Excellent returns from equities in next few years- now is the time to invest & make a fortune!

What qualities should an investor have for success ?
Reasonable level of intelligence.

Sound principles of operation and not allow emotions to corrode them.

Above all and the most important, firmness of character. It is this firmness of character which enables a operson to buy at the peak of panic in a bear market. And to sell at irrationally high prices at extremes of bull markets.
This is so because it is the decisions of the investor which affect his performance.

You are neither right nor wrong because the crowd agrees with you. You are right because your fact and figures are correct. This quality gives an investor to have faith and confidence in his decisions and ignorer what the crowd is doing. As always happens the general crowd of investors will be buying shares at the peak of bull market and selling at troughs of bear market.
As Emerson had said, it is easy in the world to live after the world’s opinion, it is easy in solitude to live after our own but a the great man is one who in the midst of a crowd keeps with perfect sweetness his independence of solitude.He who keeps his cool when all around him are losing their heads and above all blaming it on him, he will be man enough to make a fortune in equity markets.
He who can be comfortable without being part of the crowd. This gives an investor the ability to be even minded
Zig when others are zagging and zag when others are zigging. In continuation of what has been written above, an essential quality than an investor must have is to able to sell at bull market highs when everybody is buying i.e. Zig when others are zagging and buy at bear market lows i.e. zag when others are zigging.

A Tribute To Masters

My sincere acknowledgement to the following investment legends whose writings have decided & shaped my career. I take liberty to borrow their thoughts, so that their knowledge and wisdom may benefit a lot more people.


 Benjamin Grahm
 Warren Buffett
 Peter Lynch
 Philip Fischer
Let me start with a joke, which shows the importance of having the correct knowledge. Once - in late P.M. Indira Gandhi’s time- Mr. Zail Singh & Mr. Buta Singh were to go to America. So Mrs. I.G. decided to give them a crash course in English. After a few days , she decided to conduct a surprise test interview to check their progress. First she called in Mr. Buta Singh & asked him, what word is formed using the alphabet given below?
M
Mr. Buta Singh gave the correct answer. When he came out, Mr. Zail Singh eagerly asked him what he had been asked, as we all do when we appear for an interview. Next was called in Mr. Zail Singh.
Mrs. I.G. ,being the shrewd lady that she was, asked what word is formed using the alphabet given below?
W

Mr. Zail Singh Had been partying a lot and neglecting his studies –like most of us in India do, when we are to travel abroad. He scratched his head. Thought a lot. And at a loss for an answer, he replied, ‘lakde to buta di Ma hai, per a puthi kyo piyi hai? ( looks like Buta’s mother but why is she lying upside down).

MULTI BAGGERS
Using the principles of value investing, some of the multi baggers in my portfolio have been (year of purchase 2000-2003) ( This term Multi Bagger will be elaborated later) :

Company Purchase Mkt. price as 52 week high
Name Price on 31.12.07 (Rs.) (Rs.)

Hindustan Zinc Rs 15 75 1200
Gail Rs 60 430 650
ONGC Rs 330 1800 2600
Kochi Refnry Rs 35 310 450
GE Shipping Rs 50 320 560

Later we will discuss how to identify such multi baggers.

Bear Markets. WHAT IS INVESTING ?

Investing Is Laying Out Money Now To Get More Money Back In The Future. Value Investing Has Been Explained Earlier.

Investing Relies On The Price Paid Being Less Than The Value Of The Purchase.

In A Bear Market…., Which Is The Ideal Time To Invest, People See That The Good Companies Are Selling For Silly Low Prices.
But Just Like A Person Who Sees Rs. 100/- Lying On Road Thinks That It Can Not Be A Genuine Rs. 100/- Note, Otherwise Somebody Would Have Picked It Already. Hence Ignores It. The Same Approach People Apply In A Bear Market When they do not buy shares of companies selling cheap.

In A Bear Market Its Easier For A Person To Admit That He Has Committed A Murder Or Has Stolen Something Than To Agree That He Owns Shares of a co..
While investing in equity of cos. One has to have an investment time frame of approximately more than five years.
If one requires the money in future say after 1 year or before 5 years, then it is better that one does not invest in equities.
Because after you have invested, equity markets may fall sharply and as you might require the money after a short period of time, you might be forced to sell at a loss. This is what happens in practice.

Warren Buffett - What is his role as a shareholder? And equity market losses.What qualities are required to be successful like warren Buffett?

What does owning a share of a company mean?
Owning a share of a company means that literally one owns a share of that co. – is its shareholder.
If a co. has say 100 shares and one owns 10 shares of this co. then he is 10% owner of this co..
To invest for the long term as a part owner of the co. is very important to make huge profits by investing in equity of cos..( See previous blog growth of cos. )


What does to invest for the long term mean ?While investing in equity of cos. One has to have an investment time frame of approximately more than five years.
If you require the money in future say after 1 year or before 5 years, then it is better that you don’t invest in equities.
Because after you have invested, equity markets may fall sharply and as you might require the money after a short period of time, you might be forced to sell at a loss. This is what happens in practice.

What qualities should an investor for success in equity investing like Warren Buffett, Peter Lynch, Philip Fischer?Reasonable level of intelligence.

Sound principles of operation and not allow emotions to corrode them.

Above all and most important, firmness of character.
This is so because it is the decisions of the investor which affect his performance.
p.s.- these ideas are the ones used my the above mentioned investment legends.

Inflation ! a contributor to boom and bust cycles.

• Inflation !
  Inflation in India at 11% is at 13 year high. But this is normal with crude prices at $135 / barrel. And the global economy having had very excellent 4 years of growth from 2003 to 2007. But now the party seems to be coming to an end. ( read my earlier blog- Cinderella story!). As all previous bubbles in history, there is fundamental genuine demand to increase demand first and consequently lead to increase in prices – unprecedented boom in China , India & other emerging economies in this case leading to exponential increase in crude prices. The huge application potential of information technology leading to I.T. bubble of 2000. But then the upward movement seems to become an act of faith & is expected to go on forever. This is makes people greedy- someone somewhere has made huge money out of this boom and now everybody wants to do so. A crowd is built up, all willing to invest in the ever rising asset at overvalued prices, leading to irrational (very high) prices. But as has been rightly said if something can not go on forever then it won’t. What goes up must come down. All this huge global growth has been possible because of the low interest regime in all global economies till a few months back. Vice versa of this too has to apply. That is what is causing the present slowdown in global economy- the global increase in interest rates. A chain is as strong as its weakest link. And in business the weakest link is debt. And it is this weakest link that is breaking. And this is leading to the collapse of real estate market in U.S.A. & consequent collapse of financial sector. And now crude oil is definitely in bubble territory. People investing in crude oil futures in particular and commodities in particular better be wary.
  
  Emotions in human nature in general & equity markets in particular.
  Emotions 23 times stronger than logic.
  
  EMOTIONS-Fear, greed, hope, despair.
  
  Fear 3 times stronger than greed. That is why in equity markets, we see bigger down swings than up swings. In recent past Indian stock indices have stopped trading because of having hit a lower circuit filter. But this has not so far happened on the upmove of the indices.

Joke of the day: what makes a man think of candlelight dinner. A power

failure.

How to convert 25 paisa into Rs 23 crores!

The Growth Of Profits & Its Rate Of Growth Is The Key To Make Profits By Investing . This is the magic used by all great investors from Wareen Buffet- world's richest person, Peter Lynch, Philip Fischer. You too can do so. How? Please read on.....
In A Growing Business Compounding Comes In. Compounding Is Just Like Magic. Its Magic Is That 25 Paisa Compounded At 100% P.A . over Thirty Years Becomes ( Take A Guess)- A Whopping Rs 23 Crores! But In Real World 100% Compounding Is Not Possible..
l But The Moot Point Is That In Equity, The Investor Has The Growth Of The Business On His Side To Ensure That Even A 10-15% Compounded Profit Growth Of His Business Would Increase The Share Price Of His Company Which In Turn Would Give Him A Decent Return Over A Period Of Time Above 5 Years. See Data Below To Understand The Profound Impact Of Compounding

COMPOUNDING AND ITS VARIATION WITH RATE OF INTEREST AND TIME PERIOD INVOLVED : ( COMPOUNDING P.A.)
RS 1 LAKH @5.5% AFTER 5YEARS=RS1.3LAKH AND AFTER 10YEARS=RS1.71LAKH
RS 1 LAKH@10 % AFTER 5 YEARS =RS 1.61 LAKH AND AFTER 10YEARS=RS 2.59 LAKH

RS 1 LAKH @15%AFTER5 RS2.01LAKH AND AFTER 10 YEARS =RS4.05 LAKH

AMT AT END OF 5 YRS@15 % COMPOUNDING =1.53 AMOUNT AT END OF 5 YRS@5.5 % COMPOUNDING

AMT AT END OF 10 YRS@15 % COMPOUNDING = 2.37AMOUNT AT END OF 10 YRS@5.5 % COMPONDG

THIS ILLUSTRATES THE MAGIC OF COMPONDG. AT HIGHER RATES FOR LONGER PERIOD .

IS THERE ANY DATA TO INDICATE THAT IT PAYS TO INVEST IN EQUITIES ?

SENSEX IN 1979= 118 ( WOULD YOU BELEIVE THIS FIGURE!)

SENSEX IN 1999=5005, COMPOUNDED R.O.R.=20.6%

SENSEX IN 2007 =21000,COMPOUNDED R.O.R=28 %

Crude prices at record highs!

Crude prices at record highs!
What a difference a couple of years can make. In ‘Rip Wan Winkle’, the change that occurred in decades takes now just a few years. It is hard to believe that crude oil was selling at $10/ barrel in 2000- just 8 years back. The same is now $132 / barrel and rising fast( And to add salt to injury, the slowing global economies have to remember that the cost of production of one barrel of crude oil in Arab countries is $1 ). It seems like Armageddon. But this has happened before also. In the previous big oil shock of 1970’s after the Arab – Israel conflict, the Arab countries turned the crude oil tap off, angry as the they where over the role of western countries and US in particular for their support to Israel (Could history be repeating itself- first time as tragedy and second time as farce- and the Arab countries have again turned off the crude oil tap , angry as they must be over the on going war in Iraq & Afganistan ?). The previous high of crude oil was $ 33/ barrel in 1990’s. Then it fell to a low of $10/ barrel in 2000. A fall of more than 70% from its peak!
Where every body is talking of crude oil at $200/ barrel in a few months, I am willing to stick my neck out and predict that in about a few months to a year, crude should be around $40-$50/barrel.
Why? Firstly, the world economy is already slowing, with the world’s biggest economy
( it might not remain so for long in future & eventually has to be over taken by China )- USA is on verge of recession. Secondly, the central banks of some of the growth engines of global economy China & India are raising their bank rates thus slowing the economic growth & dampening crude oil demand. Thirdly, the record high prices are bound to bring massive additional supply to market. And the commodities prices seem to be in a bubble stage. Fourthly, high prices are bound to reduce consumer consumption and give a boost to alternative technologies to oil guzzling automobiles like hybrid cars are already a commercial reality. Last but not the least, policy makers all around the globe are in a panic, & when they start to panic markets stop to panic. Hmmm, let us see what happens. As someone rightly said, may you live in interesting times. And we certainly are doing so.