Books that have influenced my financial education – part 2

After the first 4 books that I listed in my last post which had predominantly US based authors, the first book this time is written by an Indian author.

Saurabh Mukherjea’s – Coffee Can Investing – Saurabh had written 2 books before this book. Both the books were very focussed on the Indian equity market. This book however provides a very simple framework of identifying stocks in the Indian context and also builds a case for how asset allocation has to be done with the Indian context. If you are an Indian investor wanting to get into equity markets then this book is a must read. I have given copies of this book also to young men who are getting into college or coming out of college. The other thing about this book that I liked is the typical Indian examples. In India food inflation, medical inflation and inflation related to commodities like petrol can play havoc with your savings. By taking specific examples of Indian people and their saving patterns he goes about constructing portfolios. Therefore I would reiterate, if you are an Indian investor then, this book is a must read.

The next book which is written extremely well is by Joel Greenblatt – The Little Book of Investing – which still beats the market. This book explains the concepts of Return on Equity / Return of Capital Employed along with the value of a stock so simply that once you read this book you can read through most financial ratios and easily get an understanding of the relative value of the companies. The tables and the resources however are not of value to an Indian investor. But if you understand the concepts then you can individually build the relative tables on your own. One of the challenges which I faced when employing his simple technique was that he suggests selling off the complete portfolio every year. Since I was buying shares over a period of time, putting this into action became difficult. However inspite of this, I would strongly recommend, this book to everyone who is getting in new to investing. Like Dhando Investing by Mohnish Pabrai, which I had mentioned last time, this book explains concepts with simple examples, so a must read.

The third book this time is by Tony Robbins again – Unshakable. Another of Tony’s masterpieces, simply written, explaining the working of the markets. Key thing especially if you are in the US market is that every 3 years markets will tend to fall. Psychologically if you understand this concept then you can drive big returns in the long run.

The fourth book – it is supposed to be the guiding book for Warren Buffet and a lot of other famous investors – is the Intelligent Investor by Benjamin Graham. Quite frankly when I read this book for the first time, I was new to investing in equities myself. A lot of the concepts that he brings out were totally new to me and the book didn’t appeal to me much. One of the reasons for that was also the fact that this book also had the US context in mind where the markets are more mature and hence not growing so rapidly. The Indian markets on the other hand are still nascent and reporting is not transparent. Another fact is that the Indian markets are now in a growth phase. It was only after I had spent a couple of years trying to see how things work that I reread the book and understood it. There a lot of practitioners in India also who would like to buy a company at 5 cents to a dollar as suggested by the author. However I have personally preferred to look for growth stocks, even if they are expensive but they should have ethical management teams. In India I think that is the bigger challenge.

I will continue with some more books in my next post.

Meanwhile if you can recommend some books to me on investing, please out it in the comment box.

Till next time then.

Carpe Diem!!!

Books that have influenced me in my financial education

In our education system unfortunately even now we are not taught life skills. Whether it is on building interpersonal relationships or financial literacy the education system even after 16 years of highly competitive education does not prepare us for living a life. I know this about India. You could tell me your experience with other countries.

During one of a recent gathering at home we gave some books to some of the kids on investing. The idea was that if the kids can learn this at a young age then they will be better off. One of the kids asked on what other books had helped me during my journey.

While there have been a lot of books and company annual reports and videos, I will give you some names of books and what I learned from each book in this and the next few posts. Maybe we will even go further for the annual reports and videos in later posts. The books listed here are by no means in any order of ranking.

Tony Robbins – Money Master the Game – I have given this book as a gift to others and highly recommend especially if you stay in North America because some of the concepts are truly North America focussed. This book has interviews and experiences of some of the best money minds other than Warren Buffet. The book is written in a very simple language and has inputs on creating the edge in your investments. This is a very big book to read. A few key things that stood out for me-
- Tony was giving away all the earnings from this book to a charity foundation and also adding an equivalent amount from his own. Most of the rich people I have read believe in giving back to society and magically their investments only keep growing
- Saving versus investment – if you have to create wealth you cannot create it by saving. you have to invest.
- Sir John Templeton – even though he was just earning 50 pounds a month, he created such a big financial empire by saving more than 50% of his income every month.
- Asset allocation – all investments will have cycles. Equities will rise and fall dramatically. The fall can destroy your earnings if you entered the equity at a high price. By having debt and some commodities in your portfolio you can ensure that the rise and fall you have in all types of investments is buffered. Depending on your risk profile ensure that you have some kind of allocation.
- Automating and paying yourself first- always automate your investments so that there is no emotion involved because otherwise you will always have expenses which will eat up your money and you will never invest.
- A third very important concept was fees paid to fund managers and how the small percentages of fees taken by the fund managers can impact your long term growth. In India SEBI is doing a decent job of controlling the expenses charged by mutual funds. Especially if you don’t have the bandwidth of researching multiple companies, going with a mutual fund in India makes sense. Another place where mutual funds in India are better bet is the small and mid size companies. As an individual investor you will not have the information on these companies which these institutional investors can get. In India for the large companies like in the US investing with index funds/ETFs where the fund charges are extremely low makes more sense
- The last key perspective from my point of view was the distributor’s role. If the distributor is biased by the commission she gets, she will never give you proper advice. So you should choose your financial advisor different from your distributor to get proper advice on investments.
Mohnish Pabrai – The Dhando Investor. A very simply written book about how the Gujarati community has created riches in America by buying when the markets were low and then capitalising when the markets went up. Markets follow cycles, they will go up at some time. Mohnish uses this to showcase how buying quality stocks at low cost can help make huge money. Mohnish is big follower of Warren Buffet and has his own investment firm Pabrai investments. Like Warren he also does a lot of giving away of his wealth . His foundation Dakshana is involved in training a lot of financially weaker students to train for IIT and AIIMS.
Alice Schroder – The Snowball – A biography of Warren Buffet. There are a whole lot of books on Warren. Even I will list some more which have helped me understand investing. This one however takes you up and close to the real Warren Buffet from his childhood and how his decisions have helped him today become the richest man in the world even after giving away so much of his wealth. The biggest takeaway out of reading this huge book for me was the concept of deferring your urge to spend. There are various examples in the book where Warren thinks if he should be spending a few dollars now or investing such that he could have a multiple of the amount to spend. Now some people could call him stingy, Some people whom I have given this advice have also told me then why earn and live if we can’t spend. You need to be a judge of this for yourself and decide your priorities. Warren had a goal to be a multimillionaire by his mid thirties and he achieved it well in advance of his target. One other aspect is his commitment to give away a certain portion of his wealth every year till the time he dies.
Peter Lynch – One up onWall Street – this book gives such a simple advice on how to invest. His logic is simple. The numbers and frameworks and everything else is for the big investors. For the small investor like you and me he gives a very simple idea. Invest in companies which you use everyday and your investment will be successful. Out of the mutual fund universe, the shares I invest in are the ones which I use. Whether it is my bank or my housing loan or the shampoo we use, I have looked at investing in only those companies. I also get the pleasure of knowing that what I am buying, some portion of the profit would come back to me in the form of either dividends or by the capital appreciation of the stock

This post has kind of become big already. I still have a lot of books to talk about. Each of these books gave me a few ideas to form my investing philosophy. So I will cover these in the next few posts.

Till then

Carpe Diem!!!

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Soorma and life’s lessons

Today I saw this movie Soorma which is based on the real life story of the Indian hockey player Sandeep Singh.

I had not known the actual story of what had happened with Sandeep Singh in real life and the the life threatening situation he went through.

What this film also brought out was the fact that if you have a skill which determines your income, your possibilities in life & your status in life and if something hurts that skill your whole life can get shattered

Life comes with its own ups and downs and everyone has to go through them…. What matters is the people who come out of these ups and downs with grace and dignity.

I was telling my son the same thing today after watching the film. I have also had a situation where I was clinically dead and no one in my family knew about it because I was in Bangalore at that time.

It was the people around me & the crew in the aircraft of Indian Airlines (now Air India) who showed the presence of mind and immediately took me out of the aircraft in Bangalore and took me to the Columbia Asia hospital where I was revived.

It was the colleagues in my office in Gurgaon who sprang into action on that 18th July 2008 evening and organised everything once they came to know about my situation

At the end of the day when there is no family or friend around and still the world helps you, without any compensation, it just shows that you have been blessed with so much.

So it is imperative that we ensure we do our good deeds at all times without bothering about the return because at the end of the day the universe pays you back multiple times with all the goodness

This blog post has nothing to do with finance but it’s an even bigger thing about earning blessings through whatever good we can do, because irrespective of how much money you have , it’s the blessings that you have earned on your way that help when no one knows you and the amount of money you have, but still help you.

Do good & May the force be with you!!

How a 15 year old can aspire to be a billionaire

Last weekend I was at one of my relatives place. She has two young kids. One of them is around 19 years and the younger one might be around 14-15 years of age

I was very glad to notice that they had an interest in making investments at such a young age. I also loved the idea that their father was actually instilling in them a habit of trying to evaluate different avenues in investing. This means that in India the efforts of channels like ETNow and CNBC TV18 & the efforts of the mutual fund industry and stock exchanges like NSE are starting to bear fruit. If kids and parents start discussing financial products then the future is definitely bright for the Indian middle class.

When they came to know that I write a blog on achieving financial freedom, they thought of asking me for some recommendations on stocks and other investments, which I denied. I prefer not to give advice on any specific type of instruments or stocks, because a) I am not qualified and b) because everyone has a different risk appetite.

Since I like to look at just the basics and compounding and the rule of 72 are simple things that anyone can do at the back of an napkin, I just spent time with them on that.

Using the above I just explained to them without any use of even a calculator how wealthy he could grow.

If the younger son invests today Rs10000/- at the age of 15. India’s long term growth rate has been about 15% average. Even the indices therefore will grow at a long term average of 15%.

Therefore if he was to put this 10000/- in a Nifty ETF, it would also grow at an average of 15%. By the rule of 72 if he divides the number 72 by 15% then he will double the money in about 4.5 years. For simplicity let’s assume 5 years. which means every ten years it will grow 4 times. So his investment table, if he keeps invested with this 10000/- would look like below. Just staying invested without doing any hard work (incidentally staying invested could be the hardest thing) he can convert his Rs10000/- into Rs10million or (Rs 1 crore)

Age	Amount@15%	Amount@25%
25	40000	100000
35	160000	1000000
45	640000	10000000
55	2560000	100000000
65	10200000	1000000000

The second column is if he looks out for investments which can lead him to compound at close to 25%. then you see the magic. The amount converts to Rs1 billion (100 crores). Look at what happens between the ages of 45 and 65. At 45 he would have Rs 10 million and at 65 Rs 1 Billion. Even Warren Buffet’s wealth if you Google at age 65 and now at age 85, he is one of the richest men on earth just because of this phenomenon.

Obviously getting 25% on a consistent basis is not going to be easy, over a long period of time. But the key is going to be about staying invested. I hope the young guy can.

If you have any young guy you know, just show him this table of what his 10000 today can do for him over 30-40 years.

Till next time….

Carpe Diem!!!

How women in India are already changing the consumption landscape of India

Couple of posts back I had written on how the impact of ladies coming into the workforce will change the whole economy in India.

Over the last 2-3 weeks after writing the posts I noticed a few trends which I wanted to share.

I happened to go to eat at Pizza Hut in Connaught Place, New Delhi last weekend. My wife loves the pizzas there. There were at least four sets of girls only groups who had come to eat there. It’s quite common to see boys and girls in some restaurants, it’s quite common to see families in restaurants but on that one afternoon I saw at least four different sets of girls come and have food there. And its not they were there just to have a quick meal. They were out there having a good time and had ordered quite an elaborate lay-out.

The week before that in the PVR at Logix Mall in Noida I had gone to see a movie and in the IMAX screen there were nothing less than at least 7-8 girl only groups who had come to see the movie. The reason for pointing the IMAX is that it has I think the most expensive seating out of all the PVR screens.

And the last was the visit to showroom of Maruti cars – this was there Nexa showroom. Out there were women, who had come with their husbands or families to select the cars, what was astonishing was that it was the women who were signing the documentation for car leases or giving the cheques

Now on the face of it none of this has any significance. People in general and women have been going out to have lunch or to meet friends or going to movies. What is significant however is that all these things that I mentioned above were happening at above average locations or at places which are probably considered premium and in “ladies paying” situations.

When I started doing some fishing around to see if these trends are observed at other places I also came to know that there are high end bars who offer “women only” nights, on somedays of the week. Premium lingerie ads are all over the cyber city corridor on metro pillars in Gurgaon.

If Indian women are empowered and are going to be spending at such premium locations whether it is to buy cars or to have pizzas or have wine then it suddenly throws up so many opportunities for someone who would like to just sit back and passively watch their income grow

If there are funds or there are companies who are going to benefit from this consumption boom which is taking place in metros because of Indian women, then those investments well grow dramatically fast

So from a pure selfish interest I think we males need to figure out ways to empower women to grow so that when 400-500 million women in India come into the workforce people who are invested in this consumption theory for women will get dramatically rich.

Carpe Diem!!!

Quarter Century

This is my 25th post….. its been quite a journey over the last few months…..never thought would ever reach this figure.

First of all getting me started to take my own domain name and then take the WordPress subscription and then figuring out what to write was a major effort. For the last 2-3 years that I have been wanting to take this activity but some issue or another kept cropping up.

I read blog posts and heard podcasts from Tim Ferriss, I took a course with Ramit Sethi and I read others across the board but did not get the “ignition”

Even after taking the domain name and the WordPress subscription I wrote about four or five posts but after that I did not know on the topics that I could write.

Then I read Gary Vaynerchuk and one thing which struck me was he wrote and I paraphrase “why not first make a list of topics that you could possibly write on and then go on writing against each of them. If you come across something in-between you could add to the list”

I took Gary”s advice to heart and over the last few months I have consistently written whether it was a topic which was from the list I had made or there was a topic which I read in the magazine or a video I saw on the internet.

Even then sometimes I had a writer’s block and as I had written in one of my blogs couple of weeks back, it was the podcast from Tim Ferriss with Daniel Pink that got me started on just writing and things falling in place….now I am consistently started doing that.

I started the blog post with the idea that at some point of time if I will be able to monetize it. I will use part of the earnings to ensure that we are able to feed impoverished kids and enhance the life of women in India…..lets see when I am able to reach that stage.

The content of the blog was meant to be for young Indians who are at the age of around the age of my son, but what I found is that I have had more followers joining from countries as far as the US and Canada than from India itself.

Thanks to all of you for taking time to read my posts and liking them.

Till next time then….

How women in India can change the destiny of the country – part 2

Continuing where I left last, when more women come into the workforce there is money in more hands.
First this money goes to ensuring that the basic necessities of life are taken care of.

The good thing about basic necessities however is that once they are taken care off, there is not too much more that needs to be done , so once you have had three meals you can’t have one more meal during the day.

Once people have more money than they need to take care of their basic necessities they do 2 things – one they try to save and two they like to move up in life by doing discretionary spending.
When discretionary spending starts to happen the GDP growth starts to multiply. In India from the time the per capita rose from $1000 to $1700 one major trend that is seen – last year the growth of Air Traffic has been faster than the growth in rail traffic. The per capita is expected to in the next 7-8 years hit $3000/-. That is considered the poverty line in countries like the US& Canada for a family of 5. But adding $1300 per capita into more than 1 billion people can mean such a huge uplift for India.
Just with the addition of $700 per capita (from $1000) even though the Indian economy does not seem to be doing very well, still you have most Metro airports and all the Planes and flights which I have taken recently completely full. Whether it is low cost Airlines like Indigo and Go air or full service Airlines like Air Vistara or Air India you don’t see empty seats. There is a waiting list for cars and 2 wheelers. People are wanting to move up in life. They have aspirations to be better than what their parents were.

So what does this have to do with financial freedom….

If more women come into the workforce they will add to the per capita income. Once they take care of the part of the burden of the basic necessities of the house, then they will end up spending on better education and health of their children and better quality products for themselves.

If you see trends like these and you invest in countries like India, which have a such a young demographic, you can be picking gems which can make you rich many times over. Invest through SIPs in mutual funds or invest in Emerging Market funds, but systematically go about investing in growth stories and the growth momentum can propel your finances into a different orbit…

Till next time

Keep identifying trends