Boring Tuesdays – Three Things to Read Today – 1

I know. Just yesterday it was a Monday. And a day before that, it was a Sunday. And you are already waiting for the weekend to arrive. 🙂 Sorry I can’t help you with that. Weekend is still a few days away.
But there are few articles which I found interesting while reading stuff on internet in last few days. And I thought I will share it with you to brighten up this boring day.
Article 1
“When most people say they want to be a millionaire, what they really mean is to say ‘I want to spend a million dollars’, which is literally the opposite of being a millionaire.”
Liked it? Great…There are 139 more such amazing thoughts which the author has recorded in this beautiful compilation titled ‘140 Things to Know about Investing’ (the author has removed this article).
Article 2
Now listen to this very carefully. If you have to sit and read this long article for next 15 minutes, then please do so. This is the fastest way of getting your MBA in finance and how to manage your money, instead of your money managing you. Don’t miss this one guys…This is indeed what it claims to be, the Ultimate Cheat Sheet for Investing.
Article 3
You have always been bombarded with long lists of wise quotes by intelligent investors. Now this one is different. Here is a hilarious list of Stupid (& Laughable) things people in stock markets say.
That’s all guys. 
I hope you have an interesting Wednesday, Thursday & Friday. As far as Saturday and Sunday are concerned, they take care of themselves. 🙂

Had He Not Bought That House For Rs 27 Crores…

Since childhood, we are brought up with this idea that we should buy our own houses as soon as possible. And for almost everyone, house is the biggest investment (or expenditure) which one makes during his lifetime. And there is absolutely nothing wrong with that.

But there is something that makes me restless.

Why is it that as soon as we start earning, we should commit ourselves to make the biggest investment of our lives, and tie ourselves for next 15 – 25 years of paying EMIs? Are we really supposed to live a life like that?

Real Estate Cartoon

Don’t get me wrong. I am not saying that one should not buy a house at all. I am just weighing the pros and cons of buying a house early on in one’s career.

Few days back while surfing the internet, I came across this interesting post, where it was said that in 2005, one of India’s most well known investor Rakesh Jhunjhunwala sold some shares of CRISIL for purchasing a house in Mumbai. The amount received on selling the shares was Rs 27 Crores. The house today might be worth Rs 50 to 60 Crores. This means a compounded annual growth of 7% to 9.5%.

Now what would have happened had he not sold his shares in the company?

I am not sure if he purchased that house for living purposes or for investment. Had it been for living purposes, it’s possible that he would still be staying in a house on rent(!) And assuming he paid a rent of Rs 2 Lac a month, till now he would have paid close to Rs 2.1 crores as rent itself. Seems horrible… right?

But what happened to 27 Crores worth of shares then?

The shares are now worth a whopping Rs 700 Crores!! A growth rate of more than 43% every year!! 🙂

Now we are not experts like Jhunjhunwala or Buffett. We may not be able to find multibaggers like CRISIL. But we can find mutual funds which offers reasonable growths…isn’t it? Any reputed well diversified equity mutual fund scheme would have given returns in excess of 15% in last 10 years. And that is more than what real estate offers.

Now does it not make sense that early on in our financial lives, we should invest as much as possible in equities? If not directly, then through mutual funds? Returns are far more than what average real estate offers. And you also don’t have to remain stuck with paying EMIs for decades. Why not stay on rent and invest the remaining amount? I know it sounds controversial but I am just doing loud thinking.

I seriously think that our mindset of buying house early on in our lives needs a serious rethink.

Note – I know people around us these days, are constantly talking about doubling their real estate investments every 2-3 years. But believe me that this is an exception and not a norm. Trends like these do not continue forever.

If Other People Were Like Stock Market People – Thankfully, They Are Not!

Stock Market is a strange place. A really strange one…

At times, things which happen here are so far away from common sense, that if aliens were looking at stock markets, they would refuse to make any contact with humans… because lack of common sense shown here proves that we may not be an intelligent form of life at all.

One of the simplest examples of stupidities in stock markets can be illustrated as follows: We wait for discount sales and promotional offers when we want to purchase clothes, furniture, etc. But when the same discount sale starts in stock markets, we run away. We are no longer interested in purchasing goods (stocks) which are available in markets at cheap prices and at very high discounts.

I just read an interesting article by Morgan Housel here, which almost forced me to imagine my own set of hypothetical situations, where other people start behaving like those in stock markets.

In each of the following situations, I have used my name (Dev) instead of anybody else’s, to avoid getting into conflict with readers for use of anybody else’s name. Unfortunately, if your name is Dev too, then please accept my apologies 😉

So go on…Enjoy the rest of the post… 😉

If we are as impatient about gardening as we are about investing: Dev plants some seeds in his backyard. He checks them after 4 hours. Nothing changes. He digs them up and replants them. Four hours later…. still nothing changes. Two days later, Dev is disheartened and angry that there is no mango tree in his backyard. He calls mango trees a big scam.

If we thought of private businesses like public businesses: Dev owns a bakery. One year he sells 1024 cakes. The next year he sells 1023 cakes. Business channel reporters stand in front of his bakery and call him incompetent and unworthy of running a bakery.

If medical advice is given as universally and indiscriminately as financial advice: Dev is a doctor who goes on TV talking about the benefits of a new cancer drug. He doesn’t mention that unless you have cancer, the advice is irrelevant for you. Unaware, half of the viewers start using the new cancer drug despite not having cancer.

If we credentialed doctors as easily as we do stock brokers: Dev keeps shouting just one thing: “the hip bone is connected to the leg bone.” This simple and obvious observation qualifies him to be a famous ortho-surgeon and your life is now in his hands.

If we held weathermen to the same standard as stock market experts: Dev, a local weatherman has been predicting since 1990s, that next year, it will rain in Delhi during monsoons. As common knowledge is, monsoons do bring in rains every year in India (including Delhi). But Dev is inducted into the Meteorology Hall of Fame for his “spot-on, dead-accurate forecasts of the Delhi’s climate for last 20+ years.” 

If we checked our physical health as often as we check our portfolios: Dev wakes up in morning and checks his blood pressure. He checks it again before breakfast, during breakfast and after breakfast. He checks it again just before leaving for work. When he reaches office, he checks it again, then again before lunch, and twice before leaving office. During one of these times, he weighs himself during the day and notices that he has lost half a kilogram. He calls his doctor to find out about his health and what exactly is going on.

If we thought of school grades like we do corporate accounting: Dev gets an ‘F’ in maths test, but says he actually got an ‘A’ if you strip out one-time bad answers on a pre-mistake basis. His teacher* buys the logical explanation and gives him an ‘A’ in report card.

* -‘Auditors’ 😉

Stable Investor Completes 3 Years – My Letter to You

Today Stable Investor completes 3 years. So congratulations are in place. 🙂 I wanted to write a long speech but that’s not my forte. So will keep it as simple and as direct as possible.
So first of all, I take this opportunity to thank myself for being the one man unit behind the concept of Stable Investor. ;-P ;-P
Secondly but more importantly, I thank You. It would not have been possible without your support, time, comments and feedback. Had it not been for you all, I would have been like a person in closed room, shouting out his thoughts about investing with no one to listen to.
So thank you once again for listening to me.
Stable Investor Birthday
Not a day goes when I don’t think about what I should write here on Stable Investor. It has become such an integral part of my life that I am now unable to imagine how I used to spend my free time before starting Stable Investor.
This 3rdyear was an important one as I launched my first premium product Ultra Long Term Stocks in June. I was pleasantly surprised by the response which it received and would like to thank subscribers of Ultra Long Term Stocks in particular once again.
Some numbers to gauge what has been build in last 3 years – I have written a total of 179 articles; Have received more than 5.8 Lac pageviews; Email subscription has reached 1400+ and there are quite a few hundreds subscribing to RSS feeds using feed aggregators. Facebook Page has crossed 3200 Fans and there are more than 650 Twitter followers of @StableInvestor.
These numbers are not big ones but still mean a lot to me as each one represents a person who is ‘actually’ interested in real long term investing.
And that is what keeps me motivated on this long journey of learning about investing and of course about getting to know my real self a little better.
Stable Investor is all about Investing – So I share with you this thought by Morgan Housel which I read some days back:
Investing isn’t easy. It can get emotional. It can make you angry, nervous, scared, excited, and confused. Most of the time you make a decision under the fog of these emotions, you’ll do something regrettable. So talk to someone before making a big money move. A friend. An advisor. A fellow investor. Just discuss what you’re doing with other people. “Everyone you meet has something to teach you,” the saying goes. At worst, they give advice you don’t agree with and can ignore. More often, they’ll provide prospective and help shape your thinking.
So I request you to be my friend, advisor and a fellow investor – who helps me on this path and helps me learn and get over my mistakes.
Thanks once again…
Looking forward to do more in fourth year. 🙂

Someone Said I Have Double Standards. My Reply – It Works For Me & I Will Stick To It

A few days back on a flight to my hometown, I was reading a book on Warren Buffett – Tap Dancing To Work. The person sitting next to me got interested and asked me whether the old man on cover was the well known investor Buffett. This question was the start of our small but interesting conversation about stock markets in general and my investment philosophy in particular.

Now this person was far more talkative than a few which I know of. And hence for 90% of the 2 hour flight, I ended up listening to him. 🙂
It became quite clear that he had burned his fingers (& money) in 2000 and again in 2008 Crisis. He also seemed to be having a tough time believing in market’s potential to make people rich. Anyways…he told me about a lot of stocks which I had not heard of. And unsurprisingly enough, these stocks had brought down his portfolio substantially in past.

But the interesting part came when he asked me about what I was buying in current markets, which are regularly making new life-time highs. I told him that apart from few stocks which I purchase regularly (almost irrespective of prices & for really long term), I am not buying anything.

He was surprised as he thought that since everybody else is buying…and if I considered myself to be an expert investor (since I was reading a book on Warren Buffett – ;p ), I should also be buying stocks and finding potential multibaggers. 
I told him that I am not looking at finding the next multibagger and am pretty satisfied with my mutual fund SIPs and few stocks which I am accumulating in my core portfolio. He unsurprisingly was not impressed with my reply.

Then he asked me what I did in 2008-2009 when markets crashed. And whether I was able to get out of markets in time? I told him that since I had just started earning during those years and still did not have significant sums in markets, I never cared about getting out of markets at that time. I was rather more concerned about getting in when share prices were falling like anything and there were plenty of no-brainer deals available if one looked carefully.

This ticked him off somewhere deep. He said that:

“This is not how an investor operates. You should be able to get out before a market starts to fall. And start buying when markets are ‘supposed’ to rise for next few years. You seem to have double standards in stock markets….you try to buy when no one is buying and try not to buy when everyone else is buying.”

Double Standards Markets

I told him clearly that I don’t know what a typical investor, or for that matter an expert investor should do or shouldn’t do. 

But I do what is in accordance with my personality and risk appetite. I also said that his comment of ‘markets are supposed to rise’ was not sensible as markets are not controlled by anyone and cannot be predicted. And that for a real long term investor, it doesn’t make much sense to time the markets.

If others are comfortable buying in rising markets then so be it. I am not and I will not go with the trend.

There was nothing noteworthy in rest of our conversation as this person realized that I could not be convinced and I realized that its not easy to convince someone about the benefits of long term investing when that ‘someone’ has lost a lot of money in markets.

Thankfully for me, pilot’s announcement of approaching destination came as a way out of the discussion, where for the first time I was accused of having double standards and I happily accepted it. 🙂

A Short Story About Monkeys & Goats – To Convince You To Buy Stocks of Only Good Businesses

Markets are making new highs. And increasing number of people around you are discussing about stock markets these days. Though we still haven’t reached a point where housewives start discussing stocks, there does seem to be an underlying current in market, which is making people believe that it’s easy to make money in stock markets.

I know that most people won’t agree with me if I say that it’s best to bet against the crowd in stock markets. Even though the same has been advocated by Warren Buffett when he asks us to Be fearful when others are greedy and be greedy when others are fearful.

So frankly speaking, there is no point in trying to convince someone who has already made up his/her mind to invest in a rising market. So instead, what I feel is that it’s more important for such people to understand something else…

Read the story and you will understand…

Monkeys Goats Stock Markets

Note – This story isn’t quite the same as the monkey story you may have got in one of those chain-forwarded emails.

So there was this village where one day a man appeared and said that he wanted to buy monkeys. He said that he would pay Rs 100 per monkey. The villagers caught all the monkeys in the neighbourhood and sold them to him for a hundred rupees each. Soon another man appeared and said that he would pay Rs 200 for each monkey. But there weren’t any more monkeys around. They were all owned by the first man. So the villagers went to him and said that they were willing to take the monkeys back and return his money. But the monkey owner was unwilling to sell. The villagers raised the offer price to Rs 150 per monkey, then Rs 175 and finally to Rs 199 but the man just didn’t want to sell, even though he clearly didn’t have any use for the monkeys. Eventually, just to see whether he would sell, they offered him Rs 200 but he still refused.

The villagers were puzzled by this. Finally, one of them figured out that there must be someone else who was going to come to the village and offer even more money for the monkeys. Convinced that this was the real explanation, they went and offered the man Rs 300 for each monkey and sure enough the man accepted. Joyous at having landed such a good deal, they quickly paid him off before he changed his mind and took possession of the monkeys. The man went away with his money and lived happily ever after. The villagers waited for the next buyer. And waited… And waited… But no one ever appeared who wanted to buy a monkey.
But wait.

If you think you’ve guessed the moral of the story, you are wrong because the story isn’t over yet.

There was another village nearby. In this village a man appeared one day and offered Rs 1000 each for a goat. Now goats were valuable, but not as much as a thousand rupees so the villagers sold the goats to this man. A similar thing happened here too. A second man appeared, offered Rs 2000 for each goat, the first man refused and eventually the villagers ended up buying the goats back for Rs 3000 each. Here too, the two men disappeared and no one ever came and offered so much money for a goat again.

But there was a difference.

Goats aren’t monkeys. They could be milked every day and the milk was good and healthy. Even the goat droppings could be used as fuel (not sure of it though). When the goats eventually grew too old to be milked, the villagers could kill them for mutton. All in all, it wasn’t a complete disaster.

But the monkey-owners were not so lucky. Since these weren’t demat monkeys, they actually had to be kept in one’s house. The monkeys ate too much, shouted and shrieked all day and sometimes bit people.

Eventually, when it became clear that the monkeys were worthless, their owners abandoned them and tried to forget about their losses.

And that’s the Moral of the Story.

In the stock markets today, there are good companies that are overpriced and there are worthless companies that are overpriced. If you are going to be a fool and pay absurd prices because you think that a greater fool will appear in the future, make sure you buy a goat and not a monkey.

Note– The story is sourced from here.

10 Stock PSU Banks Portfolio – 1st Year Performance Update

Caution: Lots of Graphs ahead. 🙂

Its been one full year since I started tracking PSU Bank stocks using a 10 stock portfolio. The catalyst for putting this portfolio in place was a feeling that PSU Banking space seemed relatively cheap (in November 2013) when compared to historical averages. I further hypothesized (or rather speculated) that over a period of next 5 years, this space would give better returns than broader markets.

And this speculative thought led to this portfolio and its quarterly tracking.

Portfolio Composition & Weightages

The portfolio which started off as an equally weighted one with all stocks sharing 10% of initial capital has moved a bit in last one year. It has now tilted more towards large caps due to better performance of larger banks than smaller ones over the last one year.
Banking Stock Portfolio Weightages
Current Banking Portfolio - Large Caps
Overall Portfolio Returns

So how has the portfolio fared in first year of its 5 year journey? To be honest, the results have been better than what I expected a year back. But that is not only because of low starting valuations or my stock picking skills. It is actually because of sudden rebirth of the Indian Bull Market. The portfolio has returned more than 42% (excluding dividends) and 45% (including dividends) in last one year. This is much higher than market returns of 35.8% in the same period.
Bank Portfolio Yearly Returns
Initial & Current Portfolio
Individual Stock Performances

But not all stocks have performed equally well. If we were to look closely at next graph, we will find that larger banks have performed much better than smaller ones. Four of the five large banks have given returns higher than market returns of 35.8%, whereas only one among the smaller ones has beaten market in last one year.

Portfolio Stocks Vs Index Returns
Quarterly Portfolio Performance

On a quarterly basis, the portfolio has been quite volatile. Though it wins the annual race comfortably, it should be noted that in 3 of the last 4 quarters, broader indices have beaten this portfolio!! It was only because of a jaw dropping 2nd quarter performance, that annual returns of the portfolio could beat the overall markets.

Quarterly Banking Portfolio Returns
This also shows that if someone was brave enough to go out and buy these banking stocks in February 2014, when they had come crashing down, the current returns would have been much higher the 45%.

It’s been rightly said that you need to show some Courage in Crisis (and take Cash-backed decisions) to make money in stock markets. But its tough to time the markets for average investors like. Period.

You can read more about the quarterly portfolio performance using links below:

Dividend Income from Portfolio

Apart from market beating capital appreciation, these stocks have also given dividends which are in line with expectations from PSU stocks. The ten stocks have cumulatively earned dividends of Rs 3173 on original investment of Rs 1 Lac. This gives a dividend yield of 3.17% to this portfolio – Decent by historical standards.

Banking Stocks Dividends
I know a lot of investors do not like stocks paying dividends as it means that company does not know what to do with its cash. But I personally prefer dividend paying companies. But this does not mean that I own all these shares in my personal or family portfolio. 🙂

So what should be the expectation for next 4 years? If one expects this portfolio to give similar returns (45%) for next four years too, then that would be wrong and over-optimistic. Under normal circumstances & assuming that common sense will prevail, maintaining a 45% rate for a portfolio of 10 stocks for five years is not possible – Assuming that we are not Warren Buffett. 🙂

But out there in markets, there are people who are ready to throw targets like 40,000 and 1,00,000 for Sensex over next few years at your face. They believe that we are getting ready for mother of all bull runs and its possible to earn 45% kind of return year after year.

My First Advice is to ignore them.

My Second Advice is to ignore my advice too. 🙂

Its your money and you have earned it the hard way. Don’t just depend on other people’s advice to take decisions about your money.

Top 10 Hacks to Safeguard Your Money – # 1

Confession Time: The last post on Antifragility did not get responses from readers which I expected it to get. To be more specific, the number of comments which the post got was ZERO. 🙁

Probably it was because the 10 Principles which I borrowed from Nassim Taleb’s amazing book Antifragilewere so simple, that readers took them for being a list of common-sense based rants and hence…not important enough. But I feel that it would be wrong to leave those principles as ‘obvious-common-sense-rants’ and forget them.

We need to understand that just because something is simple, does not mean that it is not important. Just like breathing. Its simple. You breathe in and you breathe out. But its important. If you don’t breathe, you die.

Just to ensure that readers understand the importance of those principles, I have decided to do a series of short posts, which will tell how to implement the simple but important principles in ones’ financial life.

So here it is…

Principle 1:

Stick to Simple Rules

  • Do not take loans if possible. If need be, take it only for buying money generating assets and not liabilities.
  • If you love your family, get yourself insured. It’s a small price you pay for their well being. And for heaven’s sake, buy Term Insurance Plans and not endowment, money-backs, etc.
  • Keep Insurance and Investments as 2 separate things.
  • Get health insurance for you and your family. Unforeseen health costs can wreck havoc in one’s life.
  • If you are not comfortable with ups and downs of stocks, do not be in stock markets. Just because people around you are making money in stock markets does not mean that you also need to make money from stock markets.
  • If you want to benefit from stock markets, but do not have the time to put in the required efforts, then please stick with investing in well diversified mutual funds. No need to buy individual stocks.
  • If you want to buy individual stocks, stick with companies which operate in easy-to-understand business, have more-or-less predictable earnings atleast for next decade or so, are debt free (or have manageable levels of debts), generate good amounts of cash, are able to invest money at increasing rate of returns OR honestly return cash to shareholders by means of decent dividends. And most importantly are run by trustworthy & capable management.

Simple Money Rules

Quick Note: I first intended to this Top 10 list in a single post. But then decided that breaking them into separate posts, would allow me to concentrate on each one of them a little more.