My 7 Resolutions for 2015 – No I Don’t Only Want to Save & Invest. I Want to Spend & Read too!

In few days, we will enter a new year. And I am sure that most of you would be making resolutions for 2015 right now. A study says that 93% of new-year resolutions die by 23rd February. And if these are financial resolutions, then 96% die by 3rd February.

No. Don’t worry. There is no such study. I just made that up. 🙂

I know I am really bad at keeping my new year resolutions. So I won’t be harsh on myself if I am not able to keep them. But still, these are my 7 resolutions for 2015:


  • I will once again try to surrender an endowment-insurance policy, which an uncle of somebody sold me and I can’t surrender it, because of my family’s connection with that somebody’s uncle. 🙂


  • I will increase my Emergency Fund to cover 6 months worth of my family’s expenses. Currently its at a risky 4 months. 🙁


  • I will save atleast 5% of my take-home salary in my Travel-Fund. I will push my wife to do it too. 🙂 We love travelling and that requires planning and money. Apart from investing, I also rant (at times) about my travels on TripAdvisor. You can read a few here.




  • I will use my Market Crash Fund (with courage)… if markets go down by 15%-20% this year.


That’s all. I wish you all a very happy and prosperous New Year.



I personally want markets to correct in 2015…and that is because like previous few years, I will continue to be a net buyer of stocks even this year. But if you need some of the money (you invested earlier) in 2015, then I will pray for it to be a bullish year for you. I will wait and buy shares in 2016 🙂

Once again, have a happy and prosperous new year. Will say Hi to all of you in 2015 now.

Advertisements

Will the Next Big Market Crash Come Before 2016?

I was reading this interesting article herewhich made quite a lot of sense. The main theme of the write-up was whether technology is the culprit which is speeding up the market cycles?

I am not sure whether it is (entirely) correct to put the blame of quickened pace of market rises and falls to technology, but some parts of the article made sense to me. For example, in one paragraph, the writer quotes William Bernstein, a brilliant author and investor:

The Great Internet Bubble will not be the last of its kind, but if history is any guide, we should not see anything approaching it until the next generation of investors takes leave of its senses, sometime around the year 2030. If the current generation gets caught out again, we should be very disappointed, as no previous generation has been so dense as to have been fooled twice. [2002]

Little did Bernstein know that after just 5-6 years, there would be another bubble (real estate – subprime) which will implode. And alongwith it, bring down big and established financial institutions on their knees. Many countries around the world are still trying to deal with that event.

In another example, he says that it took almost 25 years for markets to surpass the 1929 stock market peak (reached just before the depression). Compare this with the all-time highs of 2007-2008, which were surpassed after just 6 years (after the correction). Also, more than 65% of the losses from crash occurred in just six months, from mid-September of 2008 (after Lehman Brothers failed) to early-March of 2009.

1929 Stock Market Crash
Will such newspaper headlines become reality soon?
I am still comparatively new to stock markets, but frankly speaking, it does seem that everything happens at a quicker pace these days.

A recent example of increased pace of events is the surprisingly quick fall of oil prices. Almost no one knows why the world’s most important commodity has fallen almost 50% in just 6 months. Professor Damodaran gives some insights here though.

It simply seems that the speed at which information is being disseminated is clearly having an impact on market cycles. To quote the author, “there is acceleration in the ups and downs of market cycles from the flow of information and its instantaneous dissemination through channels such as social media and other forms of online communication.

People are now geared towards short-termism. Many are in the act-first, think-later mode. When the implications of our decisions aren’t accompanied by enough time and deep thought, unintended consequences will occur with more frequency.

The crash of 2007-2008 was not supposed to take place just few years after the dot-com crash of 2000. And the general perception about 2009 lows of markets is that it was once in a lifetime event. 

But looking at trends, and more importantly pace of things happening around us, don’t be surprised if we very soon get to witness our SECOND ‘Once-In-A-Lifetime-Event’ 🙂

Boring Tuesdays – Three Things to Read Today – 3

Hi Guys

It’s the second last Tuesday of 2014. Hopefully you would be getting ready to go on a vacation to celebrate your new years. So before you leave, I share with you three interesting articles.


So here it is…

Article 1

‘All past market crashes are viewed as opportunities, but all future market crashes are viewed as risks.’Makes Sense…isn’t it? How about this – ‘A couple of times per decade, investors forget that recessions happen a couple of times per decade.’ There are 14 more such statements, waiting for you in a Stunning List of 16 Rules for Investors to Live By.

Note – If the link asks you to subscribe, just copy the title of the article (in link) and search on Google. And then click on the first search result. You will get access to full article without subscribing. 🙂

Article 2

Let me ask you two things. Why are you not part of the richest 1% of your country? And how much of your total income comes from not working for others? Strange questions…Right? Joshua Kennon tells you How the Richest 1% Generate their Income. It’s a short but powerful, eye-opening article, which clearly shows what we should be aiming for.

Article 3

He bought a stock at $38 which later went down to $27. On way to the school, his sister reminded him daily, that even her stocks were going down. He felt terribly responsible. When the stock recovered, he sold with a small $5 profit. Almost immediately after, the stock soared to $202 a share. Warren Buffett remembers this episode as one of the most important ones of his life and which made him learn Three Very Important Lessons about Investing, early in his life.

That’s all guys…

If you missed the last two posts of Boring Tuesdays series, you can read them here and here.

Note 1 – Next article in this series would be published on 6th-Jan-2015 and not on 30-Dec-2014, as I will be busy with my own new year celebrations. 🙂

Note 2 – And if you find interesting articles which you want to share with others, please copy+paste the link to that article in comments* or drop a mail to stableinvestor@gmail.com


*Don’t worry if your comment is not visible as soon as you post it. Anti-Spam filters generally detect hyperlinks in comments (which you are sharing) and automatically park it for my review. I will eventually be notified about your comment. 🙂

Interview – Safal Niveshak’s Vishal Khandelwal – Part 4 (Final Part)

This is the fourth and final part of this interview. You can read the first three parts at the following links:

Part 1  |  Part 2  |  Part 3
Question 10.

From your blog I know that you do not prefer Index Funds even though they are highly recommended as decent options for average long term investors. Do you think that an average investor is better off picking an actively managed fund over index funds, despite the risks associated with fund manager and his team’s ability?
A. To clarify my stand on index funds, these are what I personallydon’t prefer because I trust a few active managers more than the index. However, that’s not to take away from the simplicity of investing in index funds, which people not wanting to choose active managers or direct stocks, must do.
In investing, the most important thing is to know what you don’t know. So if you don’t know how to pick stocks directly and how to pick the right active funds directly, it’s better to start with a passive, low-cost index fund.
Since there’s not much differentiation between different index funds, pick the one with the lowest cost and from a decent fund house.

Question 11.

As an allocator of capital for your personal and family wealth, what percentages do you generally have in equity / non-equity baskets (ignoring real estate investments)? The percentage allocations might be dynamic depending on market conditions, but what is the thought process behind the decision making when allocating capital to various asset classes?
A. Well, my allocation is not so much dependent on the market conditions as it is dependent on when I need the money.
Any money I need in the next 1-3 years, plus my emergency fund that is around 6-8 months of my household expenses, I don’t invest much of that in stocks.
However, of all the money I need beyond three years, I invest 80-90% of the same in equities, either directly in stocks or through equity funds.
Largely, I try to keep 80/20 allocation between equity and bonds, with the latter also including some gold.

Question 12.

If you were to go back to the start of your career as an investor, would you like to change something – add or delete?
A. Nothing to delete, but I will like to add a greater amount of patience. I have always been a long term investor, but I have lost a lot of wealth-creation opportunities by owning some great businesses for just 2-3 years which should’ve been owned for 15-20 years. So I have lost a lot of potential gains.
Another mistake I made, which I would like to correct if I were given a chance to go back in the past, is that I used to get anchored to stock prices. So I’ve sold a lot of stocks that earned me 100-200% returns just because they earned me 100-200% return, and because I was anchored to my buying price.
Your original cost price, as I realize now, does not matter when you are making a decision to hold or sell a stock, or buy more of the same. Then, once you have bought a great business – and there aren’t much of such businesses – it’s important to sit tight on it for years until the business itself does not change for the worse.
So yes, if I could, I just want to add more patience to my past investing decisions. How I wish that was possible. 🙂

Question 13.

What would you say to those who are just starting to learn about the markets and investing their own money?
First, read Safal Niveshak. 🙂
Jokes apart, here are my ten quick suggestions to a new, young investor –
1.      Start…don’t wait
2.      Read everything
3.      Know that you don’t know…a lot
4.      Keep it simple and minimalistic
5.      Turn off the noise
6.      Have patience
7.      Focus on process, and outcome will take care of itself
8.      Accept that you will make (a lot of) mistakes
9.      Find your role models
10.    Know what to avoid (like leverage, trading, and speculation)
Finally, while these ten suggestions/rules can help a new investor take better care of his/her money and financial life, I would also suggest him/her to not get too focused on these things that he/she loses out spending time on the real joys of life.
As a wise man, or maybe a woman, once said, “No matter how hard you hug your money, it never hugs back.”

Question 14.

For a young person who avoids investing in stock markets (due to risks & volatility), what examples will you share to convince him to start investing?
I don’t believe in convincing people, but inspiring them.
So, to such a person, I will try to inspire him/her by sharing my own experiences and the numerous stories of others who have created wealth for themselves using the power of compounding over long periods of time.
I will also gift him a few books like…
These books have inspired me a lot when it comes to taking proper care of my money, and I am sure these will inspire the person I gift them to, if he/she were read them diligently.

Question 15.

What’s your final, two-minute advice for an investor?
A. Nothing, as I’ve already advised a lot. 🙂
Just love your family more than the money. Be a good son/daughter, spouse, and parent.
Your best investment in life would not be any stock or bond or real estate or gold, but the time you spend with your child. Life can pull you in a thousand directions, and you might ignore it especially when your child is little. But remember – Children don’t stay little for long. So, slow down…take some time…give some time…invest some time.
And finally, please take care of your health. If you want to benefit from compounding, you need to be alive and in good health beyond 50 years of age.
If you have great health and a loving family, there’s no bigger wealth you can ask for in life.

The End

______________________________________________________________________________

Brief Bio

Vishal Khandelwal has 11+ years experience as a stock market analyst and investor, and 3+ years as an investing coach. He is the founder of Safal Niveshak, a website dedicated to helping small investors become smart, independent, and successful in their stock market investing. Over the years, Vishal has trained 1,500+ individual investors in the art of investing sensibly in the stock market, through his Workshops and online investing courses.

Mailbag: What are DVR Shares which State Bank of India (SBI) is planning to issue soon?

I got this question from one of the readers yesterday. The State Bank of India’s Chairperson recently announced, that they were going to look at issuing shares with differential voting rights (hence the name DVR) to raise funds to meet the Basel-III capital adequacy norms.



Government has also clearly indicated that it won’t continue to fund Public Sector Banks indefinitely. And these banks now need to look after their own needs. I believe that it is easier said than done because any problem, which these banks face will eventually become the problem of the government – reason being that these banks are deeply woven into the fabric of Indian economy, and hence the government cannot have a hands-off approach with them. But nevertheless let’s believe the government for the time being. 🙂 

The government has allowed these banks to raise up to Rs 1.60 lakh crore from markets by diluting government holding to 52% in phases – so as to meet Basel III norms, which come into effect from March 31, 2019. The norms are aimed at improving risk management and governance while raising the banking sector’s ability to absorb financial and economic stress.

So what exactly is this DVR creature?

What are DVRs?

Differential Voting Rights shares or as popularly known as DVRs, are a special category of shares issued by an already listed company to raise funds, with lower dilution of ownership when compared with issuance of normal shares.

Like ordinary shares, DVRs are also listed and traded on stock exchanges.



How are DVRs different from ordinary shares?

A DVR provides fewer voting rights to the shareholder than a normal share. While a normal shareholder generally has one vote per share held, a DVR shareholder needs to hold many more shares to get the right to ‘one’ vote.

One example of an Indian company having DVRs is Tata Motors. A normal shareholder of Tata Motors gets one vote for every share, whereas a holder of DVR shares gets one vote for every 10 shares held.

Companies generally compensate DVR shareholders with a higher dividend. A Tata Motors DVR has 5% extra dividend than normal shareholders as compensation for lower voting rights.

DVR generally trade at a discount to ordinary shares and Tata Motors has seen its DVRs historically quote at more than 30% discount to normal shares. I have written about the dual categories of shares of Tata Motors – Ordinary and DVR earlier too.


Is issuing DVR a common practice? Haven’t seen many in India.

Indian companies have somehow been averse to issuing DVRs. Apart from Tata Motors, very few have gone on to issue DVRs of their own – namely Gujarat NRE Coke, Jain Irrigation, etc. World over its a much more common practice and well known companies like Google, Berkshire Hathaway have dual categories of shares listed on exchanges.

Boring Tuesdays – Three Things to Read Today – 2

Its Tuesday again and I am here to share with you some articles which I found interesting. Hopefully it will brighten up this boring Tuesday a bit 🙂

Boring Tuesdays Readings

So here it is…
Article 1

I completed my MBA couple of years back and have realized that even though, they teach a lot about finance in B-Schools, there still aren’t many rich professors 🙂 Guy Spier in this beautiful article, tells you why it makes sense to read Warren Buffett’s Letters to Shareholders instead of doing a MBA.

Article 2

Rs 10,000 invested in this company’s stock in 2001 is now more than Rs 3,10,000 i.e 31 Times!! And that’s despite the company operating in a highly cyclical industry. Forbes has documented an interesting story about how Mahindra became the King of Indian SUV market and why it is still going to rise further.

Article 3

This is a story about someone who took his girlfriend to attend Berkshire Hathaway’s Shareholder Meeting. As of now, Wall Street bankers are fighting off each other to give their money to him. This college dropout is now known as The 400% Man.
That’s all guys…

If you missed last week’s Boring Tuesday post, you can find it here.

And if you find some interesting articles which you want to share with others, please copy+paste the link to that article in comments* or drop a mail to stableinvestor@gmail.com

*Don’t worry if your comment is not visible as soon as you post it. Anti-Spam filters generally detect hyperlinks in comments (which you are sharing) and automatically park it for my review. I will eventually be notified about your comment. 🙂

Interview – Safal Niveshak’s Vishal Khandelwal – Part 3

You can read the first two parts of this interview at the following links:

Question 6.

Compared to good old days, the amount of noise (useless information in common terms) is much more today. How do you cut out the noise and remove personal biases while evaluating potential investment?

I think one of the keys to investment success is to avoid noise. And the best way to avoid noise is to learn to say ‘No’.
I say ‘No’ to a lot of things. In fact, to most things. That helps. I don’t watch business television, nor do I read newspapers. I have not had a newspaper delivered to my house for the past 5-6 years now. Also, I do not participate in stock discussion forums. That saves me a lot of time and energy that I would have otherwise wasted amidst the noise all around.
It was of course difficult at the start to avoid noise because I used to mix that up with information, and information to me meant wisdom. But ever since I have learnt to differentiate between the noise/information, knowledge, and wisdom, I have tried to keep as much away from the first i.e., noise/information, soak in as much of the second i.e., knowledge, and work towards building wisdom. There’s a long road to travel to become wise, but my journey has begun.
You see, the problem with noise or information is not only that it is diverting and generally useless, but that it is toxic.
Look at how too much noise and information creates commitment and consistency bias amongst most of us. We want to consume so much information because we are perennially in search of the ones that are consistent with our worldviews.
So if I believe, say Tata Motors, is a great business, I will scour for information that proves it is a great business, and dismiss every information that tells me how foolish I am in my belief.
If I believe the Sensex is heading towards 100,000, I will keep myself busy searching for information that validates my belief, and ignore every person who tells me how the stock market does not move in a straight line.
That’s an utter waste for time and brainpower, both of which are in such short supply (at least I can say the same for myself).
In a recent post on Brain Pickings, which I suggest every one trying to become wise must read, the author Maria Popova shared an essay on seeking wisdom in the age of information. She wrote…
We live in a world awash with information, but we seem to face a growing scarcity of wisdom. And what’s worse, we confuse the two. We believe that having access to more information produces more knowledge, which results in more wisdom. But, if anything, the opposite is true — more and more information without the proper context and interpretation only muddles our understanding of the world rather than enriching it.
This barrage of readily available information has also created an environment where one of the worst social sins is to appear uninformed. Ours is a culture where it’s enormously embarrassing not to have an opinion on something, and in order to seem informed, we form our so-called opinions hastily, based on fragmentary bits of information and superficial impressions rather than true understanding.
The Dutch philosopher Spinoza suggested that wisdom is seeing things sub specie eternitatis, that is, in view of eternity.
A fundamental principle of wisdom is to have a long term perspective; to see the big picture; to look beyond the immediate situation.
That’s a great advice for me as an investor – to have a long term perspective; to see the big picture, and to look beyond the immediate situation. That’s the dawn of wisdom.
But them, wisdom requires humility. You must be teachable. You must be willing to live with understanding, with meaning, and with wisdom. And you can do all this only when you say “no” to noise.

Question 7.

This question came in from a reader of Stable Investor. How do you generate investment ideas? Is it through screening, or reading, or blogs, or from your personal sources like friends and fellow investors?
Well, it’s a mix of all.
As far as screening is concerned, I largely used Screener.in, owned and managed by my friend and fellow investor Ayush Mittal. I also sometimes used Morningstar and Google Finance. In fact, I had written a full-fledged post on screening and generating stock ideas here, which I would direct your readers to read.
While don’t read much apart from investment books, among the few magazines I read and find good are Forbes India and Outlook Business. These publish a lot of good insights on businesses, both listed and unlisted.
Among blogs, my favourites are Fundoo Professor written by Prof. Sanjay Bakshi, Value Investor India written by Rohit Chauhan, and of course your own blog, Stable Investor.
A few exceptional international blogs I read include Old School Value and Farnam Street, the latter not directly related to investing but to multi-disciplinary mental models.
Finally, I find a lot of great investment ideas inside my existing portfolio itself. 🙂

Question 8.

Thinking back, what would you say was most instrumental in your development toward investing sensibly and successfully in stock markets?
A. Finding my role models, I must say. Sensible investing is something you either pick up instantly or you don’t. So I have been lucky to get introduced to the writings of Buffett, Munger & Co., and then to Prof. Sanjay Bakshi. I just fell in love with what they had to say and that, I believe, has made the difference.
As I understand, you become the average of five people you spend the most of your time with. Three of those five people I spend most of my time with (not face-to-face, but vicariously) are Buffett, Munger, and Prof. Bakshi, and that has really helped me build a sensible process for investing.
How successful that process will be, only time will tell, but I am not worried about the outcome knowing that the process is all I have control on.
So yeah, to answer your question, finding the right role models has been the most instrumental factor in my development toward investing sensibly. And why just investing, these people have helped me tremendously in becoming a better, more humble person, than I was a few years back.
I would like to leave you here with a brilliant quote from Guy Spier’s book The Education of a Value Investor. He writes about the criticality for a budding value investor to find his role models early in life…
…there is no more important aspect of our education as investors, business people, and human beings than to find these exceptional role models who can guide us on our own journey.
Books are a priceless source of wisdom. But people are the ultimate teachers, and there may be lessons that we can only learn from observing them or being in their presence. In many cases, these lessons are never communicated verbally. Yet you feel the guiding spirit of that person when you’re with them.
Role models are highly important for us psychologically, helping to guide us through life during our development, to make important decisions that affect the outcome of our lives, and to help us find happiness in later life.

Question 9.

What is the best advice you got from your investment guru or mentor?
A. I would mention two advices here. One, keep things simple. And two, learn to say ‘No’. Whether it’s how I pick my stocks or how I live my life, these two advices have helped me tremendously.
Simplicity – in thinking, in my investment process, and the kind of businesses I pick – is what I learned largely from Buffett.
Saying ‘no’ to things is what Munger taught me. I believe, Munger’s quote – “All I want to know is where I’m going to die so I’ll never go there” is one of the most important ideas that investors must always remember.

To be continued… (Final Part remains)

______________________________________________________________________________

Brief Bio

Vishal Khandelwal has 11+ years experience as a stock market analyst and investor, and 3+ years as an investing coach. He is the founder of Safal Niveshak, a website dedicated to helping small investors become smart, independent, and successful in their stock market investing. Over the years, Vishal has trained 1,500+ individual investors in the art of investing sensibly in the stock market, through his Workshops and online investing courses.

A Short Story to tell why You shouldn’t Compare Your Portfolio Returns with Index Returns

There is a general trend to compare your portfolio returns with returns of popular indices like Sensex and Nifty. And this is not a recent phenomenon. It has been going on since years. Ask anyone and they will tell you that their portfolios have beaten Sensex by 5% or 10% year on year.

Here is a short but interesting story about why it doesn’t make much sense to do it:

Years back, there was a man searching for something under a streetlight. A policeman comes by and asks what he’s lost. The man replies that his keys are missing and he can’t get back into his house.

After a few minutes searching together, the policeman inquires whether the man is sure he lost his keys under the lamp.

No, the man replies, he lost them in the park.

“Then why are we searching here?” exclaims the officer.

“This is where the light is,” replies the man, continuing to search.

Story Investing Street Lights

That is the end of the story. Can’t get it?

Don’t worry. Read further…

The problem with evaluating relative performances is that you can’t get much out of relativity, i.e. you can’t eat relative performance. And the biggest problem with relative performances is that it ignores what an investor actually needs? Some investors invest for growth. Others might invest for generating dividend income. And many like me invest for a combination of the two. 

And comparing short term relative performances when you are investing for longer time horizons like 5 or more years does not make much sense.

And an index is not designed keeping in mind an individual investor’s needs. Remember that. So if you are comparing your portfolio performance with that of an index, then remember that index does not know that you use it (and not your actual needs) to judge your portfolio performance.

So if you really want to find your lost keys, you need to look where you’ve lost them, not where the light is (index performance). And if you want to know how your portfolio is doing, compare it to your actual needs and not any arbitrary index.

Note 1 – The idea for this post is sourced from here.

Note 2 – If you want  to read another interesting story about monkeys & goats and what they tell about stock markets, then you can read it here.