Safal Niveshak

Wit. Wisdom. Value Investing.

Kill That Idea Before It Kills Your Wealth

“The hardest virus to kill is an idea,” said the character of Leonardo DiCaprio in the movie Inception. This idea – of the difficulty of killing an idea – is widely prevalent.

We see this in businesses where once a management gets an idea that sounds wonderful, it is very difficult to ask it to change its plans even if the idea is destined to fail.

Things aren’t any different in stock market investing.

Investors seldom expect to be wrong, and thus hold on to bad ideas – bad stocks – even when it seems clear that their original idea was faulty.

But this is a typical behavioral attribute and you can’t blame anyone who shows this kind of a tendency – of not accepting that his idea is bad, and therefore must be killed.

In this post, we look at the relevance of killing bad ideas in stock market investing, and how you as an investor can do that.
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Investing in Your Company Stock? Look Before You Leap

We recently discussed why too much love for your company could be disastrous for your financial future.

We looked at lessons from Enron and our very own Satyam where employees who invested in their company stock saw their savings go down the drain.

We also studied why even when your company might not be the next Enron or Satyam, you must not go overboard with your investment in its stock.

But we also suggested that you may have 5-10% of your financial investments invested into your company stock.

Now the question you may have is this – “How do I know whether my company’s stock is worth buying?”
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Why Too Much Love for Your Company Can Be Disastrous for Your Finances

If I were asked to give you the 10 commandments in financial planning, “Don’t buy too much of your company stock” would be right up there.

Nearly a decade after the collapse of Enron Corporation in the US, many employees still haven’t learned one of that episode’s clearest lessons: Don’t bet your nest egg on the place you work.

Enron employees certainly learned the hard way: Nearly two-thirds of their retirement money was invested in the company’s shares, which became worthless. Imagine yourself in their situation and seeing your stocks drop by 99% in a flash of a moment.

But Enron didn’t teach employees a lesson. Worldcom and Lehman Brothers workers suffered the same fate. They also saw their retirement dreams disappear along with their jobs.

In India, employees of Satyam Computers who bet their retirement money on their company’s stock faced the same issue. Everything disappeared before their eyes! [Read more…] about Why Too Much Love for Your Company Can Be Disastrous for Your Finances

Should I Buy Stocks? Should I Wait?

Imagine a scene from a typical 1990s romantic Bollywood movie. The heroine is sitting with a friend under a tree pulling leaves from a stem while chanting, “He loves me? He loves me not? He loves me…”

Her idea is to reach a positive response (‘He loves me’) by the time she reaches the final leaf.

Now replace the heroine with a stock market investor, and you might not need to replace the scene. Most investors I meet these days have the same question to ask.

“Should I Buy Stocks? Should I Wait? Should I Buy Stocks? Should I Wait?”

I hope that ‘leaf strategy’ worked in the stock markets as well!

Anyways, before we move ahead to answer this question our way, first let us look at this chart that shows the movement of Sensex and its P/E (price to earnings) since the start of the financial crisis in 2008.
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Sunday Afternoon Reads

A few interesting items for your reading pleasure:

  • Good read. A secret about the financial media you won’t see anywhere else (The Daily Crux)
  • Hmm. The $ Cost of 9/11 (The Big Picture)
  • Good read. September shapes up as a chilly month for equities (Financial Times)
  • Anna Hazare listening? Salaries of MP politicos zoomed 900% in 15 years (The Economic Times)
  • Oops! CAG flays RIL, but top brokerages say ‘stock ripe for picking’ (Moneycontrol)
  • Funny! Sensex could surge past 23,000 in one year: Reliance MF (The Economic Times)

What are you reading?

‘Great’ Stocks are Bad Investments for the Long Term

Infosys was a great stock in March 2000, but has returned its investors only 32% since then.

HUL was a great stock 10 years back, but has generated returns of just around 34% over these years.

The list of such ‘great’ stocks is endless – stocks that were loved so much by investors but failed to return much over the long term.

Let me clarify one thing here – ‘great’ here means stocks that investors love so much that they are willing to pay any price to own them.

This makes ‘great’ stocks really bad investments for the long term.

Confused?
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How to Find the Next Infosys

My eyes were stuck at a newspaper headline that read – “15 companies that can be the next Infosys”.

And then there was something I read online that said, “Find the next Infosys”.

Another suggested, “How to build a fortune with blue-chip stocks that don’t even exist yet!”

Bam! How do I invest now in stocks that don’t even exist yet?

You see, business media is replete with such claims that they know of the ways investors can find the next Infosys, or HDFC Bank, or L&T (or future blue chip stocks that don’t even exist now!).

But ask them whether they were able to identify the first Infosys (i.e., the real Infosys) when it came out with its IPO in 1993 or even after that, and you’ll stare at dumb looks.
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Investing in Stock Markets: 4 Reasons People Get Stuck

The leading American entrepreneur, author and public speaker Seth Godin has had a great influence on my life as a writer and thinker.

His snappy blog posts and pithy remarks on the irrationality we see around us are worth a read.

I recently came across his post about being stuck.

In this, Seth described four reasons we run into problems when trying to tackle any kind of project:

  1. We don’t know what to do.
  2. We don’t know how to do it.
  3. We don’t have the authority or the resources to do it.
  4. We’re afraid.

Well, these are four deceptively simple reasons to explain any kind of impasse on whatever we are working on.
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Are You Ignoring This Huge Risk to Your Investments?

“Investors lose over Rs 2 lakh crore in two days over economic slowdown” shouted a leading business daily on August 19th.

The BSE-Sensex had plunged almost 700 points over the previous two days. That was not a small drop. It amounted to a 4.2% decline in the index.

Yet few headlines reminded investors that the Sensex was still up 98% (excluding dividends) from the market lows 2 ½ years ago.

But ‘2 lakh crore’ was made out to be a sensational figure, at least the way the headline was framed.

Of course the past few weeks have been very volatile for stock markets. But what is interesting is that this has led millions of investors to completely reverse their view on the future of equities.
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