Books that have helped me with my financial education- Part 3

Its been almost 2 months since my last post.  During this time I went on vacation with my family.  I will list those exploits in a separate post.

Before I left for my vacation, I was writing a series of posts on the books that have influenced me.  Hope after reading the blog posts you got a chance to read those books.  I would love to hear your comments on how you found the books.

For the moment this will be my last post on the books I have read till I get to my next lot.

The first book this time is the STAR Principle by Richard Koch.  I have been a fan of Richard Koch for a long time and try to read through all his books. In the STAR principle Richard talks about identifying companies which have higher than 10% growth rates and how they can end up creating almost monopolistic situations.  For developed economies like the US and UK I think this logic of identifying at 10% growth rates is a good number because the overall economy is growing at just about 2% average.

However if we were to look at it from the Indian context where India is growing at about 13-14% (6-7% growth + 7% inflation) then the number in his logic dosen’t hold.  However rest of the logic that he espouses in the book should hold.  I have myself not been able to identify an Indian company which is growing at 5 times the overall economy( 10% when economy is growing at 2%) on a consistent basis in the public domain.

The next book I read and would recommend Finding the Next Starbucks by Michael Moe.  Like the above book by Richard Koch, this one is also more focused on identifying high growth companies before the world comes to know about them.  Again since I don’t have knowledge of the private investment space in India, I have not been able to verify the logic and rules that the author gives.  However its a good read and a different way of identifying high growth companies.

I have been a big fan of the Little Book series.  In one of my earlier posts I wrote about the The Little Book That Beats the market by Joel Greenblatt.  There are a whole lot of other Little Books by different authors which explain difficult concepts of the financial markets in easy to read language.

One book which is worth a mention once again is Common Stocks Uncommon Profits by Phil Fisher.  This is a little serious read but is a timeless classic on equity investing.  Even Warren Buffet recommends Phil Fisher.

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While exploring investing, I did a lot of research on people who do trading – stocks, commodities etc. One author who I found has done a lot of work on understanding traders and writing about them is Micheal Covel.  I was introduced to him via the Little Book on Trading.  I then went on to read a couple of other books Trend Following and Turtle Traders.

If you have seen the movie Trading Places then you will find the Turtle Trader especially fascinating.  I did use the rules of the turtle traders for a short while and found them very valid for the Indian market as well.

However I left the trading space because I realised I did not have the speed with which to give directions to my broker to release positions when the trend reverses.  There are a lot of platforms available which allow you to set the rules for trading where based on your rules the platform can sell your holding.  Since I was only experimenting, I did not subscribe to any of these platforms.

In my next post I will share with you some other classic interviews and reports which explain the concepts of investing and financial planning.

Till then ….let me know your comments

Carpe Diem!!!

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!!!