Factors to Consider When Evaluating Company Management

Most investors realize that it's important for a company to have a good management team. The problem is that evaluating management is difficult. 

So many aspects of the job are intangible. It's clear that investors can't always be sure of a company by only poring over financial statements.

There is no magic formula for evaluating management, but there are factors to which you should pay attention. In this article, we'll discuss some of these signs.

Read more at:
https://www.investopedia.com/articles/02/062602.asp

Top 10 Rules For Successful Trading

Most people who are interested in learning how to become profitable traders need only spend a few minutes online before reading such phrases as "plan your trade; trade your plan" and "keep your losses to a minimum." 

For new traders, these tidbits of information can seem more like a distraction than any actionable advice. New traders often just want to know how to set up their charts so they can hurry up and make money.

To be successful in trading, however, one needs to understand the importance of and adhere to a set of rules that have guided all types of traders, with a variety of trading account sizes.

Read more at:
https://www.investopedia.com/articles/trading/10/top-ten-rules-for-trading.asp

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10 Tips for Successful Long-term Investing

The Walter Schloss Approach to Investing

Walter Schloss was one of the most successful investors of all time, but outside a small portion of the value investing community, no one knows the name. Mr. Schloss studied under Benjamin Graham at Columbia University and eventually went to work for Graham at the Graham Newman Partnership.

In 1955, Schloss struck out on his own and compiled one of the best track records in the history of investing. Over a 50-year span, he earned gross returns averaging 20% annually. His method emphasized buying cheap stocks with solid financials and holding them until they were considered overvalued. Mr. Schloss emphasized price-to-book value (P/BV) as the best measure of a corporation's value and preferred buying stocks that traded below book value.

In 1994, Walter Schloss sat down and outlined his thoughts on making money in markets to serve as a guide to newer investors or those without in-depth knowledge of the value investing process. The result was one typed page listing the 16 factors needed to make money in the stock market.

Read about the 16 factors here.

Market Timing Tips Every Investor Should Know

It's a long-held belief that market timing and investing are mutually exclusive, but the two strategies work well together in producing solid returns over a number of years. 

The effort requires a step back from the buy-and-hold mindset that characterizes modern investing and adding technical principles that assist entry timing, position management and, if needed, early profit taking.

This set of technical tips can guide your investments through a gauntlet of modern market dangers:

https://www.investopedia.com/articles/active-trading/043015/market-timing-tips-rules-every-investor-should-know.asp

3 tricks billionaires use to make their money work for them

You don't need a billion-dollar brokerage account to invest like a billionaire. 

While some of their investing strategies that are obviously out of reach to most people - such as acquiring a controlling stake in a company - there are common billionaire investment techniques that anyone can use.

Here are three that can amplify your returns.

Read more at:
https://money.cnn.com/2018/08/01/pf/invest-like-a-billionaire/index.html

Behavioral Bias: Cognitive Versus Emotional Bias in Investing

"Everybody has biases. We make judgments about people, opportunities, government policies and, of course, the markets. When we analyze our world without knowing about these biases, we put our observations through a number of filters manufactured by our experiences, and we're not just talking about stock screeners.

We're talking about the filters we put our decisions through that sometimes make them biased. Day-to-day activities are primarily driven by behavioral patterns. The same behavioral patterns also guide investing actions.

It’s impossible to be unbiased in our decision-making. However, we can mitigate those biases by identifying and creating trading and investing rules – but only if we know what to look for."

Read more here.

Warren Buffett and Ray Dalio agree on what to do when the stock market tanks

"The money is made in investments by investing and by owning good companies for long periods of time." - Warren Buffett

"It's when you're not scared you probably want to sell, and when you are scared, you probably want to buy." - Ray Dalio

Read more from this recent cnbc.com article.

Portfolio Management Tips For Young Investors

Too many young people rarely, or never, invest for their retirement years. Some distant date, 40 or so years in the future, is hard to imagine. However, without investments to supplement retirement income, if any, retirees will have a difficult time paying for life's necessities.

Smart, disciplined, regular investment in a portfolio of diverse holdings, can yield good long-term returns for retirement and provide additional income throughout an investor's working life.

Read more at: 

https://www.investopedia.com/articles/younginvestors/12/portfolio-management-tips-young-investors.asp

What a Swiss Pianist taught me about Contrarian Thinking

It was a pleasure and privilege to attend a solo piano concert by Swiss pianist Nik Baertsch at the Calcutta School of Music on the Saturday preceding Durga Puja (the biggest religious and cultural festival in the state of West Bengal - and now celebrated all over the world by NRIs).

A sparse and motley group - ranging from young music students to very senior citizens - were in attendance. The pianist set the tone for the evening by stating that his performance will explore the rhythmic rather than the melodic aspects of a piano.

What followed was an hour-long exploration in rhythmic sounds that can't be called music in the traditional sense of the word - because it had little harmony, almost no emotion and was not pretty to listen to.

Having heard other (mostly European) pianists, who plucked the piano strings as well as played on the keys during their mostly melodic performances, I was interested to find out what Nik Baertsch would do differently. 

He turned the grand piano into a percussion instrument - drumming up a steady beat on the keyboard with both hands; occasionally running his fingers across the strings; getting up from his seat to thump on the piano strings with both hands; using implements like sticks and mallets to strike various metal and wooden parts inside the piano; playing an almost melodic part on the keyboard. It was a dynamic and spellbinding performance, completely different from anything I have ever heard before.

Nik is obviously a very accomplished and well-trained pianist. Yet he chose a unique way to explore and expand the sonic possibilities of a piano. That got me thinking about the way people invest.

Most small investors prefer to take the easy way forward by following the herd. They buy the stocks that well-known investors or funds are buying, or the ones that are recommended by business papers or TV channels.

Developing a contrarian attitude doesn't mean doing the opposite of what others are doing. It means thinking differently and looking beyond the here and now to get an edge in the market.

For example? The recent pronouncement by Nitin Gadkari that automakers will be 'bulldozed' to replace petrol and diesel vehicles with electric vehicles by 2030 sent analysts scurrying to identify the likely winners in the electric vehicles and ancilliary space.

Not surprisingly, names like M&M, Exide and Amara Raja were being recommended. As if it was a no-brainer.

A little Google search will tell you that the largest EV maker in terms of sales is Renault-Nissan (not Tesla). Renault-Nissan is already present in India. Tesla is waiting to get in. If either or both start producing EVs in India, M&M's EV dreams will lay in tatters.

Who supplies batteries to Renault-Nissan and Tesla EVs? LG-Chem and Panasonic/Sanyo respectively. Both LG and Panasonic are present in India already. If EV sales start picking up, will batteries be supplied by Exide and Amara Raja or by LG and Panasonic?

It is this kind of thinking that will help you to catch the winners rather than the losers in the EV space. 

(If you do catch any of the EV winners, you needn't thank me. Thank Swiss pianist Nik Baertsch instead.)

7 Habits that can lead to Future Wealth

Unless you expect to win the lottery, or inherit the estate of a wealthy aunt, or write a killer app that Google or Amazon pays several million dollars to acquire - it is unlikely that you will get wealthy overnight.

Forget about the rags-to-riches stories. Most of them are really that - stories. People who are wealthy have put in a lot of time and effort to achieve their successful financial status.

If you wish to own a tree that will bear delicious fruits for many years, you won't be able to just buy it. You need to buy a sapling from a nursery, plant it, water it, fertilise it, protect it from the elements for several years before it can bear fruits.

To build wealth for the future, you need to make long-term plans and have a disciplined approach towards saving and investing. It is possible to do it on your own. But it is better if you seek advice from an experienced financial planner.

Sarah Chandler explains 7 habits that can lead to future wealth in an article in investopedia.com. Read it here.

Behavioural biases that affect investment success

An interesting topic came up for discussion during a recent family lunch. Electric vehicles - and how they were going to bring a paradigm shift not only for passenger and goods transportation but also for the oil industry.

The logic went like this: Global warming is being caused by auto emissions. Oil resources are getting depleted. Alternative bio-fuel experiments haven't worked. Electric vehicles are the obvious viable and environment-friendly solution.

Prices of electric cars are high because of lack of volumes. Batteries need to be recharged after travelling fairly short distances. But battery technology is improving. Vehicle prices will fall as demand increases.

A few years back, wind turbine maker Suzlon came out with its IPO. Wind power was touted as the future of energy. Investors piled into the stock and lost their shirts. Why? 

Oil prices came down from well above the $100 mark to $40. Wind power was no longer the talk of the town. It didn't help that Suzlon's technology was faulty.

Aren't these classic cases of judgement influenced by what happened or was heard in the recent past?

Investing success requires a planned and dispassionate approach. Emotions like greed, fear, euphoria, despondency lead to poor decisions. Buying or shorting a huge quantity of stock on 'gut-feel' can lead to disastrous consequences.  

The study of behavioural finance enables us to be aware of some of the common emotional and cognitive biases that affect decision making, like:

1. Anchoring
2. Confirmation
3. Loss aversion
4. Disposition effect
5. Hindsight
6. Familiarity
7. Self attribution
8. Trend chasing

Learn more about these behavioural biases from the following article:
8 Common Biases that impact Investment Decisions

10 Books Every Investor Should Read

When it comes to learning about investment, the internet is one of the fastest, most up-to-date ways to make your way through the jungle of information out there. 

But if you're looking for a historical perspective on investing or a more detailed analysis of a certain topic, there are several classic books on investing that make for great reading. 

Here we give you a brief overview of our favorite investing books of all time and set you on the path to investing enlightenment. (To find more recommended books, see Investing Books It Pays To Read.)

Read more here.

Why a stop-loss is the difference between gambling and investing

Many small investors - particularly old timers - prefer to invest in 'safe' options. Like bank fixed deposits, tax free bonds, national savings certificates. They get a fixed rate of return - regardless of the state of the economy or volatility in the stock market. Plus, they rest assured that their principal amount will be returned intact on maturity.

For 'safe' investors, investing in stocks is nothing short of gambling. A company one invests in can go out of business. Even if they remain in business, they may make losses and not pay any dividends. In other words, there are no guarantees of any returns, plus there is a risk that the invested principal may get  depleted. (The same logic applies for equity mutual funds.)

In some ways, investing is gambling if you have no idea of what you are doing. If you buy a company's stock without doing adequate research about its background, competition, business outlook, management capabilities then the possibility of making any money through capital gains or dividends will be like betting on a cricket or football match. You will either win, or lose.

Since you have no control over the outcome of a sporting contest, you will lose your entire wagered capital if your team loses. You won't have much control over the performance of a company either - specially if you hold only 200 or 500 shares.

However, you may use a stop-loss - set 3% (or 8%) below your invested amount in a company's share. If a share's price falls more than 3% (or 8%), you can sell the share at a small loss and recover more than 90% of your invested capital.

This loss mitigation technique is the major difference between gambling and investing. One would think that most investors would be disciplined about setting stop-losses for each of their purchases, and sell when the stop-losses get hit.

Experience says otherwise. Setting a stop-loss (or a trailing stop-loss) is an art that few investors learn and even fewer investors practice. 

There is another important difference between gambling and investing: regular dividends. Only long-term investors benefit from it. If you do proper research before buying a stock and then hold on to it for 5 years or more, reinvesting the dividends that a company pays can add up to substantial returns.

In gambling, there are no dividend payments for betting over long periods. Since each bet usually has a short time limit, you either win or lose quickly. Then you place your next bet, with similar results.

You can read more here.

India's near-term stock market outlook is not rosy

Last week, I had posted a link to an article about excellent long-term prospects of investing in the Indian stock market.

The near-term market outlook is not looking great - as per the following interview with Goldman Sachs' Rajiv Jain:

https://www.bloombergquint.com/global-economics/2017/04/12/indian-stock-optimism-is-all-hype-to-goldman-sachs-s-rajiv-jain

Digitised India - a massive Investment Opportunity

Every investor - wherever he or she may reside - should read this article:

http://www.mauldineconomics.com/outsidethebox/raoul-pal-paying-attention#

How to Save your way to greater Wealth

Why do people invest their savings? That's a simple question, and should have a simple answer - like "For a rainy day." Turns out, it doesn't.

Just ask around. You will hear answers ranging from "To get rich", "To retire early", "To travel the world", "To buy an apartment", "To buy a BMW", and so on. The answer that makes most sense is: "To build wealth." 

It goes without saying that wealth building requires a meaningful amount of savings every month, which in turn requires adequate earnings. 

If someone is earning only Rs 15000 per month then he will barely be scraping through, and won't be able to save much. What will he do then?

Find ways and means of increasing his earnings. Acquire some new skills. Start a home-based business, or take up a second (part-time) job. It will be tough, but not impossible.

If someone is already earning a decent amount of money, life becomes a lot easier. Or, does it? Often spending tends to increase in proportion to earnings.

Priority is given to better furniture, a bigger TV, a foreign holiday. Whatever savings are left get invested in ELSS funds at the end of the year.

Wealth building requires availing the full power of compounding. That means starting early, having a financial plan, and staying true to the plan for the long-term.

Haphazard buying of mutual funds, stocks, fixed income instruments, insurance policies will provide inadequate returns, even if earnings and savings are substantial.

Check out the advertising in print, online or TV media. They are all screaming 'buy', 'buy', 'buy more'. Consuming may be good for the economy. But buying clothes and jewellery and gadgets won't help you to build wealth.

Having discipline and self-control to buy only what you absolutely need - except for the occasional indulgence in a movie or dining out - can help you to meet your financial goals and enable you to retire in comfort.

3 Things All Self-Directed Investors Should Know

There are two ways you can invest your monthly/quarterly/annual savings - the easy way and the hard way.

The easy way is to get hold of an experienced financial adviser and follow his investment advice. The hard way is to take charge of your own financial future and do the investing on your own.

Many small investors skip the easy way because they think that investing for the long term is a trivial activity, and not worth the fees a good financial adviser will charge. No wonder they end up with poor returns or losses.

Common sense suggests that you follow the easy way first. Learn the ropes and gain experience about which investment instruments carry what types of risks and give what kind of returns over different time frames.

Once you have followed the advice of a financial adviser you can trust and built up a decent investment portfolio, then you may start thinking about managing your portfolio on your own.

Before you decide to march to the steps of Tagore's well-known song "Ekla Chalo Rey" ("tread your own path"), there are three things you need to remember:

1. You can't be an expert at everything - invest in what you know, and gradually broaden your 'Circle of Competence'

2. Be patient and disciplined - Rome wasn't built in a day. A good investment portfolio requires canny selection, disciplined approach to regular investing and monitoring, and patience to hold for the long term

3. Control your emotions -  be dispassionate about the periodic ups and downs in the economy. Not investing when there is doom and gloom all around is just as bad as investing when there is euphoria and everyone is jumping into the stock market to buy.

Read more

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5 Steps to Build Wealth and Grow it Over Time

Most people know how to earn money. Some become engineers, computer programmers, accountants. They earn a lot of money. Others become movie stars, sports stars, rock stars. They earn a lot more money.

Then there are doctors, lawyers, drug smugglers, terrorists, politicians. They earn a tremendous amount of money - mostly in cash. They try to hide it from the taxman in dubious overseas accounts and real estate deals.

This latter group is spending sleepless nights of late, as the Indian Prime Minister has declared a war on ill-gotten gains - first, through a self-declaration scheme, followed by demonetisation of high value bank notes.

Earnings don't necessarily lead to wealth creation. Why? Because most people spend what they earn, and save and invest whatever little they have left.

Wealth creation requires proper planning, systematic investing in different assets according to the plan, and allowing compound interest to do its magic by investing for the long-term.

So, how should you get started? Here are 5 easy-to-implement steps:

1. Get in touch with a good financial adviser to make financial and asset allocation plans according to your earnings, financial goals and risk tolerance. You can do this yourself - but it may be better to seek the advice of a professional first.

2. Save first and spend later. From your financial plan, you will know how much you need to invest every month to achieve your goals. This amount should be invested first before you spend a single Rupee.

3. Live within your means. Whatever is left after investing should be your spending ceiling every month. That means you can't resort to debt - of the credit card or EMI variety. Already bogged down with EMIs? Pay them off early.

4. Invest regularly and consistently. This may pose problems if your earnings are irregular. All the more reason for you to be more disciplined about your planning, saving and investing.

5. Have a long-term view. Don't get swayed by short-term fluctuations in the prices of your assets. The longer the duration of your systematic investing, the greater will be your wealth.

Read more in this article by Diane Manuel in investopedia.com.

The 10 Commandments (of Investing)

The Ten Commandments, also known as the Decalogue, are a set of biblical principles relating to ethics and worship that play a fundamental role in Judaism and Christianity. Listed twice in the Torah - first at Exodus (20:1-17) and then at Deuteronomy (5:6-21) - they state that God inscribed them on two stone tablets, which he gave to Moses on Mount Sinai. 

For Jews, there is no 'Old Testament' because what Christians call 'New Testament' is not a part of Jewish scriptures. The so-called 'Old Testament' is known to Jews as Written Torah (or Tanakh).

'Torah' (The Law) refers to the Five Books of Moses: Genesis, Exodus, Leviticus, Numbers and Deuteronomy. 

The Second Book (of Exodus) - written by Moses during 1450-1410 B.C. - describes the events of Israel's deliverance from slavery in Egypt in chronological order, and also lists the Laws that God has given to Israelites to guide them in their relationship with Him.

Moses and the fleeing Israelites were trapped between the Pharaoh's advancing army and the Red Sea. Thanks to divine intervention, a mighty east wind blew all night - parting the waters to leave a passage of land with walls of water on both sides. 

The Israelites made their escape through the parted passage, but when the Pharaoh's army tried to pursue them the wind died down and the walls of water came crashing down to drown the soldiers.

Here is a picture from the 1956 movie, The Ten Commandments, showing Charlton Heston as Moses with the two stone tablets and the parted Red Sea:

So, what are the 10 Commandments?

• I am the Lord thy God - Thou shalt have no other gods before me
• Thou shalt not make unto thee any graven image
• Thou shalt not take the name of the Lord thy God in vain
• Remember the sabbath day, to keep it holy
• Honour thy father and thy mother
• Thou shalt not kill
• Thou shalt not commit adultery
• Thou shalt not steal
• Thou shalt not bear false witness against thy neighbour
• Thou shalt not covet (thy neighbour's house/wife/servants/animals)

These are guidelines for an ethical and religious life.

What are the 10 Commandments for an ethical and safe investing life? Click on the link below to learn more:

http://www.investopedia.com/articles/basics/07/10commandments.asp

A simple Strategy to achieve your Financial goals

(When Paul McCartney wrote the words "I don't care too much for money, 'cause money can't buy me love" he probably didn't have enough of it!)

There are three ways of making money:

1. Work hard
2. Own assets that earn money
3. Work hard and own assets that earn money

Unless you are born with a silver spoon in your mouth, you can't start adult life with option 2. So, you have no option but to work hard - whether at a job, or a business.

What you do with the money you earn by working hard will determine whether you will achieve your financial goals and will be able to retire later in life to benefit from option 2.

The simple strategy to achieve your financial goals? Save and invest. And the sooner you start, the better.

But you knew that already - right? 

Do you also know how much money you will need to save today, and what mix of assets you need to invest in so that when you eventually stop working you will be able to live comfortably on what your assets will earn?

Probably not - as per anecdotal evidence from a few young working people. 

One complained she hardly has any savings left after paying for rent, food and the daily commute. Another said he is putting some money into a mutual fund every month, but hasn't figured out how much he will need 30 years from now.

Would it be a surprise to know that both own high-end smartphones and laptops, commute only by app-cabs, wear designer clothes, eat out 2-3 times a week and rent apartments in posh localities?

Living the good life now may mean that you will neither be able to retire early to do the things you really love, nor will you be able to enjoy retired life without cutting corners. 

Is there a way to live reasonably well now - and in future when you will not be able (or willing) to work any more?

There is - but you will need to plan for it:

- Set financial goals - near-term, medium-term and long-term
- Figure out how much money you will need at each stage
- Save and invest accordingly

For longer term goals, you can and should invest in riskier assets like equity or equity funds for better returns. For nearer term goals, invest in less risky assets like bank fixed deposit or debt funds.

From your monthly/quarterly earnings, invest first (according to your financial plan) and then spend. 

Stay a bit farther away from town, commute by autorickshaw or train, eat out only once or twice a month, buy a cheaper phone and laptop, pay off your credit card dues in full every month. 

You will be amazed how much these small sacrifices now can lead to a more comfortable retired life. (Believe it or not, you will get old and retired life will be upon you sooner than you expect!)