Other articles, reports and videos that helped me

 

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If you have been reading my blog posts regularly, will remember that I saw one of my mutual fund investments suddenly after 15-16 years and the Rs2000/- I had invested had over the years become close to Rs90000/-.

After this I became a regular at trying to identify various mutual fund schemes and slowly building SIPs (Systematic Investment Plans – where monthly a small amount of money directly gets withdrawn from the bank and invested in the respective schemes). Even today this is an important piece of education for me.

This was a very good mechanism because it brought about a lot of financial discipline into my life and I slowly started accumulating wealth.  The good thing was that in 2013 when this dawned on me, the Indian equity markets were at a very low level and subsequent to that there was a rally over the next 5 years which helped me gain a lot in terms of reaching my goals.

Around 2014-15 I read the Tony Robbins book Money Master the Game. While this book is focused towards the US economy and the shares and financial markets in the US, there were some nuggets of wisdom in a few areas which stuck with me.  One of the items was how even a 1-1.5% reduction in interest over a long period of time can make a very large difference in the compounding machine.

In India the mutual fund industry is quite regulated by SEBI and the total expense ratios of schemes are quite well controlled.  Inspite of that the MF schemes can be charging upto 3 odd percent as their fees.  This got me thinking how far I can be from my goals because my compounding machine has this leakage of about 3%. ( I even had a whole blog post related to how small differences in interest rates over long time periods can have massive impact on your wealth)

But I did not know, how to pick stocks myself.  So how could I invest in equity.  That’s when I started scouting for books on investing.  These were the books I wrote about over the last few posts.  However most books were US based stock market related and I could not relate to the Indian markets.

While searching for some simple inputs I came across people talking about the letters written to the shareholders of Berkshire Hathway by Warren Buffet.  I would recommend anyone anywhere, if they want to learn about basics of investing in simple terms then this is one of the best sources and is free of cost.  These letters are available on the Berskshire website and tabulated so you can search for them by the year they were published.

Inspite of these letters being written so well, I was a novice and was not able to relate to a lot of concepts with respect to the Indian companies, because American companies have different kinds of share holding patterns.

Accidentally I happened to chance upon the Wealth Creation studies created by Raamdeo Aggarwal Jt. Managing Director of Motilal Oswal.  These were similar to the Berkshire Hathway reports in that they came out each year but were better because they were talking about Indian companies and the Indian stock markets.  And to top it, they were also free.

I devoured on these reports and now am a big fan of Mr. Raamdeo Aggarwal who authors these reports.  Recently they have released the 23rd wealth creation study.

Most channels also get Mr. Aggarwal to discuss on the stock markets on a regular basis.  On YouTube you will see episodes of ETNow or CNBC TV18 where he is featured on a regular basis.  However last year the channel Bloomberg Quint ran a 4 part series with him on investing.  This is the best 4 hours you can spend on learning investing from one of the stalwarts of investing.

There is another person whom I admire from seeing his interviews on television.  he is Riddham Desai of Morgan Stanley India.  You can also see his interviews on either ETNow and CNBC TV18 or on Bloomberg Quint.

Between Riddham and Raamdeo the difference is the fact that one can distill the macro perspectives of the Indian economy so simply and present while the other can focus so well on the micros amazingly.

Have a look at these reports and videos and you will get a great input on how to evaluate stocks.

However stock picking is a tough call and if you don’t want to put in the hard work, then Mutual Funds and ETFs are the best route for you to take.

Till next time….

 

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!!!

 

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.

  1. 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.
  2. 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.
  3. 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.
  4. 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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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!!!

 

 

Investments and Bitcoins

I was recently listening to the Berkshire Hathaway annual conference addressed by Warren Buffet and Charlie Munger.  This was being beamed live via Yahoo.

In this Yahoo presentation before the conference began they had some of their correspondents check out the people who had cone and then one of the correspondents also did a small interview with Warren Buffet.  One of the questions he asked was – what Warren thought about Bitcoins and cryptocurrencies.  This question kind of has stayed with me because this was something which I myself was not clear for a long time and then a lot of people have asked me.

As is usual of Warren Buffet he gave a very simple explanation for what is an investment and what is trading.  This is something which I found very useful and I thought of sharing.

For him cryptocurrency is not a investment because the cryptocurrency has value only in the eyes of the next person who wants to buy it so it’s a commodity for trading and if someone is willing to pay higher price you gamble on that.

Unlike trading an investment is an instrument of some kind which earns on its own even if there is no one to come and buy it from you… so if you buy farmland in your village and even if the next person is not willing to buy it from you at a higher price, at the farm you can still grow crops and have cattle etc. …. Same would be the case in terms of investment in equity…or for that matter even buying a cow can be an investment and the milk can be sold

So if you are wanting to do an investment keep this fundamental concept in mind …..will this item earn for you  irrespective of somebody wanting that item or not.….if you buy foodgrains with the thought that somebody will buy it from you at a higher price then that is trading. On its own foodgrains will not grow more foodgrains for you

So your house for your own living is not an investment – which is something I had written earlier also is a bad idea, but a house which you buy to rent out to generate passive income is an investment and therefore a good investment

Equity purchase of a company which manufacturers or makes something is an investment because the company will continue to produce its goods irrespective of whether someone else comes and buys that equity from us or not

People become financially free when they make investments. These investments earn for them and compounding grows the earnings multiple times over. The longer the runway –  as Mohnish Pabrai puts it – for compounding to play its part the more wealth you create.

Till next time….when you are in a dilema…think very simply ….will it earn for me irrespective whether the other person wants it or not.

Carpe Diem!!!

 

 

 

 

There is nothing sexy in achieving financial freedom – part 2

Yesterday I wrote about how most of these Ultra rich people – Warren Buffet, Tony Robbins, Richard Koch, Robert Kiyosaki – actually followed a system rigorously even when there were roadblocks around the way

The systems required that they had to do some amount of sacrifices. Maybe they did not go out for a date when they were young because they had to ensure that they were closing something as part of their system.

I also realised when I started a bank mandate initially with just a 1000 rupees. Initially it did matter that even before I could utilise the money, the money went out from the bank. But slowly I got used to it and I went on increasing my commitments to the money getting directly debited from the bank into some Investments.

In 3 years I did not realise what a difference that had made to my financial stability. Based on the possibilities that my investments could do, I actually sat down to figure out a date by which if my assets reached a given value I could leave my job and start doing what I want.

While God has been kind in a lot of these endeavours it is also a matter of the systems working and the investments compounding in the background.

For all those young guys if they read this, just a very small portion of their income if they can directly give a bank mandate, for money to be deducted to go into an investment, without they realising, they can all become millionaires.

If you leave it to your discretion that every month you will invest based on what you save…. You will never be able to invest.

The human brain was designed to ensure that it survived and immediate gratification was more important than long term safety. Hence the brain does not allow you to take a chance with your safety of money and wants you to have it till the last moment. But when you have a system to automatically reduce the money from your bank for an investment the brain gets used to the lesser amount of money and you are able to live a similar Lifestyle even with that less money.

Today there are possibilities of various kinds depending on your appetite and the goals that you have to invest in mutual funds in SAP or in a recurring deposit whichever way you want.

Whatever you do and whatever your risk appetite, put a system in place so that it works in the background and gets you to your goal

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