September 2010

Reliance – 2nd among world’s largest value creators

There is a report in Business Standard which mentions many Indian Companies amongst the world’s largest value creators in this decade. The report is here :

Mukesh Ambani-led Reliance Industries has been ranked second in the list of world’s 10 biggest ‘sustainable value creators’, companies that have been successful in creating the most shareholder value over the last decade, prepared by Boston Consulting Group.

Reliance Industries again comes second in the ‘Large Cap firms’ for 2005-2009 of 112 global companies with a market valuation of more than 35 billion dollars.

In the chemicals industry, Reliance Industries has been named the second biggest value creator of 53 global firms during the period behind South Korea’s OCI.

However, the stock has virtually not given any returns over the past 2 years….. Many investors are losing patience now and
letting go of the stock in favor of Banks, Pharma and FMCG Companies…. which have outperformed…
If you compare the returns of Reliance with the BSE Index, the result is quite glaring….Sensex is up almost 40 % in last one
year……Whereas Reliance has not given any return at all ……
So , What is next …….. Well a relief rally should be on cards till 1200 at least if the stock holds above 960 levels. …. And this will definitely bring smiles to the investors… and the markets as well.

July 2010

The Simple rules to Successful Investing – Part 1

The Simple rules to Successful Investing , Understanding Investing, Stocks, Mutual Funds, Tax, Insurance, Estate, Wills.

“No amount of talking or reading can teach you swimming. You will have to get in the water.”

There are these little general rules which are applicable and useful for decision making and taking actions. And these simple rules are applicable in so many aspects of life, they are just some small reminders, some common-sense stuff which are really useful.

And yes most of them are applicable in investment planning as well.

a. Perfect Plan – Forget it.There is no such thing as a perfect investment plan and no such thing as a perfect time. The right time is now. Tomorrow is and always will be uncertain. Perfectionism is the enemy of action. Do not let perfect investment plan or a perfect time to invest stop you from starting.

b. Analysis Paralysis – Too much thinking will often result in getting stuck.Some thinking is good — it’s good to have a clear picture of where you’re going or why you’re doing this — but don’t get stuck thinking. Just do.

c. Get the Broad Picture and Start. You need to get the broad picture in your mind. You need to understand your future requirements or what do you want to achieve (goals). You need to know the time you have to meet those requirements. And, then you should have the broad plan to meet the goals. Once you have the broad picture. Get going.
All the planning will take you nowhere unless you take that first step, no matter how small it is.

d. Keep things Simple and take Small Steps. Small steps always work. Little tiny blows can break down that mountain. And then each step counts. Keep the big picture in mind, but start by taking small steps.

Understand the advantage of Investing Early here.

The Little Rules to successful action To be contd … Part 2.

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…..

March 2010

Costly Investment Mistakes to avoid at all costs-Part II

Costly Investment mistakes Part 2, Investment Planning, Financial Planning, Stocks, Mutual Funds Investing, Life Planning, Goal Oriented Planning.

In the process of investing, one often makes mistakes.

Here are some of the most common investing mistakes which investors generally make and some of which even I had made in the earlier part of my investment years

Of course, learning from the mistakes, continually, the investing experience has truly been rewarding experience. You can alsocultivate good habitsof investing by avoiding the following mistakes.

This series is in continuation to the earlier post which contains the first 3 common mistakes committed by investors. You can read the Part I here. (Costly Investment mistakes to avoid at all costs – Part I)

This post will throw light on the following common mistakes generally committed by investors:

#4. No “Homework” before getting into Investments, and learning costly lessons afterwards: Lack of understanding
Doing what’s right is not the problem. It is knowing what is right.

This mistake is akin to putting the cart before the horse. Adequate homework needs to be done before investing in any financial products (eg: Stocks, Mutual Funds, Real Estate, ULIP’s, Child Insurance Plans, PPF or even FD’s for that matter) .

You should understand the products well, understand the risk-reward ratio, understand the expenses

involved, tax implications, and do not easily buy an investment just because someone wants you to buy it. You need make sure that the investment objective and risk tolerance are compatible with your investment goals.

Even the world’s greatest investor Warren Buffet core philosophyis to not investin business models which hedoes not understand. Obviously, being the world’s most successful investor,there is wisdom in what he says.


#5. Not getting the basic difference between Saving and Investments


Many investors do not understand this basic principle. Getting this right is one of the key principles to wealth generation.

Savingis when you try to build funds for some needs, like maybe purchasing a house or going for overseas vacation. Once the adequate target is achieved, you withdraw the whole amount (Capital engaged + Income generated from the capital involved), and then spend it. Then you have nothing left and the process of investment needs to begin all over again.

For building wealth, the above strategy does not work. This is where the process of investment needs to be understood. (This strategy is similar to preached by worlds famous investors like Benjamin Graham, Phil Fisher, and Warren Buffet etc.)

Investmentis when you try to build funds with the help of assets which in turn also produce income year after year. In this you invest in assets like shares and property. The income generated can be taken out whenever needed or reinvested. However themajor portion of the capital stays put. It stays there to keep growing and compounding which in turn producing more and more income every year.

This process will take a lot of time. It requiressolid discipline and immense patience. However , as the years go by , the additional income stream from investments can supplement your earning potential to a large extent.

To be contd Part III. You can read part III of the series here. Click here for Part III

Costly Investment mistakes to avoid at all costs – Part I

Costly Investment mistakes to avoid at all costs , Investment Planning Tips, Financial Planning, Stocks, Mutual Funds Investing, Life Planning, Goal Oriented Planning.

Life can only be understood backwards; but it must be lived forwards.

In the process of investing, one often makes mistakes. There is nothing wrong in it. However, repeating the same mistakes should be avoided. This is so much easier said then done. Never-the-less, we can always try. So, Here are some of the most common investing mistakes which investors generally make and some of which even I had made in the earlier part of my investment years.

I have been investing since 1997. Earlier part of the investment was when I was in US and then later after moving to India in 2005. I have been investing in both shares and real estate.

Of course, learning from the mistakes, continually, the investing experience has truly been rewarding experience. You can also cultivate good habits of investing by avoiding the following most common mistakes.

So here goes……..

#1. Investing without a Goal

If one does not know to which port he is sailing, no wind is favorable.

Beginning investors often begin by Casual Investing without any goals. This quite often leads to pain and heartburn because, without any goals, investments are treated as speculation instruments solely aimed at making more money in a shorter span of time, by chasing market performance and acting on market swings, something similar to get-rich-quick scheme. (Speculation is a different ball game and of course, many people do succeed at it. However as in Investments, there are different set of rules, full time efforts, and a different mind set and discipline which needs to be followed.).

Different goals require different strategies. Broadly goals can be divided into three types according to time frames.

Long term Goals– typically 7+ years (e.g.: retirement corpus, child education, child marriage etc.) should invest in Long term high risk/high return growth investment assets.

Medium term goal– typically 2 – 7 yrs (e.g.: deposit on house, planning a sabbatical from work etc.)  Require balanced risk investment strategy,

Short term goals– typically less than 2 yrs (e.g.: overseas holiday, purchase of car, any major house improvement expense etc) require conservative investment strategy.

So, Some of the following questions have to worked upon and answered to full satisfaction before setting out for investment: What am I investing for (Goal)? How much do I need for the goal to be met? What is the time frame of the investment going to be? Where do I need to invest? Should I do lump sum investment or Periodic investment? And so on…

Remember, failing to plan is planning to fail

#2. Not Starting to invest Early enough

This is one of the most common mistakes made by investors. Most of us keep waiting for the right time, or the right price, or the right time to begin investing. Remember, Time in the market and not timing the market is the simple way to success in investing. Please read my earlier post on Invest early, Invest Wise, Utilize the power of compounding.

#3. Emotional Investing , being short -sighted, falling to greed and fear, Not following the Investment Plan

A wise man should have money in his head, but not in his heart. –Jonathan Swift

Investing is a long term deliberate process. Long term investment strategy may not make you super rich overnight, but it will not make you a pauper either.

Getting emotionally involved with the portfolio movement is another mistake committed by many. Becoming greedy when markets rise or fearful when markets drop.Paper Money plays on emotions. Investors begin to time the market. Emotional buying and selling of shares based on sentiments often leads to selling low when market sentiments are bearish OR buying high when market sentiments are bullish.

This often results in additional costs, lost opportunities. And of course, if at all the investment was to meet some goals, and then all of that goes for a toss.

To be contd………. Part II. You can read Part II of this series here. (Costly Investment mistakes to avoid at all costs – Part II)