Investing Behaviour

Investing and Law of the Farm

Centuries ago, a Chinese King was sitting in his cabinet meeting discussing about the poor economy of his country. One economist said, “Sir, we can’t do anything about it. It’s the Law of Supply and Demand.”

The King said, “I’m the King. I will repeal that Law!” The Cabinet kept quiet, but one brave soul said, “Sir, you cannot repeal the Law of Supply and Demand. It’s like the Law of Gravity.”

And the King said, “I’m the King. I will also repeal the Law of Gravity!”

Obviously, this story is purely fictional. But the message that comes out is clear – You cannot repeal some laws that govern this universe.

Like the Law of Gravity, and…

The Investor’s Manifesto

Read it. Print it. Frame it. Face it. Remember it. Do it.

This is for you. This is from someone like you.

It is Safal Niveshak’s The Investor’s Manifesto.

It is something you can reflect back on if you ever felt stuck in your investing life.

If you believe in it, follow it, and stand for it, your investing life will be good. In fact, very good.

Here is the third copy of the Manifesto that adorns my wall, and the first copy that I gifted to Prof. Sanjay Bakshi (the second copy went to Mr. Mohnish Pabrai)…

Read it. Print it. Frame it. Face it. Remember it. Do it.

This is YOUR Manifesto.

Rising Stock Prices and the Return of Arrogance

Disclaimer: This post is not my attempt to predict what lies in the future and where the stock market is headed, because I have a post-graduate degree in making disastrous predictions, especially about the future. What I am sharing below is what I have started experiencing around me, and why I believe you, as an investor, must be very careful of falling into the trap of people making rosy predictions about the future.

One of the key themes of my discussions with investors during my extensive travel over the past few days was that risk-taking and arrogance is back in the stock market.

I got a hint of this from a lot of people stressing on the benefits of borrowing money to invest in “great opportunities” available out there.

So one participant at my Indore workshop argued – “Why shouldn’t I borrow at 10-12% interest and invest for 25-30% returns that are there for the taking?”

Another asked in Vadodara – “Why shouldn’t I borrow when I know the opportunity to multiply money is great?”

Without doubt, I could answer these questions only to the point I understand the dangers of borrowing money to trade or invest in the stock market. Beyond a point, if someone has made up his/her mind that borrowing money is a great idea (because others have found success doing so), I have no answers to provide.

One Big Lesson I Learned Seeing Warren Buffett Make Mistakes

IBM and Coke represent two of Berkshire Hathaway’s three biggest investments (the biggest being Wells Fargo).

However, disappointing earnings announcements at these companies cost Warren Buffett around US$ 2.5 billion in the week gone by.

These losses add to a recent rough patch for Buffett, who slashed Berkshire Hathaway’s stake in British retailer Tesco recently. He has described buying into the stock as a “huge mistake” after the company announced another earnings disappointment and, over that, a £ 250 m accounting scandal.

Few seats remain at my Value Investing Workshop in Bangalore on 1st Nov. (Saturday). To join, please register here – https://t.co/VoXkYaHm9q

— Vishal Khandelwal (@safalniveshak) October 27, 2014

The media is rife with these big “mistakes”, especially Tesco, and is surprised how the world’s best investor could commit them. But then, Tesco isn’t Buffett first mistake and it won’t be his last mistake either.

What is Your Biggest Fear of Being a Stock Market Investor?

I’ve been investing in the stock market since 2004. Over these 10 years, I have seen two big rallies in stock prices and one shattering crash.

Now, 10 years isn’t a particularly long investment resume, but in these years, owing to my work first as a stock market analyst and then as an educator, I have spent a lot of time researching businesses, studying human behaviour, and meeting thousands of small investors.

Anyways, what I have known through these years is that the stock market can be absolutely brutal to your net worth if you are not wise and prepared.

If you planned to retire in 2008-2009 you were absolutely crushed if most of your investments were in stocks. Most things have rebounded five years later, but that means you lost five years of financial freedom with a whole bunch of worrying while you worked through the recovery.

Now, when you’ve been as involved with the stock market as I have, you see a lot of ugly stuff. Leave aside the occasional financial and economic crises that dot the timeline every few years, you also get to know…

How stocks and IPOs are (mis)sold;
How equity research analysts make (read, fake) recommendations;
How professional money managers (mis)manage investors’ money; and
How corporate managers mask bad performance through fraudulent accounting.

You see, nothing is exactly what it seems.

In fact, if you, as a small investor, knew everything behind the scenes, I fear pandemonium would break out.

Seeking Wisdom in the Age of Information

T.S. Eliot posed the question more than fifty years ago – “Where is the wisdom we have lost in knowledge? Where is the knowledge we have lost in information?”

These questions find much greater relevance fifty years later, in an age of accelerated information and information overload, when people are living larger parts of their lives on Facebook and Twitter than with their families and ‘real’ friends.

The rate and way in which we receive information has changed dramatically – from newspapers and television to constant news online. In fact, we have made our personal lives available to the world in tweetable and retweetable moments.

Now, as much as we try to stop consuming the vast amounts of information coming at us, we wrestle against the paranoia of ‘missing out’ on important information or being out of the loop on something.

This is especially true when it comes to stock market information. As if the second-by-second changing stocks prices were not enough, we are seeing analysis of these changes at a similar pace if not faster.

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10 Investing Gems from Peter Lynch’s One Up on Wall Street

This article was originally published in June 2012. I was re-reading Lynch’s book and thought of re-publishing these amazing lessons again.

Peter Lynch's One Up on Wall Street Apart from Benjamin Graham’s The Intelligent Investor, there is no better book to get started for beginners than 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.

The best part about this book is that it’s low on number crunching but high on anecdotal stories. Moreover, readers are given a clear picture on how to get off to a good start in the stock market.

One Up On Wall Street offers insight into the mind of one of the greatest money managers of all times.

Lynch helps you discover that he is a normal guy (like you and me) who thinks rationally, believes in doing his own independent research on companies, asks plenty of questions, and gets caught off guard by the market at times, just like anyone else.

Anyone thinking about buying individual stocks must read this book before they ever make their first stock purchase.

When NOT to Sell a Great Business You Own

Consider this. If you want to multiply your money 100x in 25 years, you want your investment to return 20% every year.

In other words, Rs 1 growing at 20% per annum will turn to Rs 100 after 25 years, excluding all dividends.

But if you sell this stock after 20 years (instead of holding for 5 more years), you will get just Rs 40. The remaining Rs 60 would come only between the 21st and 25th years.

Even if you earn 15% return per annum, your Rs 1 would turn to around Rs 35 in 25 years. But 50% of these returns would come only between the 21st and 25th years.

What A Tulip Can Tell You About Sensex Reaching (Or Not Reaching) 100,000

This post has been authored by Dev Ashish of Stable Investor.

Tulip You must be wondering whether what you just read in the title of this post is correct or not? Isn’t it?

You are being told that a flower can tell you whether Sensex can reach 100,000 or not? Now this is really strange.

Not Warren Buffett. Not Charlie Munger. But a flower?

Well, a flower can help you in answering the question whether the Sensex will reach 1 Lac or not. But mind you, this figure of 1 lac is not a figure of imagination which I have pulled out of a magician’s hat. This is a number which has the blessings of many so-called market experts.

But for the time being, let’s park the discussion of whether Sensex will reach that target or not.

Let’s get back to the story of Tulip.

Are You Right Because Your Stock Moved Up 200%?

I find a lot of Mrs. and Mr. Right these days in the stock market – people who bought a few stocks in the past 6-12 months and have seen all or most of them sky-rocket 100-200% since then.

For instance, a schoolmate who is a housewife with no business dealing in stocks, has started recommending trading tips in our batch’s online group, “because” she is getting her price calls right!

Then, someone wrote to me yesterday “praising” how my “recommendations” like BHEL, Engineers India, Crompton, Voltas, HMVL and Tata Motors have finally been “successful” as they have risen sharply in prices.

This very person had written a hate mail to me last year when some of these stocks – or let me say, their prices – were down in the dumps. 😉

Such is the way we behave as investors.