A reader of The Safal Niveshak Post asked this question after reading yesterday’s post on companies taking minority investors for granted – “How can we (retail investors) differentiate between good and bad managements?”

This is a very important question, because assessing management quality isn’t an easy thing to do as compared to studying a company’s past financial performance and concluding whether it has been good or bad.

In other words, you can’t put a numerical value to a company’s management. You can create any specific metric to measure its quality.

What I consider ‘good’ management might be ‘bad’ management in your eyes. So the response to the question – whether the management is good or bad – is very subjective.

Here is the fourteenth lesson of the Value Investing for Smart People Course that answers this very question.

Let me know if you have any further doubts after reading this lesson, and I’ll be happy to clarify.

[Read more…] about How Can You Differentiate between Good and Bad Managements?

I’ve come across countless arguments over the past few years over the relevance of quality management when it comes to picking stocks.

“Managements don’t matter!” was the powerful argument that I heard in the heydays of the pre-2008 era. And these people showed me stock market returns to prove how companies with shaky management teams could generate huge shareholder wealth.

Well, I had no words to counter them because even when I knew who was swimming naked (companies with bad managements), the fact remained that all of them were covered up by the rising tide of the stock market boom.

Cut the chase to 2012, and I’m ready with some good proof of what happens to companies who take minority investors for a ride, when the tide goes out.

These are the companies that…

1. Chase growth at all costs
2. Kill their balance sheets by taking on excessive debt
3. Make random and overpriced acquisitions
4. Secretively sell shares at discounted prices to group companies
5. Pay their top people big money even when all other stakeholders are facing the music
6. Have loud-mouthed, egomaniacal CEOs running the affairs

[Read more…] about When Companies Take Minority Investors for Granted…

After years of a Wall Street-induced financial crisis, MBAs globally – especially the ones that might wind up working in the finance industry – are under a microscope. Before they get to Wall Street, though, some new business school graduates are signing onto a new professional code of conduct called the MBA Oath.

This MBA Oath is similar to the Hippocratic Oath that doctors take – which is, first, do no harm.

So, dear readers, if the MBAs and doctors or the world can take their oaths to ‘do no harm’ (to others), what stops you – as an investor – to take an oath to do not harm (to yourself)?

In fact, it’s good you take an investment oath now and promise yourself to become a better and smarter investor, come what may.

Here is an investment oath that was first published in Ben Graham’s The Intelligent Investor. I have modified it to suit an Indian investor’s requirements.

Print it, fill it, stick it in front of your work desk, read it, and practice it every day.

[Read more…] about Have You Taken Your Investment Oath?

The Indian government recently opened the gates for foreign individual investors to invest directly into Indian stock markets.

A reader has posted a question on the Safal Niveshak Forum whether the entry of these foreigners will have any impact on investments by small Indian investors in the long run.

Let me first talk a little about the possible impact of the entry of foreign individual investors on Indian markets.

Well, this seems more like a ‘stitch in time’ kind of an attempt by the government than anything that is going to benefit the Indian markets in the long run.

As you know, the Indian rupee has been under tremendous pressure over the past few months. From about Rs 45 per US dollar in July 2011, the rate stands at nearly Rs 53 now.

So, in order to bring some stability to the Indian Rupee, this latest move from the government seems more like an act of desperation. This is because, as the government expects, a greater inflow of dollars from these investors will stop the fall in the rupee’s value.

“But aren’t foreign individual investors already investing in Indian stocks?” you may ask. “So what’s new?”

[Read more…] about FDI in Indian Stock Markets: How it Impacts You…the Small Indian Investor?

As the world’s third-richest person and most celebrated investor, Warren Buffett attracts a lot of attention. Thousands try to glean what they can from his thinking processes and track his investments.

Well, the best way to know what Buffett is thinking next and his secrets of great investments is to read his annual letter to shareholders of Berkshire Hathaway, his insurance and investment firm.

Buffett has been writing these letters for 34 years now, and each one of them carries amazing ideas on how to become a smarter investor by just following some simple rules of investing.

One of the key rules of selecting great investments that Buffett has talked about across most of his letters is that of “good return on equity”.

This is in addition to his demands of adequate size of the company, proven management, and a reasonable valuation.

What Buffett looks for are companies that earn “good returns on equity while employing little or no debt”.
[Read more…] about 10 Stocks That Get ‘A+’ on Warren Buffett’s Test of Good Businesses

The year 2011 will end in three days and we will be celebrating the onset of a new year. As I look back to the year gone by, I feel the need to extend my gratitude to a whole lot of people and things who made 2011 an amazing year for me.

The list is embarrassingly long, but if I tried to list every single thing I’m thankful for, we’d both be here until New Year 2013. But I’d like to hit a few highlights.

So here’s my personal and very partial list.

I thank YOU
It all starts with you, the reader of Safal Niveshak and the tribesman who has taken it upon himself/herself to become smarter and independent in his/her stock market investing decisions.

I know I’ve said it before, but it bears repeating. Thank you so much for reading, for commenting, for sharing the posts, for your interest and support and intelligent criticism, for keeping me honest, for helping this entire movement of creating smarter and independent stock market investors become greater and spread wider.

You are magnificent, and I am supremely grateful for your time and attention.
[Read more…] about The 2011 Safal Niveshak ‘Thank You’ List

I think you’ve been an awesome reader of Safal Niveshak ever since we started in July 2011.

To express my gratitude to you for being a part of this tribe of sensible, smarter investors, I’ve compiled my top 10 posts of 2011.

Lots of good ideas for you on investing and the art of managing your own money.

Here we go.

1. What’s the Point of Saving and Investing?
2. Safal Niveshak StockTalk #1: Larsen & Toubro
3. 10 Stocks I Would Want to Leave for My Grandchildren
4. What My Little Girl Taught Me About Investing Wisely
5. Life & Money Lessons from Kantilal
6. Infosys and the Funny Stock Market Pastime Called ‘Expectations’
7. Life, Liberty, Happiness…and Investing
8. How to Find the Next Infosys
9. Why I Don’t Watch CNBC, and Why Even You Shouldn’t
10. Are You a Frog in Boiling Water?

Now let me know in the Comments section, what is your choice of top 5 posts from Safal Niveshak.

Happy New Year, and be safe!