How To

How to Live and Invest Without Failure

Early this year, a close friend of mine, Rajiv, had his eyes set on finishing the Mumbai half-marathon (approx. 21 km) in less than 180 minutes.

So, crossing the finish line in 160 minutes was something of a major triumph for him. He was genuinely happy.

One another friend, Sameer, ran the same distance and recorded the exact same time of 160 minutes. However, this guy wanted to cover the distance in 150 minutes or less. Consequently, he was shattered.

He described his experience as a massive failure and as a result, his mind and body language were both a reflection of his belief (the belief that he had failed).

Sameer could have labelled his run many things but he chose ‘failure’.

Cheat Sheet for Investing Your Money (Free E-Book)

“Go to college, study hard, get good marks, land up in a decent job and you’re settled.”

The world around us has changed but this advice hasn’t.

The concept of getting good grades and finding a good job is an idea whose time has passed. It is not a bad advice but we need new ideas and different kind of education.

In the long term, the old advice is not just insufficient but downright risky.

We have been taught, and taught pretty well, how to work hard to earn money. But what about making our money work hard for ourselves? Every rupee that you earn has in it the seed to multiply into thousands. You just have to know where to sow that seed and how to water it.

The only way to learn that is to start on the path of self-education. A wise man said – “School education will earn you a living but self-education will make you a fortune.”

It does not matter where you stand today. Whether you are a student, in a job, a professional or even unemployed, you have the ability to educate yourself and take control of your personal finances.

If you are reading this, my guess is that you have already spent some time looking for the answers to your financial and investment queries. Therefore, you are a seeker who has already taken the first few steps.

10 Useful Rules of Thumb for Your Personal Finances

I had written this post in February 2012. However, given a lot of reader emails on topics covered herein, I am re-posting it.

I use a few rules of thumb when it comes to how I manage my personal finances. Here are some rules of thumb that I practice for managing my own personal finances. I hope you will find some of these useful for your own purpose.

1. Rule of 72. The Rule of 72 states that you can divide the number 72 by whatever yield you are getting to see how long it would take for your investment to double.

For instance, if your fixed deposit earns an annual interest of 8%, it will take 9 years for your money to double (72/8).

2. The number one rule of saving money is: Pay yourself first. It’s very important to set aside your savings every month before you use the money for other things, including paying of bills. Always pay yourself before anything else.

When to Sell a Stock (E-Book & Checklist)

Most investing discussions revolve around when to buy a stock. “Which stock should I buy?” is the first question that comes to your mind when you think about investments. But equally important is the question – “When should I sell a stock?”

Now, there aren’t any “10 Immutable Laws of Selling.” In fact, the answer to this question is often as difficult and subjective as deciding when to buy a stock.

But, without doubt, a disciplined sell process injects a healthy dose of Darwinism – survival of the fittest – into the portfolio. This process weeds out the weakest stocks – the ones that have deteriorated / deteriorating fundamentals or diminished margins of safety – in favour of stronger ones.

In a special e-book, and through a diagrammatic checklist (see below), I try to answer some of the questions around when to sell a stock. Not every selling rule under the sun may be included herein, but I’m sure what you read and see below will still be of some help to you.

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How to Find Great Businesses, the Peter Lynch Way

One of the first books I ask new investors to read is Peter Lynch’s One Up on Wall Street.

The easy-going and simplistic stock-picking style discussed in this book brought Lynch great success in his profession as a fund manager at the US mutual fund company, Fidelity, where he generated an average annual return of 29% during 1977 to 1990.

Lynch wasn’t just a great investor, he had a wonderful way of getting across the secrets of his success in everyday language, exemplified by this warning of the perils of putting money into businesses that you don’t understand.

Another of his catchphrases was to “invest in what you know” and he believed everyone could use this advice to spot successful companies.

In fact, he got many of his best ideas at home or when wandering around shopping malls, rather than by poring over company accounts.

How to Handle Your Money

Benjamin Graham was one of the most successful investors who ever lived and remains the most influential investment thinker of all time.

He was the one who taught Warren Buffett the art of investing, and was also his first boss.

Graham worked on Wall Street for more than four decades, ran a market-beating mutual fund, taught finance at Columbia Business School and wrote two classic books on investing.

Security Analysis (1934) is still the bible for professional money managers. The Intelligent Investor (1949) is, in Buffett’s words, “by far the best book about investing ever written.”

In June 1955, Graham gave an interview on the basics of handling money. Almost 60 years have passed since then, but a large number of investing ideas that Graham talked about then, remain valid to this day.

18 Lessons for Investors and Managers from Warren Buffett’s 2014 Letter to Shareholders

One of my favourite Warren Buffett letters is from 2014. The reason I find this letter so special isn’t just because it marked the completion of 50 years of Buffett being at helm at Berkshire, but also because it contained a bonus – Charlie Munger’s words of wisdom and vision for Berkshire over the next 50 years.

What follows below are 18 big lessons Buffett and Munger have outlined in the 2014 letter, which are relevant for both investors and corporate managers. Though I suggest you read the original letter in its entirety by downloading it from here.

The Most Important Thing You Need for Investing Success

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…

How to Avoid Getting Cheated by Bad Investment Advice

“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.”
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I Hope You Learn This Investing Lesson Faster Than I Did

“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.