Here are some more investing common sense…it is not as though I have not said it earlier…but just a year end reminder.

1.┬áMore than 90% of Warren Buffet’s returns can be explained using Compound Interest, Patience, and Time. More importantly 99% of his current wealth has been created after he reached 50 years of age. Learn compounding and patience. Nothing else matters if you want wealth.

2. Transaction costs, management fees, etc. are a reality of investing. So a fixed fee is better than a variable fee. Paying fee is fine, but you need to decide what works for you.

3. More data you have, generally you are more confident about your prediction. Accuracy is not necessarily connected to volume of data.

4. Watching the ticker channels is voluntary. Using that noise is even more voluntary. Remember they have to sound smart and YOU have to make money. Divergence of requirements.

5. I have seen the personal portfolios of many brokers – very very few have the patience EVEN in their personal portfolios. Clearly what you do full time spills into your portfolio. To build a portfolio, you need to be away from the trading terminal.

6. Trading is good for your broker and banker – they both make money on volatility. You make money on patience.

7. Talk to people who have a dramatically divergent view. Come away angry, but at least you have a different point of view. Much better than talking to your fans / friends / reportees who do not wish to offend you. They are normally boring too. And they hurt your portfolios. Those who challenge you are the guys adding value to your portfolio.

8. Management does not always know what it wants. Bear Sterns, had a constant fight with the Fed for more leverage. So did Lehman, so did Merrill Lynch. All of them were destroyed by leverage. If you are leveraged, it is worth seeing what these financial geniuses did to themselves. Nothing amusing.

9. A good company with good management bought at a wrong price can hurt for long periods of time.

10. One very big Indian company with a fantastic reputation these days reeks of corruption. By the time YOU know about it, its pe would have come down 50%. Your portfolio could hurt by the fact that you are late to act. Acting too soon can also hurt. Ha!! Investing is not easy, is it?

11. Investing in equities is not fun, not easy, it is very boring, ….but hey for me it has been profitable. Please choose your own poison.

12. The REAL RETURN in a GoI Bond of 30 years, by definition, is NEGATIVE. In equities it is in the range of 19% including dividends reinvestments. Tell me which is riskier?

 

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  1. You have at least on 2 occasions mentioned about this top company caught into corruption. Is there any way for us mere mortals to find out? Do the MFs or Brokerage houses know?

  2. Sir, Please let us know whethere point no. 9 is applicable to companies like Gillete, Nestle, HUL, Colgate and Asian Paints?

  3. Dear Sir, In your blog, you have quoted, ‘all of them destroyed
    By leverage’….what is leverage…what it means
    In financial world…I am ignorant….Pls enlighten me
    Thanks

  4. yes Ramesh I agree…Nominal..8% and 19% are comparable…assuming inflation of 9% you are talking of -1% and 10% for bonds and equities respectively….

  5. yes, yes, yes, yes, yes Swapnil..if u had recently bought Colgate for say 2100…question is when will you get a ‘decent’ return of say 12% p.a.

  6. I have been investing in mutual funds by SIP since December 2007 . I have noticed that mutual funds rarely offer SIP beyond 20 years.
    Is it due to the fact that few people would carry on investing in a single mutual fund by SIP for such a long period? Or
    Is it because a particular mutual fund would be unable to beat the index or sustain performance for more than 20 years? Or
    Is it due to the fact that the magic of the power of compounding usually begins to work after 20 to 25 years and the payouts of the mutual funds increase substantially? (They double every five years after 20 years at a rate of 15% !!)

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