 loses 99% wheras the investor who buys at Rs 3 loses 83% ~ hardly a consolation. Lousy cheap stock is just as risky as lousy expensive stock if it goes down. So investing in a Rs 50 stock or Rs 3 stock does not matter. The reason for buying the stock should be based on the fundamentals of the company.

.. Read Part II & Part III