Not sure how many of you have heard about the book ‘Investment Fables’ – it is a book by Damodaran, and an easy read for the layman. It is not a typical alpha, beta kind of valuation book.

This title may not be exactly appropriate, but it is actually a response to many many mails and responses that I receive. Most of these mails say…”You said so…but this is NOT true”. Let us look at some Investment axioms / myths / beliefs:

1. Over long periods of time equity gives good returns :

a. Subra, over last 10 years (this is long enough, of course!!) I have got only 8%p.a. return – I could have got similar returns in FD WITHOUT THE RISK.

b. I bought Silverline, Shaan Interwell, Indiana Dairy – in the 1990s, am still holding it, inspite of holding for such a long time, I am not making money.

c. I am holding HUL for a long time and do not think it is giving any sensible returns.

d. My father bought shares in 1991 – and he is still holding Mazda Industries, Patheja Forging, etc….these are no quotes for them.

Not sure what answers I should give this person…any ideas?

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  1. Good/Great companies’ held over a long time do give great returns.
    There are no tricks in identifying such companies, it is hard work and a lot of common sense (which is really not so common), done without getting your emotions in the way. (It also involves a bit of luck !) Not many are adept at it, so it is best for ordinary investors (and MOST are ordinary) to stay away from direct investments in equity.
    Even after careful calculations, sometimes you end up with dud companies (like that are mentioned), you have to take the losses, learn the lesson, and CONTINUE your research and investing.

  2. Shriniwas None of these companies looked like a dud when a person invested. I know of a few terribly managed companies and most readers will be shocked if I name them. The skill lies in diligence to desert the ship at the first sign of trouble. Also knowing whether to panic when there is a short term problem. For example I am happy to have shifted from Infy to Tcs – about 2-3 years ago. Not that Infy is a bad company, but the signals were/ are visible. Not a great IT fan, so it may not matter much. Also not a fan of financial service industry (that you must have seen) – so have only 2-3 shares of that industry. Similarly re rating a big group in which I have been a keen investor for 20 years plus…:-)

    For a retail investor to beat the index is not easy. Not easy at all. However I know a few people who do that. However not sure how many of the readers are even MEASURING own performance vs Index.

  3. superficially i noted that the best performed sector during last 4-5 yrs is FMCG but few of diversified mfs have had FMCG as the highest asset allocation during the time. contrary most have financial services as the highest allocation. really common sense is not that common!

  4. Quarterly results, speaking to employees, vendors (culturally u know a co. is bad when they pay a stationery supplier after 6 months, because he is a bakra), but the bigger vendors, the paanwala outside the factory,…sources of info – the LAST and least reliable is the media.

    media says what the mgt wants u to hear. A vendor speaks the truth. For e.g. a vendor said ‘I will not deal with a particular company because they steal my ideas’…I had just heard it casually. When another friend was doing a multi million rupee deal, i got the vendor and investor to meet. THE INV DID NOT HAPPEN.

    info can come from all over..u need to connect right. From chairman to chairman’s driver..nobody is insignificant in the info chain. Ability to process, and connect is a skill, though…

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