When these results are announced, people’s worst expectation WOULD BE OVER – so the market will start moving UP, not DOWN.

This is not a guess or wishful thinking, nor am I saying this is etched in stone! There are a few shares that I have short listed to buy – and my target is an ambitious 12-14% p.a. over the next 5 years. Which means the share bought for X today should be 2X in 5 years – or 6 years, and assume say 2-3%p.a. yield of dividends. I just bought some shares in the past 2-3 days (these shares are already in my portfolio, so it is not really any fresh investing, at least intellectually!).

2 of these shares flared up a little ahead of the results – Cholamandalam and Cummins – and the returns already got in a week is stunning – but that was sheer luck.

I think instead of concentrating on the index, if you keep looking at battered sectors, good looking companies, neglected sectors, etc. there are some good deals there in the market. Keep you head on your shoulder, expectations low, do good quality research – even the basics – and then you could find them. However if you do not wish to do the ‘effort’ part, just put your money with a good fund manager (to whom the CEO listens!!) and bet on the country’s future!

Too lazy to do that also? There is always an index fund!!

Remember in 2011, the Index beat Warren Buffet also.

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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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Warren Buffet is a great investor, and a great CEO for Berkshire Hathaway. He regularly makes very profound investment statements regarding the investment world…and the other managers. One of the statements attributed to WB is:

‘When all you have is a hammer, the world looks like a nail‘.

This is easy to interpret. Take the case of a typical Relationship Manager working in a bank or a brokerage outfit. His bonus/ commission is decided by the amount of premium he collects in UNIT LINKED INSURANCE/PENSION PRODUCTS. Obviously these products are very profitable for the manufacturer and hence get a good commission. So the salesman thinks all the people he meets need and can afford an expensive unit linked product. Obviously the higher the charges, the greater the commission for the salesman and the organisation which he represents.

Now look at Mr. Warren Buffet’s investments – they are largely in the USA. Of course he says all his investments are in USA – but it could be companies which are present in a big way in India / China – and their growth could be coming from there. Look at Gillette, Coke, etc.

Look at the way he attacks Standard & Poor – whenever they take a decision – he said USA should deserve AAAA, not just a AAA. Fairly obviously if all your money is in USA, you want the higher ranking.

Look at the way he attacks gold – an investor in just gold over the past 10 years has beaten Berkshire Hathway. Of course I am not suggesting anybody to buy gold – just giving you an example. My views of gold are Buffet like too!

WB criticising Moody is completely unheard off! – Remember he has a stake in Moodys, but not in Standard & Poor.

It is not easy to understand what WB says and what he does, so one has to be careful. He is normally very critical of high salaries of fund managers – and the financial industry in general. However he has invested in the past in Goldman Sachs and Bank of America!

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Amazing what lack of training can do.

One small tranche of US $ 400 million borrowing has been downgraded by Moodys (which can do no wrong, because Warren Buffet is a shareholder) to D. However, rest assured this is surely a cheap publicity stunt – it will take SBI about 10 minutes to raise this kind of amount from the Indian public at 10% p.a interest rate….

However our great media has gone to town saying ..why FIIs will sell SBI (or have already sold) ..and SBI shares will go down etc. In fact there is always such a over reaction that more US $ 400 Million has been taken out of the market capitalisation of SBI.

What should you do if you are the shareholder of SBI with a longterm view?

Simple, switch channels.

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1. I will invest in education much before I invest in the markets: Nothing to beat the classics like Random Walk down Wall street, Warren Buffet (pre 2000 he spoke more sense, but still he is a fountainhead, make no mistake), John Templeton, Ken Fisher, – see the ‘must read books’ – appearing somewhere on this blog.

2. Market patterns are difficult, almost impossible to predict: this is a pattern finding part of our brain (fully exploited by the media) which makes us think we can find patterns. The earlier you learn that you cannot, the better it is for you.

3. Trading, is NOT Investing. Trading is not Investing. Please repeat this a zillion times every day. This is Surya Namaskar No. 13.: Hold your ears and put your face between your knees, while keeping your back straight. If you still do a trade which you do not know is a trading transaction or investment transaction, repeat this asana 20 times. Next mistake 400 times. Power of compounding! Once you do this asana 400 times, you will not repeat this mistake. Hopefully.

4. Start today and do a SIP in an index fund: for starting to invest you do not wait for your education to be over, start TODAY….do a SIP..when you finish your education, you can invest in other places! Remember there are many people in the market. Beating all of them is a stupid target. If you can allocate assets intelligently, you may have won the game already!

5. Invest in rock solid business ideas which have worked. A new idea is for Rakesh Jhunjhunwala, Vallabh Bhansali and Uday Kotak to invest in. You are well off investing in Grasim, Hdfc, Sbi, Colgate, TCS, ITC – what has ALREADY worked. If you understand a business, see how it works, understand it and then decide. Like Warren Buffet says ‘create your competency circle’ . Everybody cannot know everything.

6. Focus on your investing – unless it is the index. If it is the index you can chill.

7. Long term is ONE BUSINESS CYCLE – which means FIVE YEARS PLUS. Not one year like the media keeps saying! Media may not know the Capital Market definition of long term and the Income Tax definition of Long Term.

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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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He runs a big, huge 800-pound gorilla of an insurance company, where people like Mr. Jain can buy an risk -at the appropriate premium. In fact Mr. Buffet can buy a small stake in a company, can buy more stake, can merge it with Berkshire Hathway – things which a normal fund manager cannot even think of doing.

Berkshire Hathway is a fantastic company with a great 28 year track record. However over the past 2-3 years it has underperformed the index. Yes you read right, it has underperformed the index. How come it is not there in the index – well it is not traded enough, so perhaps the impact cost could be an issue.

So in my finance class if I ask you to name a great fund manager, you will get a zero if you said “Warren Buffet”. However if I asked you to name a great businessman, a great philanthropist, or a great business communicator and you said “WB” you would get a 10/10.

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Let me explain. Rakesh Jhunjhuwala and Vallabh Bhansali are the more famous names so I am naming them. Both are Chartered Accountants – Vallabh a rank holder at that. Both put in hours of hard work on company balance sheets at the start of their career. It is not just the hard work, but also the talent to understand numbers. Their success was not attained by sudden flight, but they while their competitors slept, where poring over the numbers. You could add Ramdeo Agarwal to that list. Of course there are many others.

Sure they have their own methods. One may only go long. One may not leverage. One may trade and do a disciplined leveraging. The METHODS do not matter UNLESS you can FULLY understand this (i have been screaming about UNDERSTANDING BUFFET, NOT just reading Buffet).

However people who only see the success of these people (or even a Sachin Tendulkar, Rahul Dravid, Aamir Khan or Vishwanathan Anand for that matter) should realise that reading a little bit about ‘Technical Analysis’, or ‘Fundamental Analysis’ , subscribing to a few websites (even the brilliant ones like www.motleyfool.com, www.wsj.com, www.investopedia.com is JUST A BEGINNING. Or the more relevant Indian ones like www.myiris.com, www.valueresearchonline.com, www.moneycontrol.com, www.moneylife.in,….you still need to be at a particular level to understand what they are saying.

Websites are here to inform, lead you to better sources, get you in touch with sensible people, BUT CANNOT BE A SUBSTITUTE for research. When we did equity research (2 reports were for one of the Gods mentioned above!) – the detailing was great. The discipline and detailing that we did for a Singapore based VC would put the CBI and FBI to shame. To me this was all learning – and humbling experience. The CA degree helped in learning things faster that is all.

So just because you have stumbled on a website whose owner knows 179 words about Fundamental Analysis (or Technical analysis, Asset allocation, retirement withdrawal techniques, or what have you) do not think you have reached the destination. You have perhaps started on your journey. And there are miles to go.

Getting rich is easy (a booming economy with a 9% growth where every donkey gets a horse’s job ensures that). Making that step to getting Wealthy is the challenge. Surely you know the difference between being Rich and Wealthy

I like to say Amuse, Excite, Entertain, Horrify,  - and perhaps Educate is what this blog can do. If I think that there are blogs which can do more than this, sorry I have not found them.

Even though there are books (Saraswati), we need teachers (Guru – Hanuman) who will ensure that we DO what we know (Wisdom does not come from libraries, you need the blessings of Uma the Goddess of Wisdom).

So do not confuse a map with the destination!

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Here are some lessons which I wish somebody gives to all graduates. It does not matter whether you are a CA, MBA, a doctor, Engineer or a plain graduate. These lessons are the basics of finance which is nice to know and MUST to implement. Let us enumerate them:

1. Avoid credit cards: Well Warren Buffet (forget his recent behavior, he is still a genius) says this is the most important lesson which a college graduate should know. If you understand compounding you will realize what 3.25% p.m (compounded monthly) can do to your portfolio. If somebody was paying you that on your deposit you would be a millionaire several times over!

2. Learn self -control: What ever you need today see if you can count to 25. If you can hold on to a desire for 25 days and then buy a lot of harsh, impulse purchases can be avoided. Of course if your parents taught you self control that is great!

3. Take to some sport: Company deadlines are all fine..but do not miss out on the fun, it is not worth it. Continue playing with the kids of your building – they will provide more energy than your friends. The energy of a 14 year old is higher than the energy of a 24 year old! Playing some ad-hoc sport and some organized sport both have their advantages.

4. Take charge of your personal finance: Let not your parents, elder brother or even worse a financial adviser not tell you ‘It is too complicated for you to understand’. Get the books to read, understand, and be responsible for your financial welfare.

5. Share the Economic responsibility with your parents: It means learning how to run the house within a budget. Learn if you do not already know how to do it and your parents have not taught it to you.

6. Learn compounding – it will inspire you to invest for the longer term. In the year 2065 or in the year 2070 YOU TOO WILL RETIRE! Start preparing for it. Sign up for a nice equity mutual fund with a clear large cap mandate. Do not buy a pension plan from a life insurance company.

7. Create an Emergency fund: ‘Just in case’ if something goes wrong – an accident, loss of job, replacing a laptop – you do not know from where the emergency could come. So be prepared for it. Of course it you are staying with your parent and he has an emergency fund …you may be better off, but still it is better to create a fund for your own self.

8. Take trouble to understand your C T C (cost to the company) – and your monthly statement. See if you need to make investments to save tax. If the answer is yes start NOW. Today, not tomorrow.

9. Treat your employment as a business: Your boss pays you a salary out of the profits that you make for him (i.e. the income you earned for him MINUS the expenses that you incurred – including salary paid to YOU) adjusted for the risk that he takes. If you brought no revenue learn to be happy with what you are getting.

10. Look after your health: Do everything in moderation – eating, freaking out, drinking, scullying, having fun. All these have their place under the sun, but your health cannot be ignored. Damage done now will haunt you for life. Be careful and take care.

11. Look after your wealth (and your parent’s wealth): If your parents / siblings depend on your income (or even if they do not) see whether you need medical, auto, life insurance – it is important to protect your wealth.

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Warren Buffet made most of his money by staying and investing in the USA. Late John Templeton made most of his money by betting on markets world wide. He was in Asia, he was in commodity stocks..all over the place.

Which strategy works? And the fact that a strategy has worked well from 1977 to 2007 it does not mean it will work from 2007 to 2037.

If you read what John Templeton says, you will believe that you need to create a diversified portfolio – a little of Japanese stocks, lots of American, some emerging markets, etc. in equity alone. Apart from this some debt – short term, long term, etc.

Warren Buffet on the other hand says you should concentrate your portfolio if you wish to create wealth.

Whom should you listen to?

Both!

You should have a concentrated portfolio – which means in the Indian context, if you have a Rs. 25L portfolio you may not need more than 6 companies. However, once you have created some wealth, you need to protect a portion of it from the vagaries of the market.

Let us take an example. In case you had invested Rs. 10,000 in Wipro in the year 1980, today it would be worth Rs. 350 crores (assuming you consumed all the dividends). However, at various stages you would have sold some part of your wipro shares to invest in other companies too – now if WIPRO had not done well, but some other company in which you invested (say Silverline) had done well, you would have looked smart (but actually you were lucky, simply, lucky).

However if you are still holding on to ALL the shares of WIPRO, it makes sense for you to sell a portion of WIPRO and invest in a simple index fund, some real estate, some rbi bonds, etc.

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