Mailbag: Should I take a Loan to Invest Now? (because Markets are making New Highs everyday)

This is going to be a short post. It’s more of a warning for those who have questions like one in title of this post….in their mind.

Yesterday, I received a mail from a reader asking me the following question:

My portfolio has moved up almost 50% in last 3 months. Some shares of small companies are up more than 100%. Do you think it is a good time to invest more? I don’t have lots of spare cash to put in markets but I am thinking of taking a personal loan to invest. A loan would cost me around 15% and that is much less than what can be easily made in these rising markets.



I replied to this reader’s mail instantly and without any hesitation.

But I felt that right now, there would many people thinking on similar lines. And that is because in recent times, markets have been moving in just one direction. And that is upwards. And this gives a perception that it is very easy to make money in stock markets.

My personal interaction with people tells that they have now started feeling that Fixed & Recurring Deposits offer just 8% in one year….whereas some stocks can give that kind of return in a day. True. It is possible. But can we be 100% sure about this? Can we be 100% sure that we will be making 5% to 8% every day kind-of-a-return on regular basis in stock markets?

The answer is no. I can’t do it. I am pretty sure nobody I know has done it. And neither have people like Warren Buffett done it. And since we are not sure about the returns, it would be a big mistake to borrow money for investing. 

It’s possible that when you take a loan and put that money in markets, your expectation is that markets will move up, like they have been doing for a while now. And probably in a year’s time, you will make much more from your investments than 15% interest that you need to pay on your personal loan.

But what if markets do not rise as expected?

What if returns are less than 15% in one year?

What if markets just stay at same levels after one year?

And what if markets fall…say by 15% in one year? What will you do then?

I hope you are getting what I mean here. 

Market returns are unpredictable. You can never be sure of returns or losses which come your way in markets. But if you take a loan, your EMIs would be predictable and fixed. You can be quite sure that you will have to pay around 15% every year for the loan.

I have seen people make this mistake in 2008 during Reliance Power’s IPO. People took loans, liquidated FDs to invest in the hottest IPO of that time. And what happened after that is known to everyone. Everyone lost money. Those who borrowed to invest lost much more than just money. They lost their sleep and faith in markets.

So, please understand that its not wise to borrow and invest in markets.

Even if you are 100% sure that markets will go up, please don’t borrow money to invest. If you do, I think it would be the biggest financial crime you can ever commit.

Note – Some months back, someone asked me just the very opposite question. I have a loan. Should I pay it back before investing? 

Seems like the question of this mailbag post is a side-effect of a bull market 😉

_______

Tata Motors DVR – Why is it Rising Faster than shares of Tata Motors?

Recently there has been a lot of noise about reduction in percentage difference (discount) between ordinary shares of Tata Motors and its DVRs.

For those who don’t know, Tata Motors has two kinds of shares listed on exchanges.

Ordinary shares (TTM) …and the DVR shares.

What is a DVR share?

DVRs are a completely different class of shares of a company whose ordinary shares are already listed on exchanges. DVR stands for Differential Voting Rights. It means that when compared to ordinary shares, a DVR carries different voting rights.

In India, it all started in 2008 when Tata Motors became the first Indian company to issue DVRs. The company came out with a Rights Issue where existing investors of TTM, were offered 1 DVR share for every 6 ordinary share held by them. As for the voting rights, one DVR share of Tata Motors has only 10% voting rights of an ordinary share, i.e. you get only one vote for every 10 DVR shares.

Apart from Voting Rights, is there any other difference between a DVR and an Ordinary share?

When you buy DVRs, you have lesser voting rights. And this needs to be compensated for. The shareholders of DVR are entitled to an extra 5% dividend compared to ones given to ordinary shareholders.

Tata Motors DVR Dividend
Dividend History (2010 Onwards) – Tata Motors (Ordinary & DVR shares)
Unlike India, DVRs are used extensively in other countries to prevent hostile takeovers. At times these are used to bring money into the company without significant dilution of promoter’s voting rights. On an average, DVRs trade at a 10%-15% discount to ordinary shares.

Tata Motors – DVR Discount Trend Analysis

Like global peers, TTM-DVR also trades at a discount to ordinary TTM shares. But there is something interesting about this discount. I plotted this discount and found that in past 4 years, this discount has oscillated between 30% to 50%. And this is nowhere close to global average of 10-15%.

As of now, its quite close to its 4 year lows. And this has happened because share prices of DVRs have outpaced that of ordinary shares since start of 2014.

Tata Motors DVR Discount
Discount at which DVR has traded in last 4 years

Now in 2008, when DVR was originally offered, the discount was a reasonable 10%. But over time, this discount kept widening until it reached almost 60% in mid-2013!

And this seems to be against common sense. That is because both DVRs and ordinary shares are based on the same business. Only difference is of the voting rights. And that anyways has been compensated for by a higher dividend promise to DVR holders. Ideally, discount should not be so large.

But in past few weeks, this discount has reduced to 33%. And many market participants now believe that this trend will continue and eventually, discount will settle at levels of 10%-15%. But we must remember that this is not the first time discount has come down. Few years back in 2010, discount had narrowed down to levels below 30%. Even at that time, experts felt that time had come for markets to give more respect to DVRs and that discounts will stabilize at 10-15%. But markets have this uncanny knack of surprising…And it did surprise once again by proving the experts wrong.

Price of DVRs fell and once again, it was available at huge discounts to ordinary shares. As mentioned above, discount almost touched 60%.

This time too, I am not sure if experts have any idea what they are talking about when they say that discounts would further reduce. 🙂

Beware – Controversial Idea Ahead

The last traded price for TTM was Rs 468 and that for DVR was Rs 312. Now simple calculation tells that for gaining ‘a’ vote in Tata Motors’ votings, you will have to shell out Rs 156 extra (468-312). I personally don’t think this makes sense for small investors. It might make some if you have substantial stake in Tata Motors and want to affect company’s decision making. But since you are reading this post on this small website, I assume you don’t have a very big stake in Tata Motors. 😉

I agree that its very important to exercise voting rights if the company is not being managed properly or its taking certain decisions which are not in best interest of minority shareholders. But broadly speaking, Tata Motors is managed decently if not brilliantly. And hence a small investor should not worry too much about his voting rights and consider DVRs as long term bets (if convinced about Tata Motors business).

One is getting the same business at 30% discount with assured higher dividends.

And if the DVR discount was to reduce further, a DVR investor stands to gain further as he will also be earning higher dividends in addition to capital appreciation. And if discount does eventually become insignificant, one can always sell DVRs and buy ordinary shares.

But having said that, please understand that we are not valuing DVR here. We are just discussing the discount at which DVR shares are available. It is very much possible that ordinary shares are over-valued and consequently, DVR may themselves be overvalued.

Why Did DVR Rise Much Faster Than Ordinary Shares in 2014?

The DVR shares have outperformed ordinary shares in last 6 months as evident from graph below:

Tata Motors DVR 2014
Price Appreciation in last 6 months – TTM and DVR

Now the text that follows can be speculative and you should take it with a pinch of salt.

In last week of June 2014, a UK based fund house Knight Assets came out with a recommendation for Tata Motors. It advised the company to list its (planned) new DVR shares on New York Stock Exchange. But it asked Tata Motors to add the words ‘Jaguar Land Rover’ to the name of the DVR before listing. This according to fund would help it correct the big discount which DVR trades at and bring it in line with global averages of 10-15%. And since US markets are more familiar with JLR brands and with the dual-class shares, it would help listing the DVR in US markets.

This possibility of international listing might not be the only reason, but possibly one of the main reasons why DVR prices were running way ahead of ordinary shares.

Another possible reason can be that markets and analysts in general had ignored this stock completely in past few years. And because of this absence from analyst’s radars, it kept going down without any logical reason. Another evidence that markets can be irrational at times.:-)

What do you think? What are your thoughts about DVR shares of Tata Motors?

Disclosure: No positions in both the shares discussed above.

______

Life @ 13.99%

Many people take loans for various reasons. Some take it  for unavoidable reasons and others for avoidable ones…or for ones which can be easily delayed, like vacations, purchase of electronics, luxury watches, etc.

But before you read further, I would request you to understand that I am not against those who take loans. Everyone’s needs and situations are different. Even I have taken loans in past.

Since last few days, the following image is popping up on the website of a large private bank whose services I use to conduct my financial transactions.
Personal Loan - Vacation
As you can see, the bank is telling you few important things…

First is that ‘Life is waiting’. And that is a fact. Nobody can be wrong by making such a statement. There are so many things to do in life that sometimes I feel one life isn’t enough to fully experience life. 🙂

Now second thing to observe is that the image above shows a couple enjoying vacation in Europe (probably). Now a decent European vacation for two costs around Rs 4 Lacs. This picture pops up just before one logs into bank’s website. Therefore, my assumption is that bank is showing this image to everyone irrespective of whether person logging into bank’s website is or isn’t a suitable candidate to pitch such visual advertising to sell loans for luxurious expenditures. 

It means that bank does not take into account customer’s past average balance, repayment histories before making the (very first) pitch for the personal loan.

Once again, I am not saying that one should not take loans. But vacation is something which can be delayed. Or should be planned well for. Vacations are generally not spur-of-the-moment decisions.

So it is better to plan for them from the very day the final decision is taken. Isn’t it? And some people actually don’t want to take loans for such discretionary spendings. They plan well and well before the day funds are actually required. Just sometime back, I received a mail from a reader to help him plan his funding of a trip to Dubai he wanted to gift to his wife.

For the time being, lets not judge whether what bank is doing is correct or not. Bank can anyways justify its marketing actions by saying that there are proper processes in place for approving loans to check suitability of candidate.

And they are right in saying this. They can also give an example that there are no checks on who sees the hoardings on sides of highways offering home loans for budget(!) homes costing 1+Crore. Once again they are not wrong.

This brings us to a possible conclusion that onus and responsibility of applying for loans of any kind lies with customer and not with bank. 

Bank only evaluates suitability of the applicant and then decides to lend or not to lend to him / her. Bank is there to lend you money for all your expenses. But it is for you to decide whether you need to take a loan for something which is as discretionary as a vacation, or something which has the potential to generate future wealth like property or commercial vehicles. 

Always have limits to how much you will borrow and for what reasons you are willing to borrow. Because eventually, this will be a major determinant of whether you will be rich or not.

By the way, I feel that banks are generally ready to give loans to those who don’t need it. What do you think? Also, if you have any stories about your loan related experiences which you think will be beneficial for others, please feel free to share the same in comments or drop me a mail at stableinvestor@gmail.com

If You Want To Multiply Your Investments 2x, 3x or even 5x in a Year, then Please Don’t Buy This

In 1980s, a famous Chinese leader Deng Xiapong said – “To be Rich is Glorious

This slogan is believed to have unleashed a wave of personal entrepreneurship in China that is still driving its economy today. And there is no doubt that it is indeed glorious to make money. Even more so if you can double or triple your money in one year.

But I am quite sure that there is no-one who can be 100% sure of a method of doubling or tripling one’s money in a year. And if you know someone, please do introduce him to me. 🙂

About 2 weeks ago, I launched Ultra Long Term Stocks – A subscription based service where I discuss stocks for the long run. And by long, I mean really long in classical sense of the word. The intent with Ultra Long Term Stocks is to invest for decades and not just years.
I received a few queries from readers who thought it was a get-rich-quick kind of a service where I will offer hot stock tips for quick gains. One reader was honest enough to ask whether this service will change his life or not!! 🙂

But this is not what Ultra Long Term Stocks is all about. And I politely replied to each and every such mail telling the same. I also advised these people not to subscribe to this service as their expectations of quick gains will never be met in this service.

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Please remember that subscriptions will not remain open forever and will close within next 3 days, i.e. 30-June-2014. If you have some queries, then please check Frequently Asked Questions (FAQs) section and probability is that your question would already have been answered there. Or else feel free to drop a mail at stableinvestor@gmail.com


What Do Current Subscribers have to say?

Many subscribers who have already received the first report have good words to say about Ultra Long Term Stocks. 


Can I Subscribe the Report Right Now?

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You can read all the details about the service here or can read the launch post here.

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One more thing. Investing for security of your loved one’s future is important. Rather its very important. But always remember that money is not everything. So in case you are confused about this being an opportunity which may be like once-in-a-lifetime kind of an opportunity, I would suggest you not to worry. 

Life is too long for just one once-in-a-lifetime-opportunity. 🙂 

Happy Investing

Dev

7 Investment Strategies of A Non-Investor – Software Engineer Edition

A week ago, during one of our frequent WhatsApp conversations, my childhood friend, Nitesh, sent me this picture of a piece of paper he found in a fortune cookie. 

Stock Market Fortune


For those of you who don’t know, fortune cookie is a common after-meal treat served in the United States. It’s a cookie with a piece of paper inside with your, ahem, fortune printed on it. 🙂
The exchange prompted a discussion about Nitesh’s stock portfolio and I learned, to my delight, that he had been doing pretty well.
Now let me give you some background about him. He is a Software Engineer and now is successfully running his own company Padlet in US. He has always been a “techie”, and, like most of us has zero finance background. He doesn’t have time and interest in watching CNBC all day or reading investment blogs. 

So how does he manage to do well? 

It turns out, he is a typical Stable Investor. 🙂

Below, I outline Nitesh’s strategy. He wants me to warn you all, in true Stable Investor style, that he has only been investing for last 5 years which is a very short amount of time to declare an investment strategy a success. 

But I find the strategy very interesting which is why I wanted to share it with you. The words in italics are his own.

1. Set Reasonable Expectations

Berkshire Hathaway makes almost 20% a year. And the Dow Jones Industrial Average (US Index) has grown at an average 11-12% a year in the last 30 years. It would be stupid to think that one can beat Warren Buffet consistently. And if one spends time to pick stocks instead of just buying an index fund or ETF, one expects more than just achieving returns similar to index. So, if one can make anywhere between 12-20%, one should be happy. There is no point chasing stocks which can become 10x in an year.
2. Invest in Companies You Like

The logic is simple – if you like a company, it must be doing something right. It’s just like real life – you only want to stay in touch with people you like. More often than not, you use the company’s products yourself. In the rare case that you don’t, you support the company’s mission.
Has this strategy caused him to miss a good investment?

Certainly. And he says: “I really wanted to buy shares of Airlines last year as they were quite down and out of favor. I did my due diligence and chose Hawaiian Airlines. It was a $5 stock. But I never flew Hawaiian so I did not buy it. In fact, I haven’t flown a US Airline that I liked. So I did not buy any. In less than a year, the stock went to $16. Am I disappointed? Yes…A little. But here is the thing – with the same money I bought New York Times, which grew from $10 to $15 in the same time frame.  My investment strategy is not optimized to pick the absolutely best stocks in the market every time (its really not possible to do that), but to pick, on average, good stocks with stable returns. As long as I pick more good stocks than bad stocks, I win. I don’t needto win every single time.”
Has this strategy led to bad investments?

Certainly. And he says: I have held the IMAX stock for a couple of years now and it has gone nowhere. But every time I go to an IMAX theater, I am amazed by it. That investment is not doing financially well, yet, but I am proud to support the business. Investing for me isn’t just about monetary returns, but also being able to fund a world I’d like to inhabit in the process.”
The same strategy has led to good investments though. “I invested in TESLA when their stock plummeted post IPO. The automobile industry had not seen a serious innovation in decades. This company was bringing that elusive innovation and I wanted to support it. What happened? I am up 800% (8x) on the stock right now.”

Note – One of Dev’s articles on Tesla as a long term investment got republished on Seeking Alpha. You can read it here.
3. Invest in your Circle of Competence

“I like a wide variety of companies – retail, transport, media, healthcare, but my investments are skewed more in the tech industry. The reason is simple. (1) I understand the tech business better than an average investor. I can see the potential of a company before the market can. (2) I don’t need to make an effort to stay up to date with the industry. But I still stay away from new tech IPOS. I did not invest in Twitter or Groupon or Linkedin or Zynga. That’s because tech stocks are a historically bad investment. There is a new winner in this market every 10 years. There is pretty much only one 100 year old tech company, IBM, which is, technically, now a services company.”
4. Account for luck

When Berkshire invests in a company, they buy such a big chunk of the company, that they have the capacity to be involved in running the company. They just don’t throw money at it. They protect their investment with their sweat. Most of us don’t have that luxury. We all make investments with very limited information about a company. Even if we went through every single filing of a company, for all you know, it may be lying about its numbers (Enron/Satyam). You could invest in a company for its leadership and the CEO may die of cancer (Apple). Or something new comes in the market that completely destroys a company’s business (Blackberry).

As average investors, we are always making decisions based on limited information. “So diversify – in terms of industries, company sizes, asset class. Even though I am a techie, I don’t own all tech stocks. I don’t own all massive companies. I own ETFs. Don’t have a portfolio that could be completely ruined by a single external event.”
5. Have a budget for experimentation

Does he ever break his own strategy? 

“I do. The fun is in the outliers, sometimes. But I budget for it. E.g. last year I invested in a company that has filed for bankruptcy protection. The stock was trading at less than a cent. I liked the company and even though its current finances were less than stellar, my rationale was – if the company gets out of bankruptcy, as companies in the US generally do, the stock would be worth like 100x (Yes, it sounds like gambling and it is). So I invested a very small amount in it – small enough that if I lost it all, I wouldn’t be too unhappy, but if I won, I would have bragging rights. The company did not make it. I lost all my money. For me, the budget is 1% of my portfolio value.”
6. How has the strategy changed over time?

“It has changed a lot. In the beginning, I would go to fool.com and buy the 2 stocks they recommended. I lost money, learned my lesson. More importantly, I found that when I bought a company that I did not like, I was constantly checking the share prices, worrying about temporary lows, and hi-fiving myself and fool.com for temporary highs. Buying companies that I liked gave me peace of mind. I did not care too much how the share price did. I was just happy to be a part of it.”
7. How often do you invest?

Like most of us who are working professionals, free time is a rare commodity for my friend too. Also, since he is running his own own company 24×7, he is much more busy than most of us who are simply working for our employers. 

So does he invest very often?

“I really don’t have the time to be constantly checking out stocks. If there is a company I like, I buy their stock. If the market is reacting foolishly to a company I own, I double down on it. I don’t go – “Oh, I’ll spend 2 hours on Sunday looking for companies to buy.” E.g. over a period of 2 months, I had some really good experiences with American Express. I did some basic research and realized that in terms of customer service, they were above all other credit card companies. I wasn’t their only happy customer. I bought their stock. I am 27% up on it in one year. In another case, the market was shorting Apple because, allegedly, they hadn’t come up with a world-changing device post iPad. As a techie, I know that devices like the iPhone and iPad happen like once a decade at best. The market was being stupid. I just bought more Apple when I heard the news (I am, overall, 50% up on my Apple investments).”
Usually that leads to a frequency of 1-2 trades 1-2 times a year. I pretty much don’t sell a stock unless I need the money to buy another stock.

So these are some of the interesting thoughts which my friend shared with me. What do you think? If you are also a non-investor who invests, then share your thoughts with everyone here.

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If You Are Not Super Rich & If This is What You Think About Investing, Then You Might Be Wrong

Just read the title of the post again.

Give yourself a minute and answer this question – What Do You Invest For?

Don’t read any further till you come up with atleast one specific answer for this question.

If you have an answer, then read further

. . . . . . 

Many people think that aim of investing is to beat the markets.

It might not look wrong at first and may not be wrong for a few people*. But for most of us, investment is about much more than just beating the markets.
Wrong Investing
Is it Wrong to think that Only Aim of Investing is to Beat the Markets?
We invest (& you may call it saving if you want…though there is a big difference between saving and investing) for very few real reasons.

And one of those few reasons is to get the required sum of money whenyou need it.

The key words here are – Required Sum & When

I will give you an example for better understanding of this simple yet powerful statement.

Suppose you and your wife want to buy a car worth Rs 6 Lacs in One Year’s time. Now you know that you cannot pay the entire amount yourself and hence decide to opt for a car loan next year. And for that, you need to put in 20% as your contribution and rest would be funded by the bank.

Now 20% of Rs 6 Lacs is Rs 1,20,000 – amount you need to put in while buying the car.

Now you have 12 months to accumulate this money.

There are few options in front of you.

First is to save Rs 10,000 every month in a recurring deposit. After one year, you will have a little more than Rs 1.2 Lacs which you can then use to make a down payment for the car. This is plain and simple and without any risk.

Now suppose you decide that instead of following the first approach, you will put some money in rising stock market, in anticipation that your investment will grow larger in an year’s time. Since markets are rising, it is possible that you might hit some really good stocks and multibaggers which are able to make much more than the required Rs 1.2 lacs.

And who knows…. you might end up making the full 6 lacs in stocks!! 🙂

It is tough, but not impossible.

But when you put your money in stocks, there are 2 possibilities:

1) Markets go up and the value of your investment goes up.

2) Markets go down, and so does the value of your investment.

Will you then take this approach of putting money in stocks instead of safer instruments like Recurring Deposits?

It is risky. It can help you accumulate more than Rs 1.2 Lacs (may be 3 or even 6 lacs). But it is entirely possible that you are unlucky and when you really need those 1.2 Lacs, markets take a dip and your investments go down to 60 or 80,000. And that is less than what you need to reach your objective of buying a car.

End result?

You delay your purchase. Borrow more. Etc.

This effectively means that on the parameter of ‘Investment is an activity which provides required sum of money when you need it’, it is not able provide the required sum when needed with surety. It might provide more or it might provide less. But we cannot be sure of it.

You might say that such a case may only be applicable when one is investing for short term instead of saving. And you are right. One should save for short term and invest for long term. And savings, just like Investments should provide the required sum of money when required.

The statement – ‘Investment is an activity which provides required sum of money when we need it’ may not be the only correct definition of investment. But I feel it is a very important one. If we are not able to get the money when we really want, then what is the point of saving or investing?

We don’t want to live poor and die rich. Isn’t it?

What are your thoughts on this?

* The reference to few people (in first part of the post) is made to the class of rich people. They can have their own definition of investing. And that is because whatever sum of money they need for whatever, today or tomorrow, has already been earned by them. 🙂

The Wait Is Over – Launching the (Special) Ultra Long Term Stocks!!

Rahul – Sold good stocks he inherited from his father and made huge losses by trading in bad ones. He now wants to leave a rich legacy of good stocks for his children.

Jignesh – Dependent on his stock portfolio for his post retirement life. Suffered big losses due to unnecessary risk taking. He is now waiting for markets to rally to sell his bad stocks. He then plans to invest in just few good stocks and hold them till retirement.

Venkat – His son does not respect him because of his bad luck & stock market losses due to poor stock selection. He wants to regain that respect.

If you can relate to any of the above men whose stories I shared sometime back, then chances are that you are also looking towards heaven or stock market rallies to save your money and stock portfolios.

But if you are true to yourself, you would realize that when you wait for stock market rallies, it indicates that you are trying to control the uncontrollable. Your prayers or wants won’t give you stock market rallies.

It is when you realize that you cannot control the uncontrollable, that you can think about what you can control. And as highlighted by stories of 3 men above, it’s about sticking only to good, stable businesses when investing your heard earned money and be disciplined about it.

It is as simple as that

But having said that….we must remember…

Successful investing is simple but not easy.

And in a small way, I am trying to help you take care of what you can control.

After months of planning and weeks of tireless research, analysis and brainstorming, I am happy to announce that Ultra Long Term Stocks is available especially for you now.

Ultra Long Term Stocks


Ultra Long Term Stocks is a subscription based service which would send out a report every 45 days.

The special reports would cover the following:

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Those who have pre-registered get to subscribe the service at discounted rates. You all have already been mailed your discount codes which you can use while making payments (payment details below). 
Please note that this service is available only till 23:59 Hrs of 30-June-2014.
Now if you do some quick calculations, you would realize the magnitude of benefits you are getting for the small subscription fee being charged.

At a price which is less than that of one cup of tea a day, you are getting heavily researched and comprehensive analysis of stocks in form of reports that are easier to understand and more importantly, helpful in decision making.

It is unlike any other report that is available from established research houses which are good to increase knowledge and are less about aiding Your Decision to Invest. As the saying goes, “Amateurs are right and wrong. It’s the professionals that make money.”

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No. 1 Secret You Should Know Right NOW!!- Remember God & Not Stocks In Good Times

The times are good. Isn’t it?

Markets are making new highs almost every day now.

Rising Sensex (25K+) is inches away from falling Gold prices (27K+).

Your portfolio is up and it seems it will continue to do so for next couple of years.

The biggest bull run of our lifetimes has already started.

The last sentence is picked from many expert comments floating around. It makes me sit back and think. Didn’t we have the greatest bull run of our generation from 2003 to 2008?

Why is it that everytime markets move up and there is a general feeling of All-Will-Be-Well, experts start making statements about mothers & fathers of bull runs? If they are so smart, why aren’t they putting all there money in stock markets? For that matter, if they are so sure, why aren’t they borrowing money and putting in the stocks they feel will become multibaggers in next 2-3 years??

I don’t think any expert will be able to answer these questions.

Stocks Good Times
Good Times | Have They Just Started? 

I was reading this postby Vishal and as always, he has rightly highlighted the fact that just because prices of stocks we hold has gone up, does not mean that we are right. You might argue that the mere fact that you bought a stock was because you felt that it would rise. Fair enough. But my question is, that did you know how much or how fast will it rise? If your answer is a Yes, then I would say that there are atleast few people who do understand market dynamics. 😉

If you have followed Stable Investor, you would see that few of the stocks I discussed in recent past like ONGC, IOC, SAIL, Clariant, etc have rallied like anything. But just like you, I liked these stocks at prices back then. And I did invest in them because I felt that they were undervalued at those prices. As of now, these stocks offer mouth watering dividend yields (on purchase prices) and have quite a substantial capital appreciation part. So am I the next Warren Buffett?? 😉

No. I am not. And I cannot be. Period.

And to be honest, the sudden rise in share prices of these stocks came as a big surprise to me as well. I personally prefer slow growing, dull and boring businesses.

And one must always remember. A thing that is rising cannot continue to rise forever. And markets have this uncanny knack of surprising us. Both on the upside and more importantly on the downside.

It is at this time that quotes like the one below offer some seriously sagely advise.

“Remember God in good times and Equities in bad times.”

This quote was given few years back by Prashant Jain of HDFC Mutual Fund. And according to me, its one of the best quotes that we can use as a decision making tool while deciding whether to invest or not.

Not sure if an explanation (for quote) is required here but I would still give it for the benefit of new investors:

The Good Times here make reference to markets that have already rallied up a lot. If you buy at such high levels, chances of earning acceptable returns (more than safe fixed deposits) from your investments go down substantially. Such times are good to sell and book profits if you don’t intend to hold your stocks for decades. On the other side, when markets are down and everybody is selling, it is a very good time to buy shares of good companies which have the ability to survive the bad times and prosper in good times. A recent example of making a lot of money by investing in bad times can be the investments made in 2009. Investments made in large cap companies in 2009 have now turned out to be big multibaggers!!

Having said all this, I don’t intend to be known as a pessimist. But I prefer bear markets when I am investing and bull markets when I am selling. And since I am in accumulation phase of my investment life, I pray for Bear Markets and Crashes. 🙂


What do you think? Good times are here to stay or not? Do share your thoughts.

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