Archives for 2012

Education and Investing

Some people are educated. Some are smart. Some are both.

Some educated people are blockheads. Some uneducated people are geniuses.

Put the sophisticated, smart fund manager in the role of a chief financial officer of a company, and see who the intelligent one is – him or the relatively ‘less educated’ CFO who has been managing the ‘real’ business challenges for years.

Some people understand the theory of everything but can’t deal with the reality of anything.

Like an arm-chair financial analyst would continuously blame an automobile company for not managing its cost well, but does not understand a bit what problems that company faces in dealing with its vendors.

So you have some people who are academically capable but practically incompetent!

How to Invest after Sensex Rises 20%

“Bull markets go to people’s heads. If you’re a duck on a pond, and it’s rising due to a downpour, you start going up in the world. But you think it’s you, not the pond.” ~ Charlie Munger

“I’m loving it!” said my friend as he entered my home for a family dinner.

“Why, did you just eat a McDonald’s burger or what?” I asked.

“What a poor joke, man!” he said while switching the channel from Star Cricket to CNBC. “Haven’t you seen how the Sensex is rising these days?”

“I don’t keep a track of the Sensex, you see!”

“It’s sad! Then you’ve missed a great rise in stock prices,” he said as if he was mocking me for not watching CNBC.

I Don’t Want Money. What about You?

I Don't Want Money “Who is rich? He that is content. Who is that? Nobody.” ~ Benjamin Franklin

I was reading The Money Game by Adam Smith last night, so thought about sharing some random thoughts on a too-close-for-my-comfort subject of ‘money’.

“It’s simply outrageous!” you might think on reading today’s headline. “Who doesn’t want money?”

Well, this is indeed a very normal way of thinking (Who doesn’t want money?). But you see, what’s normal isn’t always rational.

How to Know if Your Company is the Next Kingfisher Airlines?

Image Source: Economictimes.com

Succeeding in our professional and personal lives requires tremendous confidence.

Our natural desire to be highly confident, however, leaves us at risk of becoming overconfident, which may be the biggest error of judgment that we make.

It is when false confidence drives overconfidence that we become susceptible to hubris.

Such hubris is commonly seen across people in power – like corporate CEOs or Chairmen.

In fact, according to researchers, the most reliable indicator of financial fraud is not good corporate governance practices, but rather, the ego of the chief executive.

Lance Armstrong Guide to Losing in Stock Market

Image Source: Lancearmstrong.com

I really like to stay positive with whatever I write here on Safal Niveshak.

As you must have noticed from my posts in the past, I write more on ‘how to make money from stocks’ than on ‘how to avoid losses’.

But whatever I think and write, I can’t deny that losses are an integral part of the stock market investing game. And chance is you might have come across them yourself.

After you suffer a loss on your stocks, while it is understandable (and healthy) do go into the grief and anger phase initially, staying there for a prolonged period of time won’t do any good.

5 Steps to Create Your ‘Personal’ Investment Strategy

We had an interesting discussion here at Safal Niveshak yesterday. It was around my post on why I do not invest in index funds.

Some readers gave very valid reasons why index funds are a great way to invest for small investors given that these take away the big risk of a short-term focused fund manager and his inadequate stock picking skills.

Another valid reason readers gave was that a small investor does not have the time to put in the effort of selecting good stocks and mutual funds…and thus index investing is a good way to go.

Why I Don’t Invest in Index Funds

“I made the smartest investment decision of my life yesterday,” a friend told me over phone.

“Did you finally stop trading in share market?” I asked him jokingly.

“Shut up! What I did was to invest in a good index fund,” he said.

“And why did you do that?” I asked.

“You see, the index fund will keep my money safe as the returns won’t depend on the whims and fancies of the fund manager while my money will grow in line with the stock market,” he replied. “I believe every investor must have an index fund in his portfolio.”

Well, this wasn’t the first time I heard someone ‘sell’ me the idea of an index fund and why it’s a must-have in a small investor’s portfolio.

But I have never invested in index funds in the past, and don’t plan to do that in the future as well.

Safal Niveshak StockTalk #4: Infosys

Welcome to the fourth issue of the Safal Niveshak StockTalk. (Download PDF Report)

This time I delve deeper into Infosys, India’s most well-known, well-understood, and well-followed company, at least within the financial analyst community.

The funny part is that, if you see 100 research reports on Infosys from 100 different analysts, while all might be using a different way to arrive at their target prices for the stock, the targets will be just 5-10% of each other.

The reason is because, unlike a majority of other Indian companies, Infosys shares a future ‘expected’ EPS number with analysts, and what analysts do is use different routes to arrive at their estimated number which is very close to what Infosys has given! 🙂

How to Profit from Your Stock Market Losses

Image Source: Donmilleris.com

Let me start today’s post by asking you a question.

Assume that India is preparing for the outbreak of an unusual Asian virus, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed:

If program A is adopted, 200 people will be saved.
If program B is adopted, there is a one-third probability that 600 people will be saved and a two-thirds probability that no people will be saved.

Which of the two programs would you favor?

Well, if you think like 72% among a few hundred smart physicians who were asked a similar question by the Nobel Prize-winning psychologist Daniel Kahneman, you will choose option A, the safe-and-sure strategy.

Most doctors would rather save a certain number of people for sure than risk the possibility that everyone might die.

Don’t Worry…I’m There for You!

I’m There for You The greatest thing about India is the joint family system. The elders are always there to look after the younger members. The strong are always there to help the weak.

We’ve often seen the old man placing a hand on the sunken shoulders of the disappointed young man – who is out of luck and has fallen on bad times – pats him on the cheek, and says, “Fikr na karo beta…main hoon na.” (Don’t worry son…I’m there for you)

Reassured by the old man, the young man gets a new zest of life and is happy to face the world again.

So we care a lot about our families – their needs, wants, and aspirations.

Nowhere else in the world will you find a father worried day and night about how he will be able to fund his child’s higher education.

Nowhere else will you find a mother saving every bit of her monthly income to buy some gold to gift to her 5-year old daughter when she marries 20 years later.