Archives for 2011

“If you spend more than 13 minutes analyzing economic and market forecasts,” the famous investor, Peter Lynch, once remarked, “you’ve wasted 10 minutes.”

I found myself thinking about Lynch over breakfast recently as I was skimming financial headlines in the newspaper.

Lynch was a ‘numbers guy’ who understood the limitations of numbers. And through daily practice, I’m also trying to do that.

By the way, here are some forecasts I read today…
[Read more…] about How Many Minutes Did You Waste Today?

Before the credit crisis struck in 2008, corporate bankruptcy was the last thing on investors’ minds. It was easy for companies to raise cash at will.

However, over the past three years, times have changed considerably. The number of companies announcing downward revisions to their future growth estimates has increased. Those that are seeing rising pressure on their balance sheets can also be found in plenty.

This means that out-of-favour investment measures, such as Edward Altman’s Z scores (or Altman Z-Score), are being dusted down.

What’s Altman Z?
This system was originally devised in 1968 by Edward I. Altman, who was, at the time, an Assistant Professor of Finance at New York University. He framed this score to warn investors about firms at risk of going bankrupt. Over the years, it has also been used to help investors find the companies that are best able to withstand bankruptcy.
[Read more…] about You May Want to ‘Alt-Ctrl-Del’ These Stocks from Your Portfolio

I still remember that period in early 2009 when not a day passed when a listed Indian company did not came out in the open to disclose the pledging of shares by its promoters.

Ultimately, the debate wasn’t centered around which promoter had pledged his shares to raise funds, but rather on who hadn’t disclosed this information to the stock exchanges.

Also, as the count of companies disclosing pledging increased, so did the number of investor queries that I handled.

People got so worried hearing reports of pledging from the promoters of companies whose shares they held, that many sold off their entire holdings just out of fear.

After all, but for a handful of them, virtually every promoter of India Inc.’s leading companies was admitting to pledging shares for many years in the past.
[Read more…] about 10 Dangerous Stocks in a Bad Market

“The market may be bad, but I slept like a baby last night. I woke up every hour and cried.” Thus goes an old stock market joke.

I’m sure this is what most business channel anchors and experts also imply when they ask you, the investor, to hold your nerves while stock prices are falling.

“Use the crash to invest for the long term,” I heard the analyst say in an interview yesterday.

“The Sensex has crashed. Stocks are hitting new lows,” he said. “The overall mood is that of extreme pessimism. Great! This is just the opportunity that long term investors must look out for!”

“Wow! What a smart man he is,” I would’ve said if I didn’t know the real intention behind his positive outlook.

“But isn’t he really smart?” asked my friend Ravi who came to my house because his cable service provider had stopped showing business channels.
[Read more…] about Sensex at 16,000! Great Time to Buy Stocks?

The phrase “nothing succeeds like success” might be a cliché.

But when it comes to demonstrating corporate success, nothing quite succeeds like growth – not revenue growth, but profit growth.

After all, a long-term growth in profit validates the correctness of a business strategy or the robustness of a business model.

While a company can grow its sales by compromising on prices and margins, the real winner is one that works with a consistent focus on profit.

This is simply because profit is what determines how much goes back to the shareholders and how much can be reinvested into the business for faster growth in the future.
[Read more…] about 5 Mid-Size Companies That Prove How Nothing Succeeds Like Growth