Tag - value investing

January 2017

The seven immutable laws of investing… James Montier

Value investing , James Montier, seven Laws of investing.

James Montier, a favourite among the readers of value investing, produced a white paper in March 2011, entitled “The Seven Immutable Laws of Investing”. In the paper he presented a set of laws to guide investors towards investing sensibly in stock markets.

“In my previous missive I concluded that investors should stay true to the principles that have always guided (and should always guide) sensible investment, but I left readers hanging as to what I believe those principles might actually be. So, now, for the moment of truth, I present a set of principles that together form what I call The Seven Immutable Laws of Investing.” ~ James Montier.

They are as follows:

1. Always insist on a margin of safety
2. This time is never different
3. Be patient and wait for the fat pitch
4. Be contrarian
5. Risk is the permanent loss of capital, never a number
6. Be leery of leverage
7. Never invest in something you don’t understand”
Source: GMO

Here is the complete text : The Seven Immutable Laws of Investing ….. By James Montier

 

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!!!

The Golden Rules for Investing

10 rules for investing, Risk, Compounding, SIP, Greed, Fear, Taxes, Tips, Value Investing, Personal Finance, Financial Planning

The Golden Rules of Investing are essentially a common sensical approach which largely comes down to the emotional aspects such as Discipline, Patience, Greed & Fear. 

Remember these 10 golden rules of Investing.

1. Risk is inevitable – What is Risk?  Understanding Risk is the first part and then learning to Manage it. 
2. Start early – Benefit from compounding. Einstein has acknowledged Compounding as the 8th wonder of the world.
3. Have realistic expectations – Greed is bad. How much is too much. You never know what is enough, until you know what is more than enough.
4. Invest regularly – Not even God can time the markets. Timing/Forecasting the markets is an illusion.
5. Stay Invested – Be a marathon runner. Markets tests patience and rewards conviction.
6. Don’t churn your investments – It only increases costs. If you like gambling, go to a casino. For serious investing, stay put.
7. Spread your corpus – Each investment class is important. Don’t put all your eggs in one basket. 
8. Sell your losers – Hope doesn’t make money, Wisdom does. We are biased against actions that lead to regret. People attach too much weight to gains and losses rather than wealth. 
9. Hot tips usually burn your investments – Avoid them. Remember the reverse of TIP is PIT. So a tip usually dumps you in a PIT almost always. 
10. Taxes are important – But not at the cost of a bad investment. Only Death and Taxes are certain, true ~ But don’t make bad investments just to save tax. Don’t be Penny Wise Pound Foolish.

Happy Investing

January 2016

Why every aspect of business is about to change ? ~ Article from Fortune

Investment Planning, Identifying multibaggers, Stocks , INvesting for 2016 Ideas

What better way to start new year than analyzing the past ? A Brilliant Summary of changes that is going to hit us one way or other sourced from www.fortune.com

Why every aspect of your business is about to change

Geoff Colvin

Imagine an economy without friction-a new world in which labor, information, and money move easily, cheaply, and almost instantly. Psst-it’s here. Is your company ready?

Cars bursting into flames are never a good thing. So when a Tesla Model S ran over a metal object in Kent, Wash., in October 2013 and burst into flames, owners, potential customers, investors, and company executives got worried. When the same thing happened a few weeks later in Smyrna, Tenn., federal regulators opened an investigation. We all know what happens next: a massive recall, costly repairs at dealerships nationwide, and a painful financial hit to the carmaker. Yet none of that occurred. The problem was that the Model S could lower its chassis at highway speed to be more aerodynamic, and if debris hit the car’s battery pack in just the wrong way, it could catch fire. So Tesla  beamed a software update to the affected cars, raising ground clearance at highway speed by one inch. The problem went away. Just four months after opening their investigation, the regulators closed it.

Using software and the mobile-phone network, Tesla avoided any need for a recall. It doesn’t have any dealerships; customers can configure and order a car online, and they can test-drive cars at company-owned showrooms. Tesla’s advanced electric technology is simpler than gas or diesel technology, so cars can be built with fewer employees and less capital. Combine those factors and here’s what happens: General Motors  creates about $1.85 of market value per dollar of physical assets, while Tesla creates about $11. GM creates $240,000 of market value per employee, while Tesla creates $2.9 million. You don’t get differences like that just by being more efficient. Tesla, though in the same business as GM, is a fundamentally different idea

 

GM is changing, but for now it’s still a 20th-century corporation. Tesla is a 21st-century corporation, built for sweeping new realities that change the rules of success. The big theme is the arrival of the long-heralded friction-free economy, a new world in which labor, information, and money move easily, cheaply, and almost instantly. Companies are forming starkly new, more fluid relationships with customers, workers, and owners; are rethinking the role of capital (as traditionally defined), finding they can thrive while owning less and less of it; are creating value in new ways as they reinvent R&D and marketing; and are measuring their performance by new metrics because traditional gauges no longer capture what counts. (more…)

December 2012

Who Pays for your coffee ~ Bargaining Power ~ Ricardian Model ~ Economics

Ricardian Model , Undercover Economist, Who pays for your coffee, Economics & Value Investing, Bargaining Power, Scarcity, Premiums, Marketing , Branding

I was reading the article  Who Pays for Your Coffee? the other day, an interesting take on the concepts of scarcity and bargaining power.

We learn the reasons behind why people pay premium price for the coffee in the morning trip (American Morning’s …that is…)… Interesting .. Ricardian Model of rents, scarcity, bargaining power and pricing… Read on..

A resource (which could be land, brand , car..or for that matter stocks etc..)  which is in demand and which is also scarce will have the bargaining power and get a high premium.

The author uses the example of coffee bars located at stations having huge volume of commuters to drive home the point of the power and the strength of scarcity of resources and the bargaining power of the resource owners.

The exclusive coffee bar at the station is scarce. And so is the station location. The coffee bar has bargaining power over customers for high coffee prices. The station owners have bargaining power over coffee bars for high rent. 

However, the Bargaining Power does not come by just owning the resource. It comes because of scarcity. This viewpoint forms the crux of the article. If the scarcity shifts so does the bargaining power.

Businesses which hold the bargaining power today due to a combination of owning resources, demand and scarcity may go out of favor in future if there is a shift in scarcity which could be because of changing economic environments, changing customer tastes, rapid technological shifts or competition. An important factor to consider in investing, is to not only keep an eye on the past performance of a business / sector but to have vision to sense the future direction as well.

However, in real life the shifts in bargaining power and relative scarcity are often very slow. These shifts also have profound impact on lives of people. And most of the analysts miss this completely.

 In economics, Basic principles and patterns that operate behind seemingly complex subjects can be used as models. These models have been used to explain other complex phenomena in real life.

The article goes on the explain Ricardo’s model of meadowland which expounds on the concepts of scarcity of resource, bargaining power and shifts in bargaining power. It also explains the concept of relative value pricing and marginal land.

For example, although common sense says that the high rent causes the high prices coffee, the application of Ricardo’s model reveals that It is actually the willingness of customers to pay high prices for coffee which sets up the high rent and not the other way round.

The economists try to focus on underlying process, understand the patterns of scarcity in order to unearth developing shifts of bargaining power.

Would be interesting to look at investing in stocks from this angle as well

October 2012

How to deal with value traps ~ Graham Logic

How to deal with value traps , Benjamin Graham Logic, Value Investing, Margin of safety, Investing Principles

Value Investors look out for good/great companies trading at low multiples (be it earnings/book or cash flow). Investors looking for bargain may get attracted to stocks trading at low multiples for a considerable period of time. 

Value trap occurs when the investors lock into the stock at low multiples and the price discovery never happens and the stock price does not budge.

This may happen for any reason such as the whole sector being looked down, or the company / sector in trouble or truly the market not discovering the potential of the stock, inability of the company to withstand competition/technological changes, inability to generate consistent profits etc. There could be many reasons for a value trap happening.

Question is , how should the investor proactively manage the positions in such a situation. 

Benjamin Graham has Stock selection criteria & avoiding value traps

According to Benjamin Graham ~ If the stock does not give you 50% in 3 years, sell it – its most likely a value trap. Nice rule to deal with uncertainty 

As with any investment decision, thorough evaluation and research is required to avoid value traps

Value Investing

September 2012

The fallacy of believing in Stock Market Timing !!!!

The fallacy of believing in Stock Market Timing , Stock Market investing, Profits, Behavior Psychology, Economics,

Life can only be understood backwards, but it must be lived forwards ~ Soren Kierkegaard

In an ideal world, one would hold stocks when they are cheap and sell them when they become expensive, put the money in bank and wait until the stocks become cheap again only to buy back and repeat the process. Cool!!!!,

Except, there is a minor hitch ~ that there is vague possibility of the above happening in a dream and that too from a good night’s sleep.

Looking back, you can always say which stocks could have been sold or bought into. But do not let this fool you into thinking that in real time, you can just get in or get out so easily.

In the financial markets, hindsight is forever 20/20, but foresight is legally blind.
And so for most investors market timing is a practical and emotional impossibility.

OK, so how about the professionals….Can they time the markets any better than the average investor. Studies have shown plain index returns have time and again beaten the (alpha searchers) mutual fund managers/analysts or market timers over a period of time. (If you avoid  them, you will also save on the various expenses which the experts charge)

Being in the Financial Markets / Financial Planning services industry , I have seen innumerable people following analysts on TV Channels, subscribing to various newsletters, online sites for the holy grail tips & trying to time the markets. However they succeed far and few BUT fail time and again. The only people who consistently make money are the information providers and the tipsters. 

Remember the opposite of TIP is PIT and that is what many traders and market timers land after burning their hands. 

Try Market timing with not more than 5-10% of your portfolio and see the results for yourself. 

For Serious investing, Timing is Nothing!!!!  Who the hell said, .. “Successful Investing is ~ Buy low and Sell high …..!!!!” Simple… Yet not easy…. Happy Investing

 

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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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

Benjamin Graham’s 14 Investment Points for Value Investing

Benjamin Graham is widely considered the Father of Fundamental Analysis. Of course, Warren Buffet is his most famous disciple.  Fundamental analysts attempt to study everything that can affect the security's value, including macroeconomic factors (like the overall economy and industry conditions) and individually specific factors (like the financial condition and management of companies). Graham has authored 'Security Analysis' & 'The Intelligent Investor' which are considered cornerstone books in the field of Investments, Analysis for Investors.   Here are Graham’s 14 Investment Points, the crux for successful investing :  1.Be an investor, not a speculator. 2.Know the asking price. 3.Search the market for bargains. 4.Determine if the stock is undervalued. 5.Regard corporate figures with suspicion. 6.Don’t stress out. 7. Don’t sweat the math. 8.Diversify among stocks and bonds. 9. Diversify among stocks. 10. When in doubt, stick to quality. 11. Use dividends as a clue for success. 12. Defend your shareholder rights. 13. Be patient. 14. Think for yourself.  Happy Investing.Benjamin Graham is widely considered the Father of Fundamental Analysis. Of course, Warren Buffet is his most famous disciple.
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Fundamental analysts attempt to study everything that can affect the security’s value, including macroeconomic factors (like the overall economy and industry conditions) and individually specific factors (like the financial condition and management of companies).
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Graham has authored ‘Security Analysis’ & ‘The Intelligent Investor’ which are considered cornerstone books in the field of Investments, Analysis for Investors.
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Here are Graham’s 14 Investment Points, the crux for successful investing :
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1.Be an investor, not a speculator.
2.Know the asking price.
3.Search the market for bargains.
4.Determine if the stock is undervalued.
5.Regard corporate figures with suspicion.
6.Don’t stress out.
7. Don’t sweat the math.
8.Diversify among stocks and bonds.
9. Diversify among stocks.
10. When in doubt, stick to quality.
11. Use dividends as a clue for success.
12. Defend your shareholder rights.
13. Be patient.
14. Think for yourself.
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Happy Investing.
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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

August 2012

Notes: Preparing to Invest : From One up on Wall Street : Value Investing

Notes: Preparing to Invest , From One up on Wall Street : Value Investing, Stock Markets, Making Money, Bonds, Equities, Long term Investing, Deep Value Investing

These are some of my notes (worth remembering) from the wonderful book : One up on wall street ~ ‘Peter Lynch’ Part I Preparing to Invest

– Don’t overestimate the skills and wisdom of Professionals.
– Take advantage of what you already know
– Look for opportunities that have not yet been discovered and are ‘off the radar scope’ of the markets
– Invest in a house before investing in stocks
– Invest in companies, not in in the stock market (This is the Buffett principle as well)
– Ignore short term fluctuations (This is so much easier said that done… However utmost critical in my view)
– Large profits can be made in common stocks
– Large losses can be made in common stocks
– Predicting is futile (be it interest rates, economy , or movement of the markets)
– The long term returns from stocks are both relatively predictable and also far superior from long term return of bonds.
– Keeping up with the company in which you own the stock is like playing an endless game of stud poker hand
– V IMP : Common stocks are not for everyone, not even for all phases of a person’s life
– The crux of the book : The average person is exposed to interesting local companies and products years before the professionals.
– Having this edge will help you to stay ahead in the stock markets
– In the stock markets , one in the hand is worth ten in the bush.

Notes on Value Investing to be contd’ in future parts…..

Transcript of 2008- Berkshire Hathaway Shareholders meeting with Warren Buffett

Transcript of 2008, Berkshire Hathaway Shareholders ,meeting with Warren Buffett, Value Investing, Equities

The following is a transcript of 2008- Berkshire Hathaway Shareholders meeting at Omaha, Nebraska

It is worth a read … Wonderful thoughts from the Oracle of Omaha, Warren Buffett
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What does it take to become a successful investor? Brilliance or Smartness?

Neither, Success in investing doesn’t correlate with I.Q. Once you have ordinary intelligence, what you need is the temperament to control the urges that gets other people into trouble in investing.

When do you deicide to invest in a firm?

The best thing that happens to us is when a great company gets into temporary trouble. We want to buy them when they’re on the operating table. (Mr. Buffett bought Coke when it had its biggest fiasco after launching New Coke; he bought American Express when it went through a loss making phase in the early 60’s)

What do you look for in people when they come to sell their firms to you?

I don’t look for the usual credentials such as an MBA, a pedigree (Harvard, Wharton), or cash reserves or market cap of their firm. What I look for is just a passion in their eyes; I think that’s the key. A person who is hungry will always do well. I prefer it when people evenafter selling stay on and work for the firm; they are people who can’t wait to get off their bed to get to work. Passion is everything; there is no replacement for innate interest.

Mr. Buffett, you told us that Berkshire Hathaway has $ 45 Billion in cash. Why aren’t you investing?

Up until a few years back I had more ideas than money. Now I have more money than ideas.

When do you plan to retire?

I love my job; I love it so much that I tap dance to work. Mrs. B, the founder of Nebraska Furniture Mark worked until she was 104, she died within 6 months of her retirement, that’s a lesson to all my managers, don’t retire! I personally am going to work 6-7 years after I die, probably that’s what they mean when they say- “Thinking out of the Box”!!

Why do stock market crashes happen?

Because of human nature for greed and insecurity. The 1970s were unbelievable. The world wasn’t going to end, but businesses were beinggiven away. Human nature has not changed. People will always behave in a manic-depressive way over time. They will offer great values to you.”

What are the things that are taught wrong in Business school and the corporate world?

I like such open ended questions, I think Business schools should refrain from teaching their wards about profit making and profit making alone, it gives a sense of 1 dimensional outlook to the young students that loss is a curse. In reality, in the corporate world, failure and loss making are inevitable. The capital market without loss is like Christianity without hell. I think they should teach the student on how to buy a business, how to value a business? Not just on how to determine the price of a business. Because price is what you pay, value is what you get.

Do you still hate Technology stocks?

With Coke I can come up with a very rational figure for the cash it will generate in the future. But with the top 10 Internet companies,how much cash will they produce over the next 25 years? If you say you don’t know, then you don’t know what it is worth and you arespeculating, not investing. All I know is that I don’t know, and if I don’t know, I don’t invest.”

How to think about Investing?

The first investment primer was written by Aesop in 600 B.C. He said, ‘A bird in the hand is worth two in the bush.’ Aesop forgot to saywhen you get the two in the bush and what interest rates are; investing is simply figuring out your cash outlay (the bird in the hand) and comparing it to how many birds are in the bush and when you get them.”

How do you feel after donating $ 40 Billion to the Bill and Melinda Gates foundation? You are a hero to us!
I feel nothing. I haven’t sacrificed anything in life. I have had a good life. I donated after I turned 75. I think I admire those people who sacrifice their time, share their food and home, as the people to be emulated not me. Besides, what is money before a man’s life?

What do you think are the pitfalls in donation?

I have never donated a dime to churches or other such organizations; I need to believe in something before I end up doing that. I have beenobserving the Bill & Melinda Gates foundation for years now and I am confident they will do a fantastic job of making use of the money. I am a big believer in Outsourcing, others believed in me as an Investor and gave their hard earned money to invest. I believe in Bill Gates, he is a better donor than me.

Why do you work from Omaha and not Wall Street, New York?

Wall Street is the only place where people alight from Rolls Royce to get advised by people who use the Public transportation system.

You seem to be so well read, tell us how it all started.

My father was a stock broker, so we had all these financial books in our library. He introduced me to those classics and I got into them. Iam lucky that my father was not a fan of Playboy! Reading is the best habit you can get. Well, you can learn from teachers too, and have mentors but there are so many constraints attached- they will talk fast, talk slow, they might talk like a pro or they might be terrible communicators. Books are a different animal altogether, I love reading! The beauty about reading and learning is that the more you learn the more you want to learn.
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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