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.