- A government which has no clue what is happening. The Finance Minister talks about a 8% growth. The reality is more like a 6.5% growth (well the government says 7.1 with a downward bias)

-The Rupee headed towards 55 if not worse.

-The RBI wondering what to do. It is clearly not responsible for the European Crisis or the coming Chinese hard landing!

-Portfolio investors (especially US $ investors) have been taken to the cleaners, they want the RBI to intervene!

-The government of course has no clue about what is happening. If Subramanyam Swamy has his way, the Home Minister will be inside Tihar too!

-Suddenly growth has vanished, portfolio investors have vanished…and the deficit is heading towards the US $ 15 billion (fiscal first quarter). Overall it will be about US $ 55 billion.

-The government assumed US $ 30 billion of portfolio investment…we are at a figure of -60 million perhaps.

- If the government cannot (or will not) control the deficit, cannot do any of the reforms…it might as well call for polls!

- Indians are happily exploring the possibilities of investing abroad – remember we all can invest upto US $ 200,000. If 100,000 people do it, the Rupee-Dollar rate will get worse..

-RBI has no clue about what to do next. To me it is looking like Alice in Wonderland or like a general physician who keeps doling out a red medicine,and refuses to recommend you to a specialist.

-Into all this gloom you have to keep buying shares – assuming you or your company have not been downsized

Remember what Peter Lynch says?

If you spent 10 minutes in a year wondering what the economy will do (instead of what your portfolio will do) you have already wasted 7 minutes…

so relax…

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I have no clue whether Mark Twain, Warren Buffet, Peter Lynch, Taleb, or anybody else has made this statement…if they have not, here is a original statement from Subramoney. As originals are very rare, please remember you read it here first.

One risk that all of us HAVE to understand is the risk of inflation. So for all those experts who think a portfolio containing public provident fund, national savings certificates, bank deposits are ‘No Risk Portfolio’ please think again.

The youngsters whom I meet have got the following advise….

1. Over the next 3 years nothing good will happen in this country so keep your money in debt.

Vow…why should a 24 year old worry about ’3 years from now’? Beats me. Ok let me stick out my neck. Over the next 3 years (starting Nov 2011) Hdfc Top 200 would have out performed the best FD that is available today (let us say SBI FD – not some risky debentures).

2. You will not incur a loss if you are in a debt portfolio. Correct.

You will NOT RETIRE either. My dad’s dividend income today is HALF the amount that he got as PF for his 37 years of service. If he had not invested his money in equities, he would not have the lifestyle that he enjoys today WITH HIS OWN MONEY staying in his own house.

A kid of 24 today runs the biggest risk of inflation and will not be able to RETIRE AT ALL (leave alone at 60) if he has a portfolio sans equity.

3. Invest in Real Estate – God does not make it any more.

Look at the 30 year figures, put it in excel and then take decisions. Maths and logic should prevail – not parental pressure – just heard of a 25 year old committing to buying a house because she was emotionally blackmailed by her mom to commit to a house.

Mom’s Logic: It is her house – at least it is forcing her to save by paying the EMI…

Like the depression babies of the US, India has the ‘Harshad Mehta’ and ‘Ketan parekh’ babies. These people keep talking of ‘My father lost his 3 lakhs in the market…or some such stories. Take a closer look – it is YOU who is to be blamed.Not the market, not Harshad Mehta, not Ketan Parekh, not SEBI…JUST YOUR LACK OF KNOWLEDGE..of course risk also comes for people who think websites and blogs can replace good advisers. For such people risk comes from reading too – because understanding is not a given, is it?

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http://www.subramoney.com/2011/06/investing-books-the-must-read-types/

Many people keep asking me for a list of books to read – books on investing. I had put together a list and I do keep making some changes in them…so instead of making a list again I have put the link to the same article.

Books are easy to buy – and difficult to read. If you pick up a book, you should know what to expect from that book. In case you do not know, do not read that book!

I know one student of mine who maintains a notebook to summarise the understanding from that book. Some people have the ability to do the whole process mentally. As an accountant, I prefer that you write down what you think of that book. As you get older and wiser books like ‘Random Walk Down Wall Street’ sound so much better. Phillip Fisher may sound outdated to today’s generation, but Ken fisher does owe his early years to his dad!

I do not expect all of you to read all the books mentioned here…but as you get older (compulsory)  and wiser (optional) you realise that market returns is not as much about markets, but more about YOURSELF.

Work, bringing up children, eating food, investing money, exercising….may all look different, but at the base they are all common sense. All the great authors tell you this.

Like Warren Buffet and Peter Lynch say investing is a below 120 IQ activity. Learn to listen to your stomach, as much as your brain.

http://www.subramoney.com/2011/06/investing-books-the-must-read-types/

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Best Investment books to read

Investment books to read

Subramoney’s recommended books to read

Some of the reviews may also be available online – in the personal finance section of myiris.com. Books have been listed completely at random – and I have intended it to look like an index. Keep coming back to this page – will add short summaries or comments on each book from time to time as well as full reviews. One of the links on the blogroll is a quaint friendly neigbourhood book shop – twistntales. The other place where I have bought most of these books is bookzone.com based in Mumbai.

A Random Walk Down Wall Street by Burton Malkiel.

Jeremy Siegel’s Stocks for the Long Run

Commonsense of Finance – Dr. Prasanna Chandra – get the basics of finance and accounts from here so that you understand concepts like P&L, B/ Sheet, write offs, taxation, etc.

Analysis for Financial Management by Robert Higgins.

Accounting Shenanigans – do not try to read it unless you are a CA or well versed with practical accounting..

Why Smart People Make Dumb Money Mistakes by Gary Belsky and Thomas Gilovich.

Parag Parikhs’ book on Behaviourial finance has brought some Indianness to this science! The book is called Stock to Riches.

Roger Lowenstein’s Making of an American Capitalist.

Benjamin Graham’s The Intelligent Investor is a must-read. But it can be kind of painful for today’s kids who do not like to read about bond valuation. However, if you realise that bond valuation is the basis from which equity valuation evolves, you will appreciate this book better!

Phil Fisher – Common Stocks and Uncommon Profits

Speaking of Phil Fisher leads us to Ken Fisher – and his book “The Only 3 questions you need to know” is also an excellent book to read, and as useful as his father’s book. It clears a lot of cobwebs – turning the PE ratio is a useful example!

Peter Lynch’s Beating the Street is the journal of a successful money manager, who is also a good communicator. CIOs should do their job well and also be able to communicate their skills and strategies. 

You Can Be a Stock Market Genius by Joel Greenblatt –it’s relatively short, full of case studies, and engagingly written.

John Train’s Money Masters of Our Time and The New Money Masters

Reminiscences of a Stock Operator – Edwin Lefevre. Reads like a pot boiler!

Seth Klarman’s Margin of Safety.

Marty Whitman’s The Aggressive Conservative Investor- I personally found this a difficult read!

David Dreman’s Contrarian Investment Strategies.

Munger’s biography–Damn Right! by Janet Lowe. Personally found this difficult to read.

John Kenneth Galbraith’s A Short History of Financial Euphoria.

Devil Take the Hindmost by Edward Chancellor is a fantastic and in-depth history of manias through the ages.

Ron Chernow’s The House of Morgan

Peter Bernstein’s 2 books – Capital Ideas & Against the Gods

The Money Game – Adam Smith

Michael Lewis’s 2 books: Liar’s Poker and Moneyball. Liked Liar’s Poker.

Roger Lowenstein’s When Genius Failed, which chronicles the rise and fall of the Long-Term Capital Management hedge fund in the late 1990s.

Bethany McLean’s The Smartest Guys in the Room,

Kurt Eichenwald’s Conspiracy of Fools

Robert Cialdini’s Influence – good book on human behavior.

Fooled by Randomness, by Nassim Taleb, is more directly about finance, and is thought-provoking. Taleb explores how easily we confuse luck with skill, and the importance of knowing which is which. He has followed this with Black Swan. Frankly if you are planning to read, or have read Black Swan, his earlier book Fooled by Randomness becomes unnecessary.

Bruce Greenwald’s Value Investing

Michael Porter’s Competitive Strategy. Tough to read, reads like a typical textbook, but is useful if you are doing interviews of CEOs and CMOs of the world.

The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk – by William J Bernstein

Asset Allocation: Balancing Financial Risk by Roger C Gibson

Rich Dad Poor Dad – Robert Kiyasaki

Market Wizards – Jack D Schwager

The Warren Buffet Portfolio – Robert Hagstorm

Future for Investors – Jeremy Siegel

Common Sense on Mutual Funds – John Bogle

New Perspectives for the Intelligent Investor – John Bogle

The Art of Short Selling – Kathryn F Staley (never used the short strategy personally, caveat)

Barbarians at the Gate – Bryan Burrough and John Helyar

Beating the Dow – Michael O’Higgins and John Downes

Buffet – the Making of an American Capitalist – Roger Lowenstein

Extraordinary Popular Delusions and the Madness of Crowds – Charles Mackay

45 years in Wall street – WD Gann

Great crash of 1929 – J K Galbraith

How to lie with statistics – Darrell Huff

John Maynard Keynes (Volumes 1 and 2): Robert Skidelsky

Soros on Soros – George Soros with Byron Wien and Krisztina Koenen

Technical Analysis of Stock Trends – Robert D Edwards and John Magee

Think like a Tycoon – W G Hill

Where are the Customer’s Yachts – Fred Schwed Jr.

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There is of course a lot of justification to own shares like Gillette, Colgate, Hindustan Unilever, ITC, Cadbury, Kodak, etc. (Alas! Cadbury and Kodak are not available in India any longer – once upon a time you could have bought it.

The logic for this suggestion is – should you buy things which disappear or something that grows and feeds you? So if a Mahindra Holiday Resorts salesman convinces you to buy the Holiday scheme and you do buy it, Congrats.

Spare some money to buy Mahindra Holiday Resorts shares also! The holiday is an expense (which will vanish) and the equity shares are an investment. However at the current price of Rs. 520, I think it is more than fairly valued – please decide at what price YOU are willing to buy.

PS: I personally do not hold Mahindra Holiday Resorts but the share is present in my father and wife’s portfolios. Bought at various prices, sold, bought again, etc.

Here is a similar thought from -

http://www.fool.com/retirement/general/2010/04/30/buy-the-stock-not-the-product.aspx

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Here is a complete and full list of books that I like my students to read. Extremely long, and randomly written i hope to write reviews on all these books and it should be available soon. Some of these book reviews have already appeared in the In house magazine of BSE called Sensex. Some of the reviews may also be available online – in the personal finance section of myiris.com. The ones in Bold can be for starters…

Books have been listed completely at random – and I have intended it to look like an index. Keep coming back to this page – will add short summaries or comments on each book from time to time as well as full reviews. One of the links on the blogroll is a quaint friendly neighborhood book shop – twistntales. The other place where I have bought most of these books is Bookzone based in Mumbai. This is a random list, not alphabetically arranged, not logically arranged, not arranged that is all.

A Random Walk Down Wall Street by Burton Malkiel.

Jeremy Siegel’s Stocks for the Long Run

Finance Sense – Dr. Prasanna Chandra – get the basics of finance and accounts from here so that you understand concepts like P&L, B/ Sheet, write offs, taxation, etc.

Analysis for Financial Management by Robert Higgins.

Accounting Shenanigans – do not remember the author’s name.

Why Smart People Make Dumb Money Mistakes by Gary Belsky and Thomas Gilovich.

Parag Parikhs’ book on Behaviourial finance has brought some Indianness to this science! The book is called Stock to Riches.

Roger Lowenstein’s Making of an American Capitalist.

Benjamin Graham’s The Intelligent Investor is a must-read. But it can be kind of painful for today’s kids who do not like to read such big books or those who do not understand bond valuation. However, if you realize that bond valuation is the basis from which equity valuation evolves, you will appreciate this book better!

Phil Fisher – Common Stocks and Uncommon Profits

Speaking of Phil Fisher leads us to Ken Fisher – and his latest book “The Only 3 questions you need to know” is also an excellent book to read, and as useful as his father’s book. It clears a lot of cobwebs – turning the PE ratio is a useful example! Updating – he has written a book on “Smelling a rat” – and it is kind of a warning about what to look for in an investment proposal.

Peter Lynch’s Beating the Street is the journal of a successful money manager, who is also a good communicator. CIOs should do their job well and also be able to communicate their skills and strategies. The Indian examples of course are Mr. Nilesh Shah of Icici Prudential and Mr. Nagnath of DSP blackrock.

You Can Be a Stock Market Genius by Joel Greenblatt –it’s relatively short, full of case studies, and engagingly written.

John Train’s Money Masters of Our Time and The New Money Masters. The ‘The New Money Masters’ is not easily available, so you will have to search.

Reminiscences of a Stock Operator – Edwin Lefevre. Reads like a pot boiler!

Seth Klarman’s Margin of Safety.

Marty Whitman’s The Aggressive Conservative Investor- I personally found this a difficult and not engaging enough to read!

David Dreman’s Contrarian Investment Strategies.

Munger’s biography–Damn Right! by Janet Lowe.

John Kenneth Galbraith’s A Short History of Financial Euphoria.

Devil Take the Hindmost by Edward Chancellor is a fantastic and in-depth history of manias through the ages.

Ron Chernow’s The House of Morgan

Peter Bernstein’s 2 books – Capital Ideas & Against the Gods

The Money Game – Adam Smith

Michael Lewis’s 2 books: Liar’s Poker and Moneyball. His note on the financial markets which appeared in WSJ is also a good read – runs to about 9 pages and is well written.

Roger Lowenstein’s When Genius Failed, which chronicles the rise and fall of the Long-Term Capital Management hedge fund in the late 1990s.

Bethany McLean’s The Smartest Guys in the Room,

Kurt Eichenwald’s Conspiracy of Fools

Robert Cialdini’s ‘Influence’ and ‘Fooled by Randomness’, by Nassim Taleb, is more directly about finance, and is thought-provoking. Taleb explores how easily we confuse luck with skill, and the importance of knowing which is which. He has followed this with Black Swan. Frankly if you are planning to read, or have read Black Swan, his earlier book Fooled by Randomness becomes unnecessary.

Bruce Greenwald’s Value Investing

Michael Porter’s Competitive Strategy.

The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk – by William J Bernstein

Asset Allocation: Balancing Financial Risk by Roger C Gibson

Rich Dad Poor Dad – Robert Kiyasaki

Market Wizards and its sequel – Jack D Schwager is a brilliantly written book on the top traders in the world.

A similar book is ‘Investment strategies ’ by Mercer. This is a well written book and not easily available or recommended.

The Warren Buffet Portfolio – Robert Hagstorm

Future for Investors – Jeremy Siegel

Common Sense on Mutual Funds – John Bogle

New Perspectives for the Intelligent Investor – John Bogle

Enough – John Bogle, but I did not like this book as much as I liked his earlier 2 books which I have re-read many times.

The Art of Short Selling – Kathryn F Staley

Barbarians at the Gate – Bryan Burrough and John Helyar

Beating the Dow – Michael O’Higgins and John Downes

Buffet – the Making of an American Capitalist – Roger Lowenstein

Extraordinary Popular Delusions and the Madness of Crowds – Charles Mackay

45 years in Wall street – WD Gann

Great crash of 1929 – J K Galbraith

How to lie with statistics – Darrell Huff (not available anywhere)

John Maynard Keynes (Volumes 1 and 2): Robert Skidelsky

Soros on Soros – George Soros with Byron Wien and Krisztina Koenen

Technical Analysis of Stock Trends – Robert D Edwards and John Magee

Think like a Tycoon – W G Hill (difficult to find)

Where are the Customer’s Yachts – Fred Schwed Jr.

‘Freakonomics’ and  ‘Superfreakonomics’ – especially for the way they have approached the dismal science.

‘Your Brain and your Money’ – do not remember the author. Recently re read the book.

this post is actually available in my older blog also…but just re-posting an updated version of the same thing..plus a few additions!

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Do you know what a rating does? It rates past performance – very unlike a credit rating, which to some extent at least is forward looking.

However when I recently ran a screen on the best mutual funds over the past few years, I found something interesting. The fund returns (on an annualized basis) was 33.07%, 31.30%, 30.79%, 30.42%, and 29.66%.

Frankly what I am trying to say is you should not believe that old adage “Winner takes all”. Actually winner does not take all. In the long run whether you were in the fund which gave 33.07% or 31.30% for a period of 3 years, the overall money that you made would not have changed much. Also next quarter if both these funds gave (say) a return of 3% and 6% respectively the over all return figure may still be favoring the fund which got 33.07% over a longer period (!). What matters is what is the return over a 20-30-40 year period – on your total portfolio.Not just in one scheme. If you have 20% in equities and 80% in debt earning 8%, the total return on your portfolio will not reach double digits at ALL!

Let us take a poorly performing fund like Franklin India Prima fund would have given a return of 9% p.a. in its growth plan over a 4-5 year period. Though this number per se is a decent number, on a comparative basis it is lousy. However it is still better than a debt fund – how should you look at such a fund is your call, not the rating companies. You need to answer to your own head what is risk, how you want to look at it and how to deal with it. Do not try to create a portfolio for 30 years by listening to somebody for 30 seconds. It is not so simple. Know what to take and what to ignore when you are watching a program. IN economics / statistics this is called identifying the ‘noise’ in the data…

Thus those of you (or us) who keep shuffling funds or schemes should realize that sitting tight without worrying about returns over 1-3 quarters might be far, far better off than those who keep churning. Elsewhere I have called it a “rating trap” – which is helping on the rating company!

If you do like this post, thanks. However this thought is not original. Warren Buffet (frankly other than creating quotes what does he do in life, I do not know – somebody told me he is a businessman ) says “Todays’ investor does not get paid for yesterday’s performance”. Even Mr. Peter Lynch says “Do not look at the rear view mirror and drive”.

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Many people know that Hanuman is the Guru according to Hindu mythology (for the very philosophically minded, Hanuman caused the Atma (Sita) to join the Parmatma (Ram) – and that is the essence of Ramayana. So you need a Guru to teach you from the learnings of all the great people mentioned above. However is that enough?

Many people know – and many others may not know – that Parvati (Uma) is the Hindu Goddess of Wisdom. Wisdom is about doing what you know. This is the crucial link. Training, Learning is all fine – but for it to translate into action, you need wisdom. That is the crux.

So knowing that compounding creates wealth, living a simple life gives peace, tobacco free, alcohol free, stress free living gives peace is not enough.

Seeking a simple life, doing a simple sip (and sitting tight during turbulent times), having a term insurance, one credit card, IS ABOUT DOING all that you know. That will give you nirvana. So as Nike says, Just Do it.

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Welcome the Bear Markets!

Although we saw a furious short-term rally last fortnight, we have entered into official bear markets territory as of early this month. (In the US bear markets are defined as a drop of 20% or more from a previous high.)

This is a good thing. Smart and Legendary investors understand this. Ordinary investors don’t.

If you haven’t spent much time buying stocks getting excited about a bear market doesn’t just sound counter-intuitive, it sounds nuts. After all, how can you feel appreciative watching the value of your life-savings grind lower? Life was so much fun when you were buying at 19000 and the index went to 21000 was it not?

However, if you are an investor, think a few months ahead. Or even years ahead. Think of Viswanathan Anand as you financial advisor! The kind of returns that you can get after a 30% fall in the market is phenomenal. Do not trust me. Ask your investor about a paper made by Mr. Prashant Jain of Hdfc mutual fund. That document is available on the Hdfc mutual fund site and in the inbox of your advisor. Since I was not sure about copyright issues, I did not reproduce it here.

Every stock investor knows that you’re supposed to buy low and sell high. Bull markets give you a chance to sell high. Bear markets give you a chance to buy low. So if you are 22 years of age and are planning to buy stocks for the next 45 years, you need more bear markets than bull markets J .

If you want to prosper during the next bull market – the one that will propel the averages to new highs in the years ahead – MAYBE now is your chance to pick up some bargains. This is not to suggest that the markets have finished their fall. Maybe they will fall further, but hey investors – Don’t Let Bear Markets Scare You

Unfortunately, too many investors are lulled into complacency during bull markets and scared out of their wits in bear markets. So they do just the opposite, buying high and selling low. In fact a friend calls it a family hobby – buying high and selling low!

Yes, the market has fallen sharply over the past eight months – Jan to Aug ‘08. And it may fall further in the weeks ahead. Still, this is an enormous opportunity for long-term investors. Too bad most of them don’t see it that way.

We give too much credit to the guys with white skin – and that is stupid. Indian banks have not leveraged 1: 30 times like a Bear Sterns had done. Or like Lehman brothers or like Citibank. Reddy of RBI has not put 91 Indian institutions on “watch”. However, we have beaten down our companies by a similar margin as the American companies!

Read Dr. Jeremy Siegel, author of “Stocks for the Long Run, Read John Templeton, ….see how Warren Buffet and Peter Lynch have celebrated bear markets.

• Remember 30% falls can be followed by 30% gains! However it can fall for some more time before it rises.
• Take any rolling 7-year period over the last 30 years, and stocks have outperformed bonds.
• Take any 10-year rolling period and shares have given a positive return even adjusted for inflation.

Bear in mind, no one when can tell you when the next bull market will begin, how long it will last, or how high the market will ultimately go.

At Berkshire Hathaway’s annual meeting in May, Warren Buffett said “I would offer you a significant sum of money if you could give me the opportunity for all of my stocks to go down 50% over the next month.” Why? He knows he owns great businesses. He would like to own them even cheaper.

During bull markets you hear “buy, they do not make stocks anymore” and in bear markets they tell you “sell, or at some time there will be no buyers”. Both are wrong. Completely wrong. Markets go up and go down. Do an SIP. That makes sense. Do it now. It makes more sense.

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In fund management too you can copy and the advantage is your money in the bank, is yours.

Your money does not tell you “Oh, so you copied Peter Lynch or Warren or Prashant Jain or a Vallabh Bhansali” – and that is a huge advantage. And since we are comfortable with this concept let us look at what we can learn from Warren Buffet – after all if you are copying, you might as well copy from the greatest business manager. Warren Buffet.

Think 10 years, rather than 10 minutes.

Not too many brokers who read this will like this post. Warren Buffet, luckily, is a business manager and not a fund manager. In case he were a fund manager he would be worried about soft dollar commissions, asset management expenses, etc. There would also be a brokerage firm breathing down his neck to transact!

Clearly when he says think 10 years, the main thing that he is saying is “Create wealth for yourself, not for your broker”.

So be an investor and have patience. Thanks to compounding, success will follow!

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