Wit. Wisdom. Value Investing.
Consider this financial statement of a company…
Okay, to sweeten the deal, I lower my asking price by 10%, would you invest now?
I share with you my optimistic view on the company’s future, and how you are going to earn great returns in the future. But would you still budge?
“Okay, what are you going to do with my money?” you ask me.
The key to bringing lasting change in your life is by way of great habits. And the best way to build great habits is by starting small and building up.
I hope you would agree with me that life isn’t all about stock market investing or for that matter just about money. Making money is only a means to a greater end i.e., living a happy life.
It’s true that for many people stock market investing is a passion and they don’t do it just for money. However, it circles back to the logic that the activity of investing in stock market makes them happy. So investing is just a tool to achieve something more important – personal happiness.
The age old wisdom suggests that happiness is brought about by the right balance of financial, mental, physical and spiritual health. What financial abundance does is that it gives you an option to stop worrying about money all the time and focus your energy towards other happiness factors.
But you don’t have to wait till you are financially free to start your work on other areas of life. You can start today. Let’s pick up one area, say health and see how you can bring a change in this part of your life.
Everybody knows that to be more healthy and fit, you need to exercise and eat well. It is a common knowledge and part of everybody’s new year resolution. Problem is that these resolutions are short lived and motivation to carry on the new activity dies down rapidly after few days.
[Read more…] about Life 2.0: Habits of Life
I have been holidaying for the past two weeks now, and have thus been almost away from thinking about the stock market or accessing any financial media.
In fact, I am currently in one holy city in India, where not many people have an inkling of what the stock market is all about, forget knowing or reading any of financial media. Life is thus good and simple here, largely because people are away from the noise of a big city and its constantly attention-seeking media!
Even I do not have much access to such media here, except when I turn on my laptop. This has given me a lot of time to think about the role of financial media in the life of investors.
I have always maintained that consuming financial media is often dangerous for investors, because almost none of it is good.
But if you are a consumer (most of us are), here are ten secrets I have to share with you on what financial media can do to your mind and behaviour over the long run, and why you must avoid most of it.
[Read more…] about 10 Secrets You Must Know about Financial Media
Benjamin Graham wrote this in The Intelligent Investor…
The art of investment has one characteristic that is not generally appreciated. A creditable, if unspectacular, result can be achieved by the lay investor with a minimum of effort and capability; but to improve this easily attainable standard requires much application and more than a trace of wisdom.
The ironical truth about investing is that, despite hundreds of rules that guide the practice of being an investor, there is no rule that works all the time, and in the same manner.
Investing is, after all, not like a game of football where the ground and the ball remain the same throughout the ninety minutes of play. It’s more like cricket where the pitch changes its behaviour with every new ball, and the ball changes is shape every time it’s bowled.
So, when you are an investor, the environment in which you play isn’t controllable, and circumstances rarely repeat exactly. What’s most important then is how you behave when others are behaving oddly.
One of the best tools to think and behave better in investing is what Howard Marks calls…
[Read more…] about The Most Important Thing You Need for Investing Success
Honesty and ethical practices are of utmost importance in any business, and especially in the investment business that remains clouded under mistrust. What’s wrong and what must be righted is what we discuss here.
The richest one percent of this country owns half our country’s wealth, five trillion dollars. One third of that comes from hard work, two thirds comes from inheritance, interest on interest accumulating to widows and idiot sons and what I do, stock and real estate speculation. It’s bullshit. You got ninety percent of the American public out there with little or no net worth. I create nothing. I own. We make the rules, pal. The news, war, peace, famine, upheaval, the price per paper clip. We pick that rabbit out of the hat while everybody sits out there wondering how the hell we did it. Now you’re not naive enough to think we’re living in a democracy, are you buddy? It’s the free market. And you’re a part of it. You’ve got that killer instinct. Stick around pal, I’ve still got a lot to teach you.
[Read more…] about EthicalAnalyst: Ethics in Investment Business
“Come what may, I will not listen to anyone’s advice before investing my money this year,” said my friend Ravi. “I’ve had enough of bad advice last year!”
“Is this your New Year resolution?” I asked him.
“Yes! And this time I am not going to break it!”
“Let’s see,” I said while infuriating my friend who thought I did not believe he was really going to adhere to his resolution this year.
“See Ravi,” I told him, “I don’t want to disappoint you. But you have to go past a great obstacle to meet your resolution of not falling for your advisor or broker’s advice.”
“What do you mean?” he questioned.
“Okay, let me be very clear with you now.”
[Read more…] about How to Avoid Getting Cheated by Bad Investment Advice
We discuss the quality of language used by companies in their annual reports and other investor communication, and suggest why this may be a result and indicator of governance or mis-governance.
In August 1998, the US stock market regulator, Securities and Exchange Commission (SEC) released a book called A Plain English Handbook.
Now, you may wonder, “What business does a stock market regulator has to focus on plain English?”
The SEC released this handbook to show corporate managers, especially CEOs, how they could use well-established techniques for writing in plain English to create clearer and more informative disclosure documents like annual reports, while meeting all legal requirements.
The preface of the handbook was written by none other than Warren Buffett – the man who writes the world’s best shareholders letters – and this is what he wrote –
For more than forty years, I’ve studied the documents that public companies file. Too often, I’ve been unable to decipher just what is being said or, worse yet, had to conclude that nothing was being said.
There are several possible explanations as to why I and others sometimes stumble over an accounting note or indenture description. Maybe we simply don’t have the technical knowledge to grasp what the writer wishes to convey. Or perhaps the writer doesn’t understand what he or she is talking about.
[Read more…] about Corporate Governance: When Words Speak Loud
One of the most popular questions that a business channel anchor or an analyst asks a company’s management is – “What’s your EPS estimate for the next quarter and year?”
For those who are not aware, EPS is the short form of ‘earnings per share’ and is calculated by dividing a company’s earnings/profits by its total number of shares.
During my initial days as a stock market analyst, even I was guilty of asking similar questions about earnings, though all I wanted to hear from the managements was their long-term outlook (like for 3-5 years) and not for the next quarter or year.
The truth is that the entire investment community is undeniably fixated on the EPS.
[Read more…] about Are You Playing the Stock Market’s Favourite Game?
“So you are sure you will be able to meet your sales growth target for this year?” I asked as the CEO of the company looked at me.
“Yeah, we are pretty sure that we’ll be able to grow our sales by 30% this year and the next one, and 25% every year thereon.”
“And what are the risks you face?”
“Risks? Hmmm.” He looked out of the window for a minute, then turned back to me, and said, “I don’t foresee any risk for our company, at least not over the next one year.”
“That’s great!”
This was how my meetings with the CEOs or CFOs of companies went through when I had just started in my career as a stock market analyst.
[Read more…] about I Hope You Learn This Investing Lesson Faster Than I Did
First things first. I had a wonderful workshop in Pune last Sunday. And here are the amazing tribe members who attended it…
Anyways, let me now focus on today’s topic. Ever since I shared my stock analysis excel a couple of years back, I have received innumerable questions from people who’ve found it difficult to handle the excel. 🙂
If you have been facing a similar problem, don’t worry, because I’m working on a few simple online calculators – like the one on DCF or discounted cash flow method below – that can help you analyze the financials of businesses and also value them.
Now, before you praise me for my tech skills which I don’t have, let me share that this calculator has been developed by my good friend and tribe member Anshul Khare, who is also working with me on other such calculators. Thanks Anshul!
Before you work on the calculator below, read this post I did on how to value stocks using DCF to understand the basics of sensible DCF usage, and how to avoid its misuse.