Its extremely hot here in North India and I don’t know when the rain gods will send their blessings. I envy those who have permanently settled in mountains – and I gave it a serious thought myself when I visited Bhutan few months back. By the way, it’s a lovely country and if you are a traveller at heart and one who seeks peace, then it can be a great place to visit sometime.
Nevertheless, like my monthly State of Market posts, I have decided that once every month, I will do a roundup kind of a post where I share links to:
Good financial and non-financial posts I have read in last 30 days. I read a lot, but will share only few that I think would be worth your time.
Useful posts written here on Stable Investor in last month – for those who somehow missed reading them.
Some stuff that is lost in archives here.
Random thoughts which I might not want to write a full post on or tweet about.
I know you would be cursing me as I did start something similar last year too – when I did a series of posts titled Boring Tuesdays. 🙂
Unfortunately, I stopped it after few months – Not because of lack of stuff to share but because I really did not have the time to do a weekly roundup-kind of a post alongwith my regular writings.
So I am trying again. This time though, it will be a monthly commitment to start with.
Lets see how it works out (…and keeping my fingers crossed).
How the quartet of cash flow, liquidity, profitability and net worth can help you sleep well (focus on the second half of the article). (Update – Sadly, author has removed the article.)
Useful rules to organize and declutter everything (something I feel is very important) by Leo Babauta of Zen Habits. Of all things mentioned in the article, I don’t follow most of them myself. But I am trying a few and it actually works! The article is a good starting point if you are thinking on the lines of decluttering your life.
My guess is that 37.8% of readers of Stable Investor have had Maggi in last one month. 🙂 Now that was just a guess. But Maggi and more importantly, Nestle is trying to comeback from the fiasco. May be it was just the right wakeup call which the company needed. This article details how Nestle (after the Maggi screw-up) is getting back on its feet.
This is pretty old but I still like to revisit it at times – Ten things Google guys believe to be true. It’s a sort of owner’s manual in line with what Warren Buffett’s Berkshire Hathaway has. Now don’t tell me you haven’t read the Berkshire’s Manual. If you haven’t, leave everything and head straight to this page.
In Last 30 days on Stable Investor
This has become one of my personal favorites. These crystal clear financial principles (very easy to read and understand) by Jason Zweig (a noted writer) can open your eyes and mind to how best to manage your money, without being fooled by others.
First we didn’t bother about buying health insurance policies sighting various reasons. Now most smart people do buy it but still end up not paying attention to one very big risk, i.e. Health Care Inflation.
I interviewed John Huber of Saber Capital about investing, money and other stuff. Once you read the interview (Part 1 and Part 2) and do spend some time on his awesome blog, you will become his fan, just like me.
Some people are so fond of bad luck that they run halfway to meet it. They take unnecessary risks and to make the money they don’t have and they don’t need, they risk what they do have and do need. That is plain foolish and the real reason why some people always lose money.
I did try this on a friend recently – to scare and sadden her financially. 🙂 I asked her to add up all the monthly salaries (or annual incomes), which she had received in her working life.
Then I asked her to compare it with what she had saved up or invested anywhere.
And she was shocked.
This small exercise easily proved that she did not manage her money well. So lets say that she earned a total of Rs 50 lacs in last 7 years. Out of which, she was only able to save Rs 4 lacs. So there definitely is a problem somewhere. Isn’t it?
Yesterday, Stable Investor completed 4 years. Coincidently, 17th November was also the first day of my first corporate job. Though first-day-first-job has its own charm, I must confess that I remember this day more because of StableInvestor and less because of first-day-first-job feeling. 🙂
Now to say that I am happy and satisfied after completing 4 years would be both right and wrong. I am happy – Yes. I am satisfied – No. Why no? Because I want this to continue for many more years to come.
But that is not possible without YOU.
My heartfelt thanks to all of you who read, like, share and write back to me. Had it not been for you all, I would have been like a person on a deserted island, shouting out his thoughts with no one to listen to.
Every week, I get numerous mails from readers. Many are about how something I wrote helped them take a good financial decision. These mails mean a lot to me. And everytime a reader writes to me, it becomes another source of motivation for me to carry on.
Not a day goes when I am not thinking about what I should write here. Infact, it has become such an integral part of my life that at times, my wife questions whether I am married to her or Stable Investor. But even she realizes what this means to me. And result of her realization is that even my personal birthday cake did not have my name on it! 🙂
Since the site is about numbers (more specifically money), here are some numbers that might interest you. Site now has 250+ articles on areas of Investing, Personal Finance and Common Sense. Few months back, site’s traffic crossed million hits. Email and RSS feed subscription have doubled and tripled respectively, in last one year. On social media, Stable Investor has more than 4200 Facebook fans (become one) and 2300+ Twitter followers (join them). These numbers are not huge but still prove one thing very clearly – there is a growing tribe of people who actually believe in benefits of reallong term investing and who also want to put their personal finances in order.
Here are the 8 most read posts on the site that were published in last one year:
Now I am sharing few words by Morgan Housel (source) here. I shared these last year too. But relevance of these words here, force me to share these again:
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 from here on.
As for me, I promise to be your friend, your advisor and your fellow investor starting right now! 🙂
Thanks once again…
Looking forward to continuing this wonderful journey together and doing much more in 5th year. For starters, I rededicate Stable Investor to helping readers Invest Better, put their Personal Finances in order and achieve their financial goals using Common Sense.
Quite contrary to my interests now, I graduated to become an engineer. A first in a family of doctors and lawyers.
Even though I am an MBA now, my legs are still pulled for being the least educated one in my family – where many are double post-graduates and PHDs.
When I was young, I wanted to become a painter – then a locomotive driver – then an astronaut. As of today, I have not been able to manage any of these three.
I remember being pretty good at drawing and sketching. I even got admission in India’s best architectural college. And that too without doing any preparation for competitive exams. But somehow I never thought of becoming an architect and so never went for it. You might be wondering that if I was not interested in it, then why did I even give the exam? The answer is because of forced by my friends to give all the exams, which they were giving. 🙂
I have the honour (which some refer to as the biggest mistake of my life), of quitting a very safe government job. I don’t regret it. But somehow, the people who come to know of it seem sadder about it. 🙂
Currently, I have a day job. I am now a SEBI-registered Investment Advisor. So you can say that Investment Advisor via Stable Investor is the only thing I do.
I started a financial blog way back in 2005. But somehow, it never got many readers. So I deleted it. I once again tried my hands at financial blogging in 2011 when I started Stable Investor.
I have been an avid blogger since 2003 and used to maintain a personal blog till 2010. But once I started writing here, there was almost zero motivation to write on the personal one. I am once again planning to start a personal blog.
In 2002, I started a free monthly E-Magazine. After 2 months, I made it paid. Any guesses on how many people bought it? Zero!
My mother and wife are much better at managing money than me. I still wonder how they do it.
I love travelling. And if possible, I want to move to the mountains permanently.
I got interested in Buddhism (as a way of life) in the early 2000s. Never converted though. But still believe a lot in simplifying life. Till now, it doesn’t seem to be getting any simple. I am still trying.
When I was young, I used to maintain cricket record books. And I used to update these books every day after reading the sports section of the newspaper. Even today, quite a lot of my time online is spent browsing through the Statistics section of ESPN-Cricinfo’s website.
One of my dreams is to write a script for a movie about stock markets. And to tell you the truth, the story is already half-baked in my head. So if you know some directors or producers or someone from Bollywood or Hollywood, you now know whom to refer. 🙂
There are quite a few people, who think that it was after talking extensively with me, that their finances are in much better shape today. This at times, makes me feel that it is very easy to give advice, but very difficult to implement it personally.
I love to write. When I was a kid, I used to write every day during my summer holidays. And that was not for completing some summer projects or homework. It was just for the heck of writing.
I am a non-vegetarian. I can eat hundreds* of kebabs when in my hometown famous for world-famous kebabs.
*I exaggerated. But can still manage around 20 10 now.
Congratulations on having read through this list. I am not sure if everyone would be interested in reading a list of fun facts about a my life. But I still wanted to share all this with you.
So if you did manage to read all of it, I thank you. And if you didn’t, never mind…I don’t think you will miss anything important. 🙂
Markets are scaling new highs every day. And as far as a common investor is concerned, he might start to assume that markets will continue to rise forever. This is exactly what happened in 2007 and we all know what happened after that.
In this context, Warren Buffett gave a beautiful quote which goes like this:
There is nothing wrong in rising markets. After all, we only want that we get a good price for our investments when we sell. In an ideal world, a market would continue to rise forever and each & every investment we make would become profitable.
But we live in real world.
And problem starts when common investors like you and me start believing that with rise in markets, the risks are getting reduced.
But this notion is wrong.
Rather, its the other way round.
With continuous rise in markets, the risks also rise.
And when an investor invests in rising markets, and that too in shares of businesses which are not even worth calling a business, he incurs heavy losses when markets correct. And in the end, he develops a feeling that markets are rigged and its impossible for common investors to make money.
But to become rich, all he needs is very few simple ideas. This when combined with loads of patience can create unimaginable wealth in stock markets.
But that won’t happen overnight.
It will take years. And that is what successful long term investing is all about.
Warren Buffett is one of the richest man ever. He did not make money by regularly buying or selling questionable businesses. He just bought few very good businesses and stuck with them for decades.
It sounds simple but it is not easy.
I make genuine efforts to invest and stay along with such businesses which can withstand the test of times and recessions and everything else. And as an extension to this thought, I announced that I would be launching a service on 15-June-2014 to address above mentioned issue.
Rest of the post will provide you with more details about Ultra Long Term Stocks and what you can expect from it.
What You get by Joining Ultra Long Term Stocks?
Every 45 days, you will receive a 10-15 pages worth of solid, no-nonsense report titled Ultra Long Term Stocks. The report would be practical, actionable& written in a manner that you can take your long term investment decisions with confidence.
The report would have sections dealing with:
I) Detailed analysis of a company which is worth investing for decades.
– Analysis based on multiple parametersevaluation.
– Future triggers and past/current events which can affect the business.
– Should you buy more if share prices of the company falls 50% in near term?
– Is this company worth holding for next 10 or 20 years?
– Will this company survive the next recession?
II) Current state of Indian markets and how this could influence your decision to buy/sell.
III) How to invest in this company (one-time / regularly / staggered & lumpy)
And when you do join Ultra Long Term Stocks, you’ll also get…
Additional reports analyzing Special Events which cause temporary undervaluation in wonderful companies.
These reports would be sent as and when such special situations arise and will help you take profitable advantageof such mis-pricings in markets.
In all, you can expect to receive atleast 8 and upto 12 reports a year (including additional ones). Don’t worry, I will not bombard your inbox with weekly or daily reports. 🙂
Who Should Subscribe?
Those looking to invest for years and not just months.
Those who know its tough to find multibaggers.
Those who know stock markets are one of the best wealth creators over long term (Even better than real estate).
Those who know money can be made by not taking too many risks.
Those who know we can’t time the markets.
Those who believe in power of compounding.
Those who understand that without systematic and well-thought out approach, it is impossible to become rich in stock markets.
Who Should ‘Not’ Subscribe?
Those looking to become rich overnight.
Those who trade regularly and find day trading glamorous.
Those who think long term investing is just a sham and Warren Buffett is just plain lucky.
Those who know they can time the markets.
Those who know they can predict stock market movements.
Those who think compounding works only in mathematics textbooks.
Those who think markets are always rigged.
Those who are waiting to win a lottery.
Answers to few questions you might have
45 days is too much. Can’t I get a report every week?
Investing for long term is simple, but not easy. Its not easy to get ideas which can be acted upon and held for next few years (or decades). Good ideas are rare. The number of ideas worth taking decisions on also depends on current state of markets. Number of such ideas would increase in Bear markets and reduce in Bull markets. This is in stark contrast to what generally happens with commercial stock market research houses and brokerages. Generally, these players increase the number of BUY calls with rising markets. And that is against common sense. You buy more during SALE(s) when things are available at discount. Isn’t it? Same should be the case with stock markets. Buy when stocks are available at discount (lower prices).
The stock discussed by you fell more than 30% in few months. What should I do?
A few months is a very small period when you are investing for decades and want to leave a rich legacy for your children or grandchildren. This service is good for you only if you are not scared of short term volatilities of the market (and for a good business, a 30% cut in few months is a good opportunity to buy if the trigger causing this correction is temporary in nature or dependent on external market conditions)
I am preparing a list of other questions which I would share at time of launch. If you have any other questions, then please do not hesitate to inbox me at firstname.lastname@example.org
By the way, if you still haven’t pre-registered for Ultra Long Term Stocks, then please do so. Pre-Registration entitles you to special offers on launch day. And I will be closing pre-registration on 25th-May-2014 for the benefit of those who showed interest early on.
I get a number of mails from you all every day. And this is in addition to numerous comments on all the blog posts. Mails range from ones asking for advice on specific stocks to ones asking about gifting foreign trips to wives!! 🙂
But unfortunately, I am unable to give timely replies to all your mails. Sometimes, the mails just get buried in ‘read mails folder’ of my inbox. There shouldn’t be any excuse for not giving timely replies but the fact is that I still have a day job and need to juggle between the job and this small adventure called Stable Investor. 🙂
I received a follow up mail from a lady reader (Sa####) about how I was trying to act pricey and not replying to her previous mail. First of all… my apologies to her. I understand that it is frustrating if one does not respond to one’s genuine concerns. But honestly, this and many such slip-ups are neither intentional nor an act of posing like a big gun. Its simply because of reasons given in previous paragraph. And I wanted the readers to know the truth.
I just want to finish by saying that I am just a regular guy like you all and am trying to act not only as a guide but also as a friend. I know what it means to be messed up with your finances, not being able to pay the bills, cutting down on expenditures, etc. I have gone through all that.
I would feel satisfied if Stable Investor is adding value (or rather bringing sanity) to your financial life.
And I would appreciate You if…
…you would join Stable Investor on Facebook by clicking the image below and LIKING the Facebook page:
Its faster & easier for me to respond to your Facebook messages and comments. Also, you will get loads of interesting stock market and wealth building related updates on a daily basis.
I will tell you 3 short stories about 3 very different men.
This story is about Rahul. Rahul was a middle aged working professional, who inherited his father’s stock portfolio worth Rs 70 Lacs in 2006. The portfolio was made up of some decent companies like HUL, Nestle, SBI, etc. But in Bull Run of 2008, share prices of most of these boring businesses did not rise like some of the other crap that went up during that time. Rahul sold most of the stocks he inherited from his father and invested in then-glamorous companies like Suzlon, Unitech and few other un-nameable business so-called businesses. As of today, that Rs 70 lac has turned into Rs 10 Lacs and Rahul repents what he did. But he knows what mistakes he made. As of today, he wants to leave his children with an inheritance of good stocks like his father did.
This story is about Jignesh. Jignesh is a 55 year old government employee who has been dabbling in stock markets for last 20 years. But ask him how he fared in these 20 years and you will get to know that there is nothing much to tell about. His portfolio consists of shares of more than 70 companies of all variety and sizes. Most of these were bought at high prices which Jignesh is never going to see again. Worse is the fact that he bought more to average down his purchase costs. He is not able to sleep at night because, apart from the pension he will get after retirement and real estate, his stock portfolio was suppose to be his only savior in old age. As of today, he is still waiting for a massive rally, which can push up the share prices of companies he holds (and are down more than 70% in value). And when such rally comes, Jignesh plans to sell these and invest in shares of sound businesses.
This story is about Venkatraman. Venkat has been trading in stock markets for last 20 years. But he cannot be said to be a man who has a knack of making money by trading. But now, his portfolio is not the only thing Venkat is worried about. It’s his 22 year old son Ganesh. Ganesh is working in a reputed IT company and has recently become interested in stock markets. And having started investing after the crash of 2009, he has a better track record of investing than his father Venkat’s. And that is where the stress is building. The son does not respect his father and feels that he is not made correct financial decisions. Venkat is aware of his son’s views. He now wants to approach stock markets more sensibly and more importantly, wants to regain his son’s respect.
Though I have changed names to protect their identity, these 3 men are not figments of my imagination. These guys mailed me their stories and how stock market has affected much more than just their finances. And to be honest, I have received several such mails during last one year.
But this post is not about identifying mistakes made by Rahul, Jignesh or Venkat.
We all make mistakes. But sooner we learn from them, better it is. All 3 men and many more like them have lost money in stock markets because they wanted to become rich overnight and took unnecessary risks.
But to become rich, all they needed was a few simple ideas and a dose of patience to stick with those ideas.
And for past two years, I have been trying to make people understand that it’s not tough to make money in stock markets.
You just need to be sensible, have discipline and be patient. That’s all.
And as an extension of the work I have been doing here, I am happy to present something special which I have created for you…
The idea of launching Stable Investor’s Ultra Long Term Stocks is simple. And it is to help you become rich in the long run.
What Will You Get By Joining?
Detailed but easy to understand analysis of Companies which can be bought for decades.
Thoughts on how to invest in such companies(Lump Sum Investments / Staggered Purchases)
Analysis of Special Events which cause temporary undervaluation in wonderful companies. This can help you take advantage of such short term mis-pricings in stock markets.
Focus would be on selecting stocks based on simple, solid & passive form of investing. I am not into regular churning of portfolio to make a quick buck. I personally do, and want you to invest for decades so that you can become rich in the long run. And because of this approach, Ultra Long Term Stocks will include:
– Only those Stocks that allow you to leave arich legacy
– Only those Stocks that allow you tosleep peacefullyat night
– Only those Stocks that will makeyour children respect you
How Is This Different From Services Offered By Other People?
If you have above question in your mind, then it’s a pretty valid concern. My answer to this question is that…
This service is a result of one-man operation (that’s me). And I am a risk-averse investor who believes in taking simple, sure shot bets rather than going after multibaggers. I am neither offering hot stock tips nor any kind of portfolio management services. I am sharing my ideas about stocks which have capability of creating wealth in the long run.
Others service provides have many people working for them. And their teams can generate stock research reports and analysis on a daily basis. But being along here, I cannot do that. And the benefit of this is that I focus more on giving less number of concrete ideas rather than giving more numbers of daily/monthly ideas.
The number of ideas that would be shared with you all would depend on current state of markets. The number of ideas I would be sharing would be more in Bear markets than in Bull markets. This is in contrast to what other commercial players are offering. Generally, these players increase the number of BUY calls with rising markets. And that is against common sense.
When Is Ultra Long Term Stocks Launching?
Stable Investor’s Ultra Long Term Stocks would be launched on 15th June 2014. Don’t worry. Regular posts of Stable Investor would continue to remain free. 🙂
But Ultra Long Term Stocks would be exclusively about stocks for long term wealth creation.
How Can You Join?
As mentioned, the service would be launched on 15th June 2014. But you can Pre-Registerfor the same right now.
Click Here To Pre-Register (Free) Sorry…Pre-Registrations Have Closed.
I will continue sharing details about Ultra Long Term Stocks with readers of this site. Additionally, those who pre-register will receive detailed updates and special offers.
In case you have any specific query, feel free to drop a mail at email@example.com
Stable Investor has turned two. But frankly speaking, it seems a lot more than just two years. 🙂 Before Stable Investor came into existence, I used to write about stock markets on an ad-hoc basis on my personal blog. But Stable Investor has now turned that interest into something more special for me. I would be honest with you guys. I could have continued or discontinued writing during the last 2 years. But when I saw people taking part in discussions about what I wrote, it gave me a big high and a renewed motivation to continue working on the site. I clearly remember that when the site had turned 1, I did a special post thanking everyone. At that time, SI had close to 100 email subscribers and around 475 fans on FB page. As of today, the number of email subscribers has risen to almost 1000 and fans have also exceeded 1000. Though these may not be big numbers, for me, these numbers, your comments and reactions on FB page provide an assurance that there are atleast a few dedicated long term investors, who are reading and listening. And that in itself is something very special for me.
And to help me improve Stable Investor, I request you to spare just two minutes of your precious time and fill out a survey of 6 simple questions. You won’t get any prizes, but your answers to these questions would help me improve Stable Investor.
So, click on the red button below to launch the 2-minute survey:
In May 2013, my interview got featured on Safal Niveshak (SN). A few days back, a reader (of both Stable Investor & Safal Niveshak) left a comment saying that I should consider sharing this interview with readers of Stable Investor too. I liked the thought and Vishal (of SN) permitted me to reproduce the interview here.
Stable Investor’s Interview
So here it is…
Safal Niveshak (SN): He claims to be no superstar of an investor. But as the legendary investors say, “Focus on the process and not the outcome,” Dev is a superstar when it comes to working on a sound process that I surely believe will lead him to a great outcome in the future.
SN: Before I pick your brains on investing, please share about your life, family, and career.
Dev: I was born in an upper middle class family of advocates and doctors. But instead of becoming a doctor or a lawyer, I chose a different path and went on to complete my engineering.
After engineering, I got a job in an Indian Fortune 100 organization in oil refining sector where I worked for a few years. After that, I went onto complete my MBA. Very soon, I would be joining the banking sector.
Being born and brought up in Lucknow seems to have had an effect on my investing style too.
I prefer ‘Nawabi-styled’ passive and long term investing.
It is based on the premise that you should not work for money. But money should work for you.
SN: What got you into investing, and how did you begin to learn about the market and investing in general?
Dev: There were two things which got me interested in investing.
First was when my father used to occasionally bring home a copy of The Economic Times. He had his money invested in shares of a few MNCs and would check their prices every few months.
My father told me that I could buy pieces (shares) of businesses which featured in list of stock quotes provided in the newspapers.
Being a kid, I felt excited to be able to buy part-ownerships in companies without having to setup any infrastructure or factories!
Second thing which got me excited was the constant flow of dividend cheques, which used to arrive in our mailboxes from these MNCs.
I just loved the concept that you are being paid to hold pieces of paper (physical shares). It was the concept which I am still happy to quote every now and then.
You should not work for money. Rather the money should work for you. I really liked the system of getting a regular flow of passive income (cash flow) without going to work for somebody else.
SN: What would you say is one of the most important lessons you learned early on?
Dev: I don’t know how this concept found its way into my head, but I always feel that it is very important for an asset to generate regular cash flows.
Most people focus solely on capital appreciation. But I think that though capital appreciation is important, it is actually the regular, dependable and sustained incoming flow of cash, which changes one’s decision making with regard to building long-term wealth.
Suppose, one purchases a property (ex: land) to sell after a few years at higher prices. This would require a person to wait for years to sell the property and lay his hand on the cash, which can then be used elsewhere.
In contrast, if one purchases a flat or a commercial property, which generates monthly rent, then this constant flow of monthly rents can be used to purchase more cash generating assets.
One can use this rent for payment of EMIs on loan taken to create more assets. It’s once again an example of your money working to create more assets for you.
SN: How would you describe your investment philosophy?
Dev: I don’t look at my stock portfolio in isolation. I have investments in stocks, mutual funds, PPF, bank deposits & precious metals.
I always try to look at the bigger picture. Being young, I should be (theoretically) investing close to 100% in equities & mutual funds. But I consider myself to be a balanced investor and have resorted to diversification across multiple investment vehicles.
I invest regularly in mutual funds, individual stocks, PPF and bank deposits.
Mutual fund investments allow me to create a growing corpus to fund my retirement or my entrepreneurial ambitions.
The amount I invest in PPF is generally equal to the difference in annual premium amounts between term and endowment plans of LIC. Though I made the mistake of buying a few endowment plans of LIC some years back, I have corrected those mistakes by selling them (at a loss) and buying plain term plans.
These plans do not pay anything in case I survive, but are incredibly cheaper than endowment ones. Insurance is not an investment and hence, I treat the two of them differently.
I use bank deposits as war chests to fund further asset purchases or expenditures in short term (less than 5 years). If I am sure about a future cash outflow (expenditure), I start an online recurring deposit which would provide me with lump sum money at maturity to provide for the expenditure.
I use fixed deposits as emergency funds and to park cash when I cannot find any investment opportunities.
But all this does not mean that I don’t invest in individual stocks. I have been investing in them as and when I feel comfortable with their valuations or future growth prospects.
I generally follow the Core-Satellite approach for individual stock portfolio (discussed later).
SN: How do you typically find ideas and what is your selection process before an idea gets added to your portfolio?
Dev: I would say that I am an amateur and it is not I who finds an idea. It’s rather the idea which finds me.
By this I mean that I invest only in those ideas which appeal to common sense, which don’t require knowledge of rocket science to simply look profitable.
An idea should be so ‘obviously’ good on few important parameters that it must just jump out of a list of stocks which I regularly track.
For example, In March 2009, buying any large cap stock was the ‘most-obvious’ way of making money. But this required one to have the knowledge to judge the overall market valuations.
So, if the index was trading close to P/E multiples of 12-14 and a large cap stock was available close to its multi-year lows, and there was enough evidence that company was not going to go bankrupt or stagnate in years to come, then it made perfect (obvious) sense to buy that stock.
It is same as waiting to buy clothes, shoes, etc. in annual sales where discounts are close to 50%.
If a person is ready to buy clothes at a discount, why shouldn’t one buy beautiful assets like stocks in a discount sale?
I stick to Buffett’s philosophy of operating within my own circle of competence. I have been an oil-man in past. Hence I understand this sector better than any other sector.
So it makes sense for me to look at all companies within this sector and to stay updated about the news and latest developments in this sector.
Though I consider myself to be a long term investor, I must confess that I do look for trends in long term data.
History may or may not repeat, but it does rhyme at times. Share price valuations are generally bound by irrational exuberances (highs) and graveyard like pessimisms (lows).
If I am able to understand these boundaries for a particular sector, then I think I will be able to make a well-educated guess about the good time(s) to enter stocks in this sector.
I also had a very short stint in steel industry where I learnt a lot about the business, its cycles and customers. I have recently started devoting some time to analysing steel businesses. But considering the complexities of this cyclical industry, I think it would take me a few more years to completely understand it.
And as already mentioned, I seemed to be programmed to appreciate the concept of dividends. And I am on same page as my self-appointed mentor John D. Rockefeller, when he said – “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.”
Dividends give cash to be used for buying more assets. I understand that most people prefer going for growth stocks offering lower dividends. But as far as I am concerned, I prefer keeping a balance between dividend and growth stocks.
I follow a core-satellite approach where I try to maintain a core of a few dividend stocks and satellite of few growth stocks (& few short term investments).
At first, this may seem a bit difficult because dividend produced initially may only be a trickle. But as a not-so-well-known private investor Joshua Kennon* once mentioned, being a long term investor, I can wait.
And if I can wait then this trickle can become a drip. A drip can become a flow. A flow can become a stream. A stream can become a torrent. A torrent can become a deluge. That is the very nature of compounding.
*Joshua Kennon is a very capable private investor. You can follow him here.
So, when I buy stocks for the core of my portfolio, I am looking at buying cash-generating machines, which provide me with regular dividends to fund my other stock purchases rather than trying to make money by capital appreciation.
I am not looking for multi-baggers now. As Buffett says, “I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.”
SN: How do you take care of ‘risks’ while investing?
Dev: As an investor, I know that I can never eliminate the risk of being wrong.
At the most, what I can do is to be well diversified so that my one wrong investment decision does not wipe out my entire net worth.
This issue of diversification reminds me of a quote by Shelby Davis – “We feel a portfolio is like a flower garden. As portfolio managers, our job is to plant a few seeds every year and weed out a few mature plants. It is not to uproot the garden. We have a portfolio mix where we hope that something will be in bloom all the time, but we do not expect everything to flower at once.”
I personally prefer accumulating stocks on a regular basis rather than going for lump-sum investments.
In this way, I get time to judge my stock picks. In case, I am not convinced with the business, I can exit the stock.
In case I am convinced, I can keep on accumulating them.
SN: What have been the most challenging investment lessons you have learned?
Dev: It is really tough to be greedy when others are fearful. Really tough!
But with time and experience, one can become more comfortable with this approach.
Though people (and myself) would want a smooth, artificial upward line as returns on portfolio, the world doesn’t work like that.
We can do hours and hours of analysis and pick a stock which we feel is undervalued. But the market doesn’t know that we have put so much effort in our stock picks.
Markets are driven by fear and greed. Period.
Hence, we can never eliminate the risk of being wrong.
SN: How has your approach toward investing changed over the years?
Dev: I have been investing in stock markets for more than 10 years and I still consider myself to be an amateur and a student of the markets.
Earlier, markets seemed more like gamble. But after getting a taste of common sense based investing i.e., sticking with good companies and buying them in hard times, I have more or less remained loyal to this approach till date.
I still try to handle my stock portfolio as a whole rather than as a set of individual stocks.
I stick with dividend paying, boring and predictable businesses for the core of my portfolio.
As far as the satellite part is concerned, I try to buy companies having at least an average growth potential and a decent, predictable management.
Every now and then, I do take up some short-term positions. But these are limited to less than 5% to 10% of my total stock portfolio.
Earlier, due to my unpreparedness to handle the market madness, I used to feel a lot of pressure to buy or sell stocks. But, now I maintain a hand’s distance from the market and don’t feel the pressure to buy or sell anything.
If I can’t find anything attractive enough to buy, I continue hoarding cash in anticipation of finding something useful (this does not include my regular mutual fund investments).
Also, now I don’t feel the urge to show any activity in stock markets for the sake of activity. Though being active in stock markets is considered glamorous, I prefer my own passive ways of building long term wealth.
And to quote Joshua again, “I will only exchange cash for ownership when the price and terms put the probability of a highly successful outcome overwhelmingly in our favour.”
SN: In your personal portfolio how many stocks and mutual funds do you own on average at any one time?
Dev: I have made a conscious decision to hold less than 15 companies in my portfolio. At present, I hold investments in 13 companies, with none being more than 15% of size of the stock portfolio.
As far as mutual funds are concerned, I am presently invested in 3 schemes focusing on large-caps and multi-caps.
I follow the SIP route to invest in these schemes every month. I chose dividend payout options in the two large cap oriented schemes, as these schemes invest in stable, mature & large businesses capable of sharing their profits (in form of dividends) with shareholders.
These dividend payouts can be used to buy good quality stocks for individual stocks portfolio.
I am also planning to go for another multi-cap and a mid-cap fund. This would take my total number of schemes to five, which I consider apt for my current investment-comfort levels.
I also plan to increase my monthly contribution in at least 2 of these 5 schemes every year, till the time I retire (or join Benjamin Graham in heaven).
SN: As investors, one of the most difficult decisions we must make is with respect to selling stocks. What factors help you make “sell” decisions?
Dev: Now this is tough. I would rather say that this is a big weakness for me. Being a self confessed long term investor, it is tough to sell something when you ‘want’ your holding period to be ‘forever’.
But nevertheless, I try to bring some structure in my sell decisions.
The primary reason to sell a stock would be if I am in need of money. So, selling of stocks would be used as a last resort because I do have my funds parked in emergency funds, bank deposits etc.
Another big reason could be a negative change in the fundamental reason for which I initially bought the stock. This may be because of change (fall) in margins, rise of competitors, or a black swan event (for example, there is no point holding shares of a company managing its only asset, a toll road, which is destroyed by a freak earthquake in the region).
SN: What is the best investment advice you have ever received?
Dev: Compounding is the eighth wonder of the world. Have patience & give it a chance.
SN: What is the worst investment advice you have ever received?
Dev: Take a (personal) loan charging interest in excess of 15% and invest in IPOs. IPOs are sure shot way to double your money in a few days.
Like Graham, I feel that IPOs are an acronym for “It’s Probably (or Permanently) Overpriced.”
SN: What has been your favourite investing-related book and why?
Dev: It is got to be The Intelligent Investor.
For those who have already read the book, I think I can add nothing substantial to the list of its praise. For those who haven’t, I can only say that you are really missing out on something really worth reading, at least once in the life of an investor.
I personally like the book and regularly read parts of it because it is one of those books which are grounded in reality.
It does not tell you that you can get astronomical returns in markets. It tells you that in market, you can be successful if you are able to take care of the controllables, i.e., your own emotions, actions and reactions.
One of the key ingredients of stock market success is to avoid making huge mistakes and manage at least average results. And this book lays down a framework which reduces the risk of making big mistake in markets.
The book had such an impact on me that I immediately adjusted the way I managed my money and equities portfolio.
SN: If you had one piece of advice to share with other tribesmen, what would it be?
Dev: I have three.
One, reinvest your dividends and interest incomes. It is only when you reinvest your passive earnings that the magic of compounding begins.
Two, always be prepared. You never know when the market might offer you some great opportunity. It really does pay to show some COURAGE by using CASH in times of CRISIS.
Three, while calculating future returns from stock markets, don’t use figures like 15% or 20% in your calculations. A number around 10-12% is more saner and no-nonsense one.
SN: Thanks a lot Dev! Your insights have been amazing, and especially for someone who is starting out on his/her investing career.