Missed Opportunities...

To make money in stock market, you need to do two things. One identify opportunities and two, play long term. Despite my professed knowledge of Stock Markets and investments, I sucked at both.

Consider the facts.

In 2004, I was working for India's largest IT consulting company. And we were implementing the project for India's leading Watches and Jewellery manufacturing company.

In the year 2005, my company came out with its IPO (Initial Public Offering). The shares were priced at 850 rupees and there was a discount of 5% for employees. In addition, the company was giving very good financing options to the employees to purchase its shares in the IPO.

Since I was the 'expert' on share market, my team members asked my opinion.

Book Review #38: How to be a billionaire: Author: Martin S Fridson

Just finished reading the book 'How to be a billionaire, proven strategies from the titans of wealth', written by Martin S Fridson,

Fascinating book.

Author sums up the layout of the book in the first chapter. This is the first book that I have read that does that. So let us dive right in.

Traditional wisdom on building wealth stress on the individual. Have a new idea and single minded focus, keep hope and optimism and keep dreaming and visualizing success, so they say, and you will eventually become a billionaire. The focus is on thoughts and attitudes as a means of attaining wealth. This thought is exemplified by the book 'Think and Grow Rich', written by Napoleon Hill.

Buy the book 'How to be a billionaire' @Amazon

The above approach is simplistic as per Mr.Fridson. The traditional wisdom miss two important qualities of a billionaire, their ability to negotiate great deals and their  understanding of financial concepts including taxation.

Why market timing do not work?

Let me tell you about my experience in stock market in India in one sentence.

'I have tried everything there is and lost money every time'.

Still I am in the stock market.

Recently my friend Niranjan and I were having a debate on Facebook. I have updated saying that Indian market is at a historically high PE ratio and that one should be careful about investing in the market now. The Nifty PE is above 28 as I write and this has happened only twice in history. Once in 2003 and the other in 2008 and both times markets crashed. 

Niranjan had an idea. 'Why don't you sell your portfolio lock stock and barrel now and buy it back after the inevitable crash?', he asked me.

I have been there. It never worked. Here is what happened.

You think that market has topped out and sell your shares an immediately it goes up by 20%. I used to own the shares of Bombay Dyeing earlier. I purchased it at about 300 and it was vacillating (they call it 'consolidating') around 550. I felt that it was bound to fall and sold it. In the next two days, the stock touched 730 !

After selling the shares at top, you wait for it to bottom. You assume that it has bottomed out and buy it and immediately afterwards, it falls another 40%. I purchased Vakrangee recently at 65 and it fell to 45 in just three sessions !

Another reason it works is this. You identify a great stock and want to play this 'Sell and buy' game. You time the top perfectly and sell it. Now you wait for the price to fall to a particular level so that you can buy it again. The problem is that the stock starts consolidating on the down, with a downward bias, all the while you are sitting with cash in hand and other shares are going up. You keep observing a few shares that are going up and after some time, you lose patience and use the cash to buy the novenu shares that have already run up. Once your cash dries up, the original target share falls to your target level and you do not have cash !. 

Another problem is that after selling a share, you forget about it and later on you see that the share price reached its target level, reversed course and now trading at a price that was higher than when you sold originally !. I remember buying Subros at 50 and selling it at 70 and waiting for the price to reach 50 again so  that I can buy it. Then I used the cash to buy some other shares and then I forgot all about Subros. Later when I checked the price it was trading at 300 !

The main reason that the strategy of 'Sell high and buyback low' doesn't work is that you can neither predict the high or the low of individual shares, nor can you do that for the market.

For example, currently the Nifty PE is 28 as I mentioned earlier. However, there are some people who say that the current situation is not comparable with 2008 because only five stocks are driving Nifty Up. These are TCS, Reliance, Infosys and two more. Other stocks are still trading much lower than their peak valuations. As per this view, when the corporate earnings of the other stocks revert to mean, the Nifty PE will fall and market will become less risky.

Do you see what is common among all these strategies? All these are looking only at the share price, none of them are looking at the underlying business. And that is what you should work on.

It is all very complicated. So, in times of peak PE, the only strategy is to sit tight and do nothing. Buy some solid companies and let them deliver returns for you compounded over long time.

There are many great companies out there. 

The futility of knowledge....

'All the knowledge and wisdom that one accumulates is futile if one do not act on that knowledge'

Take it from me, I should know.

Readers of this blog know that I am running a blog series on reading and reviewing 50 Books in Finance, currently I am in Book Number 37, Think Like a Billionaire, become a Billionaire

The incident that I am about to narrate happened in the end of 2015. I was in the middle of reading and reviewing the book 'New Buffetology'. This amazing book gave countless examples of stocks trading at significant discount to intrinsic value. The basic premise was than a value investor should buy great businesses trading at low valuation.

Such stocks are not generally available.

Book Review #37: Think like a billionaire, become a billionaire: Author: Scot Anderson

Your path to becoming a billionaire starts with your mind, what you feed into it and what you take out of it.  Before you become a billionaire, you have to think like a billionaire. 

The book 'Think like a billionaire, become a billionaire by Scot Anderson extensively covers the thought processes followed by billionaires. They (billionaires) think differently about seven things in particular. These are Money, Investing, Jobs, Risks, Wisdom, Time and Problems.

While we think Money is for expenses,

Book: 100 Baggers: Notes and References

These are the detailed notes from the book 100 Baggers written by Christopher Mayer. You can read the review by clicking here.

Chapter 1: Introducing 100 Baggers

You will learn the key characteristics of 100-baggers. There are only so many ways up the mountain, and we’ll map out these paths
Note: Objectives of the book. One, lear the key characteistics of 100 baggers. Two, explain some techniques by which an ordinary investor can identIfy and profit t from 100 baggers

you will learn why anybody can do

share with you a number of “crutches” or techniques that can help you get more out of your stocks and investing.

this book was called 100 to 1 in the Stock Market by Thomas Phelps.

“Every human problem is an investment opportunity if you can anticipate the solution,”

This was the main thrust of our conversation: the key is not only finding them, but keeping them.

Investors crave activity,

But investors need to distinguish between activity and results.

‘A lot of shavings don’t make a good workman.’”

Phelps advises looking for new methods, new materials and new products—things that improve life, that solve problems and allow us to do things better, faster and cheaper.
Note: This is what Jim Slater recommended in he Zuu Principe

“There is a Wall Street saying that a situation is better than a statistic,”

Phelps is quick to add he is not advocating blindly holding onto stocks. “My advice to buy right and hold on is intended to counter unproductive activity,”

Sometimes stocks take a long time to get going.

“One of the basic rules of investing is never, if you can help it, take an investment action for a noninvestment reason,”

You should sell rarely, and only when it is clear you made an error. One can argue every sale is a confession of error,

The main idea is to know how such returns have happened and what investors need to do to get them.

Book Review #36: 100 Baggers: Author: Christopher Mayer

Over 15 chapters,  '100 Baggers - Stocks that return 100 to 1 and how to find them' written by Christopher Mayer makes a fascinating reading. The book starts off by analyzing the 100 Baggers from the 70s to the early 2000s and try to find common lessons for the investors. The list of 100 Baggers is diverse in terms of age, industry and size. There are 50 year old companies, there are new ones, there are small, medium and large caps and these belong to diverse industries. 

To earn 100 bagger returns, you have to save yourself from yourself. Your bias to action when things are going nowhere, your itch to sell when the share price falls by whooping 40% in a day, your fear when the stock you own falls from high triple digits to single digits, as it happened in case of Amazon.

Buy the Kindle Edition of this book @Amazon at 135 rupees.

To get returns of the magnitude of 100 baggers, traditional mindset nor traditional investment style

Lessons from Tulipomania

This is a story from the book Zulu Principle written by Jim Slater.

Buy 'Zulu Principle' @Amazon

In the early seventeenth century, many people in Holland were collecting tulips to such an extent that it was proof of bad taste for a man of fortune to be without a rare tulip bulb collection. The desire to possess tulip bulbs spread to the Dutch middle classes. By the year 1636, the demand for rare tulip bulbs increased so much that regular marts for their sale were established on the Stock Exchange in many of the principal cities.