Archives for 2012

Why Warren Buffett Would Love to Be In Your Place

Warren Buffett He’s been called the best investor of all time. In multiplying every dollar invested in 1964 by a massive 490,409 times over a 46 year period, Buffett has left every investor aside in the investing game.

However, despite such an enviable track record and so much wealth, there is one reason Buffett envies you – the small investor – a lot!

Yes, that’s true…and Buffett has himself claimed this time and again.

You still don’t believe me?

Well, here is what Buffett said in a Business Week interview in 1999…

If I was running $1 million today, or $10 million for that matter, I’d be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rates of return I’ve ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then.

It’s a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.

The universe I can’t play in i.e., small companies has become more attractive than the universe I can play in, that of large companies. I have to look for elephants. It may be that the elephants are not as attractive as the mosquitoes. But that is the universe I must live in.

Safal Niveshak StockTalk #3: Voltas

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

After covering L&T and Tata Steel in the first two reports, this time I delve deeper into another Tata Group company, Voltas, which is one of India’s two largest players in the business of electro-mechanical projects (includes air-conditioning, mechanical, electrical, and plumbing works), and also a leading name in the home home air-conditioner business.

How to Get Very Lucky as an Investor

The famous American writer Dorothy Parker once said, “I hate writing. I like having written.”

I know many people who are like that about their life and work. They love to fantasize about what life will be like when they ‘make it’, but they like to skip over the part that reads – hard work.

Like the young man I met a few days back who has spent the past ten years of his life destroying his body with alcohol, excessive food, and a sedentary lifestyle…but wanted to know a quick way to get fit, lean and healthy in just the next six months!

He, probably, expects to get ‘lucky’ in his life by getting whatever he wants without the hard work to accompany it.

Really? Is ‘luck’ really about instant gratification?

If I look back to the lives of great people, the answer I get is something absolutely different.

The ‘Willpower Trick’ to Become a Smarter Investor

January is the month of broken resolutions. The jogging tracks are packed for a week and working desks are cleaned for the first time in ages, and meetings start and end on time.

We pledge to finally become the person we want to be: slim, neat and punctual.

Alas, it doesn’t take long before the jogging tracks are once again empty, the working desks start to crumble under the weight of unwanted junk, and meetings occupy more time than actual work.

Just into the third week of the month, we forget about that pledge to become a saner, kinder, and gentler person.

You see, human habits are stubborn things. We make resolutions without realizing whether we have the necessary willpower to achieve them.

This explains why almost 90% of all resolutions end in failure, as per a 2007 survey of over 3,000 people conducted by the British psychologist Richard Wiseman.

So what’s the reason our resolutions end in such dismal fashion?

How to Get Rich, Stay Rich…and Die Poor

First, how do you get rich?

Work hard…and earn a lot.

Second, how do you stay rich?

Save a lot…invest a lot…and get smart about your finances so that you are never the target of scamming financial advisors.

Okay, you now know how to get rich and stay rich.

But how do still die poor?

It’s even simpler than getting rich and staying rich.

I’ll tell you the answer, but before that…

Infosys Vs TCS: The Fight Continues

The Big Fight Tata Consultancy Services (TCS) and Infosys are two of the strongest pillars of the Indian IT sector. One is India’s largest IT services company, and the other the most respected.

However, since they are the ‘poster boys’ of Indian IT, and are keenly looked up by stock markets, industry and job seekers, the rivalry too runs deep between them.

So whether it is the fight for talent, clients, deals or stock market valuations, the two companies are at each other’s neck all the time.

In this post, I present a graphical comparison of the two companies based on their performance over the past 20 quarters (5 years).

Let’s start right here.

What I Learnt from the World’s Most Arrogant Investor

I was reading through fund letters from The Baupost Group, managed by value investor Seth Klarman.

Here is something very interesting that I came across in his year-end 1996 shareholder letter. Klarman wrote…

We regard investing as an arrogant act; an investor who buys is effectively saying that he or she knows more than the seller and the same or more than other prospective buyers.

This statement contains a big truth that I, as an investor, ignored all these years.

So I bought a stock because I thought my analysis was right. I thought my calculation of the stock’s intrinsic value was right. I thought my decision to buy the stock was right even when I always wondered what could be the reason someone else was selling the same stock.

All in all, my arrogance – of being right – made me buy several stocks over these years. While I’m satisfied with my long term returns, I consider my performance more a result of luck than my own aptitude of picking up the right stocks.

Safal Niveshak Classroom: How to Read a Balance Sheet

You might remember Cuba Gooding Jr.’s immortal line from the movie Jerry Maguire, “Show me the money!”

That’s what financial statements do for investors – show the money that companies earn, own, and owe.

These statements appear in a company’s annual report, and are broadly classified into three categories:

Balance Sheet
Profit & Loss Account
Cash Flow Statement

Over the next few weeks, we will discuss these key financial statements that companies use to communicate their performance with investors, and how you can use them to identify the best long-term investment opportunities.

Let’s start with the Balance Sheet, also known as the ‘Statement of Financial Position’ of a company.

3 Quotes to Change the Way You Think about Money

Image Source: The Street

Most of us have a love-hate relationship with money.

We usually resent those who have a lot of it, but spend our entire lives attempting to get it for ourselves.

We struggle, speculate, and squander during our prime wealth-building years, and then suffocate for the lack of ‘good enough’ money in our golden years.

You see, the biggest reason a vast majority of people never accumulate a substantial nest egg is because they don’t understand the nature of money or how it works.

Cash, like a person, is a living thing. When you wake up in the morning and go to work, you are selling a product to earn yourself a living. That product is ‘you’…your labour or hard work.

But it’s only when you realize that every morning your cash also wakes up and has the same potential to work as you do, you unlock a powerful key in your life.

The 1-Minute Secret to Finding Good Stocks

In an interview with Warren Buffett in 1993, Adam Smith, author of Supermoney, asked how the small investor can find good investment ideas.

Warren Buffett: I’d tell him to do exactly what I did 40-odd years ago, which is to learn about every company in the United States that has publicly traded securities, and that bank of knowledge will do him or her terrific good over time.

Adam Smith: But there are 27,000 public companies.

Warren Buffett: Well, start with the A’s.

Everybody knows that Warren Buffett gets his investment ideas largely from annual reports.

Of course, now he has become so influential that companies call him to share their own ideas. But, fifty years ago, Buffett was not the go-to guy if you wanted to sell your company or raise capital for your failing bank.

He was a small investor who was clawing his way up the investing street by reading whatever annual report came his way, and then finding his investment ideas that worked wonders in the subsequent years.

You are probably at the same stage Buffett was fifty years ago. But there’s a big advantage you have over the early day Buffett.