With qualifications like ICWA and MBA in Finance, Priya Krishnamoorthy took corporate life head-on as she spent 8 years at one of the topmost Information Technology multinational companies in India.
With her family, trekking groups, by backpacking with friends and with a corporate grassroots awareness program, Priya has covered a lot of India since she was 7 years old. While at her job, she's been excellent at negotiating for leaves to make her travels happen.
Despite being successful at her job, Priya yearned to be an entrepreneur and find more time for long term travel. After supporting her husband to pursue his shot at freelancing, Priya too took the plunge and quit her job once they were financially abundant and when the two decided to travel around India for a year on their own plan, without help from any travel companies.
Nowadays, Priya is enjoying life with her husband as they pursue ideas on self-planned travels, entrepreneurship, passive income and how to get better at life. She writes about her learnings in this blog. Besides she also looks for regular people who found inspiring success and writes their story in the Hero's Journey section.
We have seen finance experts like Dave Ramsay tell us to cut up our credit cards. We have seen how delinquent home loans not only caused people to lose their homes but also a systemic crisis that spread across several financial institution and countries during 2008. Repossessed cars and two wheeler are common in many low income households. To add to this trouble student loan defaults have become high all over the world as the income opportunities often don’t match up with the cost of some of these courses.
So is debt a bad thing? Should we indeed cut up credit cards? Save for 15+ years to buy a home. Never take a loan in our life?
From Shylock of ‘Merchant of Venice’ to today’s bank that offer Personal loans and credit cards with dubious terms the bankers have been portrayed as Vultures. It is often joked ‘Banks will only lend money to those that don’t need them.’. Are these Financial institutions just vultures that serve no real need?
Peter Lynch, one of the greatest investors of our time has given ample time tested techniques in this book.
How retail investors can win in the stock market
-> Take advantage of what you already know. i.e invest in familiar sectors.
-> Invest in a house before you invest in a stock market
-> Ignore short term fluctations
-> Predicting economy or stock market direction is futile
-> 6/10 wins is a stellar record
Types of Stocks
Slow Growers – 4 – 6% growth. Stable Business like Power and other Utilities. Buy when you can’t find anything else.
Stalwarts – Medium Growth. 10- 12% growth. Established companies like HUL, CocaCola, P&G etc that grow year on year and make standard profit. Take profits at 30 – 50% and repeat with other stalwarts.
Fast Growers – Medium to small size companies that grow at 20 – 25%. Assess growth phase and sustainability.
Cyclical – Expands and contracts over time. Eg: Auto, Airlines, Tyres, steel, Chemicals.
Turnarounds – Stay with bad news for a possible good turnaround. But stay away from tragedies where outcome is unmeasurable. Lynch considers companies moving into unrelated fields as ‘diworsification‘
Asset Plays – Properties i.e land and other assets held by a company is more valuable than the quoted price.
Categorise the stocks you purchase into the above buckets and arrive at target price based on the category it falls.
What is a Perfect Stock?
Dull or simple business with a boring name
It does something dull Eg: Packaged Foods like biscuits, soap etc
It does something disagreeable Eg: Harpic
It’s a spinoff from a well known holding company Eg: Bajaj Finance
Institutions don’t own and analysts don’t follow.
Rumours abound like toxicity, mafia Eg: Casino
There’s something depressing about the business Eg: Funeral homes
It’s a no growth industry. Steady business, reliable customer base.
It’s got a niche
People have to keep buying it. Eg: Razor blades, cigarrets
It’s a user of technology which results in massive cost savings.
The insiders are buying
Company is buying back shares
Which stocks to Avoid ?
-> Hottest stock in the hottest sector
-> The next something
-> Avoid ‘Diworsification’ i.e companies that expand into unrelated business
-> Avoid acquisitions that lack synergy
-> Avoid whisper stocks i.e great stories with no substance and no earnings
-> Too dependent on a handful of clients
-> Beware of stock with an exciting name
When to Buy ?
Buy when Price line is below Earnings line and Sell when Price line goes way above the earnings line.
P/ E guideline – check historic P/E levels to know average.
Check if companies have a plan on how to increase future earnings – reduce costs, raise prices, expand into new markets, sell more to same market, close down loss making operations etc.
What to look for before you buy
(1) Does this new trending product have an impact on co’s prospect. If yes consider, else no.
(2) PE Ratio & Growth = long term growth rate + dividend yield / P/E Ratio – ratio < 1 poor, 1.5 – 2 – Ok , 3 and above – Excellent. This is not same as PEG ratio.
(3) Cash Position – Cash, Cash equivalents and marketable securities over long term debt. Revised P/E = Market Price (less) Cash Per Share/ Earnings
(4) Debt Factor esp for companies in trouble. Can they survive the crisis?
(5) Dividends – Regualr dividends payouts acts as floor for drop in price.
(6) Book Value (BV) – Before buying for Book Value examine the assets that form part of BV and ensure it is worthy. BV could also be Asset plays due to nderstaed value of real estate,land, securities, tax write offs etc
(7) Cash flow – Free cash flow to be checked for heavy capex industries
Signs to look out for – Piling up of (obsolete) inventory , pension plans and future obligations including contingencies. Eg: litigations.
A 20 PE at 20% growth rate will make more than 10 PE stock at 10% growth rate
Recheck your story every few months to see if they are still relevant.
How to avoid the ‘dotcom’ crash scenarios yet participate in the upside of new technology
Pick and Shovels Strategy : Investing in Denims rather than the gold rush. More money is to be made by the suppliers or direct beneficiaries of a much hyped industry Eg: Microsoft Vs Dell
Through Holding Company: When a holding company has a subsidiary in the much hyped sector which might later be spun off. Holding co. business is a downside protection.
Through ‘Brick and Mortars’ that benefit from the efficiency by use of this new technology.
Personal preferences can be a reason to add companies to list of stocks to research . But never invest without doing the homework i.e knowing
(1) Company’s earning Prospects
(2) Financial Condition
(3) Competitive Position
(4) Plans for Expansion
(5) At what stage of Expansion phase is the company currently in
Invest for the the long term so that you will not be forced to liquidate for need of cash in a bear market. Only Invest what you can afford to lose without the loss having any effect in your foreseeable future.
The Final Checklist:
P/E ratio – High or Low – Compare with similar co’s in same industry.
% of institutional ownership – Lower the better
Are insiders (Promoters/Directors) buying ? Company buyback?
Are earnings growing consistently
Strong or Weak Balance sheets i.e Debt/Equity Ratio
For Slow growers – Dividend consistency and Dividend/Earnings ratio
For Stalwarts – Check P/E, for possible ‘diworsificcations’, growth rate, momentum and for long holding periods chk performance over prev. recessions and downturns.
Cyclicals – Watch out for new entrants. Anticipate shrinking P/E. auto up and down cycles last for 4-5 years each. Deeper down cause higher ups.
Fast Growers – Is PE almost equal to growth rate in earnings. Is Expansion speeding up or slowing down? Does it have room to grow ? Proven ability to expand ?
Turnaround – Will business survive ? Liquidation Value of company. How will turnaround happen? Is Business coming back or costs being cut ?
Asset Plays – Is there any hidden value in the assets? Is company taking on new debts ? Beware of Provisions and contingencies.
Points to note:
(1) Understand the nature of the company and specific reason for holding the stock.
(2) Categorise your stocks for right expectations
(3) Big companies small moves in prices, small companies make big moves.
(4) If consideration is based on specific product, consider impact on company
(5) Consider small proven and profitable companies
(6) Avoid hot stocks in hot industries
(7) Be suspicious of 50% growth rates
(8) Moderately fast growers in non growth industries is an ideal investment
(9) Insiders buying the stock
(10) Don’t buy only on stated Book Value. Consider Real Value.
Realistic Expectations – six of 10 ideas and 12- 15% return.
A small portfolio of 3 – 10 stocks would be a managable size. The composition of the portfolio should be
Growth – 30 – 40% – Slow -Low Risk low gain /Fast – High risk high gain Stalwarts – 10 – 20% – low risk moderate gains Cyclicals – 10 – 20% – low risk high gains or high risk low gains based on entry level Turnarounds – Rest – high Risk High Gain
Consider risk portfolio and age factor while allocation.
When to Sell
If company has gone up well to factor in all good news, it may be sold. But if original story is intact stay invested.
Slow Growth – On 30 – 50% appreciation or when fundamentals have deteriorated. Stalwarts – Price strays too far from earnings, and/or industry P/E. Slowing growth or vulnerability of a major division. Cyclical – 100% of capacity is used, Inventory build up, product slowdown, union demands, high capital requirement for expansion. Fast Growers – too much media attention, no where to expand business, high P/E of 30 + when growth is below 20, high institutional holding, exit of key executives to join rival. Turnaround – After the turnaround, High dependency on one customer, growing debt , rising inventory , High P/E. Asset Plays– Once hidden value is unlocked and is fairly priced. Increased institutional ownership, lower sales, increase in debt , dilution of share value.
Do not buy a mediocre company because it is cheap.
Who is the book for: The book is meant for retail investors with a long term investment horizon.
What retail investors must avoid to avoid losing money?
(1) Following the stock tips provided by brokers blindly. Brokers have vested interests in increasing volume of your trade and not your profits.
(2) Intraday Trading : Its a high speed game which hardly anyone has mastered. Its no wonder we don’t have any stock market millionaires/billionaires who have become rich solely due to intra day trading.
(3) Investing on Borrowed Money: Although stock market is one of the greatest wealth generators it comes with no guarantees or timelines. Pressure of borrowed money and to make higher returns than the cost of funds can cause the investors to take many high risk bets leading to loss of capital.
(4) F&O trading: High margin trading without understanding its risk can cause capital to be wiped out in no time.
The time tested strategy to create wealth in the stock market is to:
“Invest in high quality business(stocks) and hold it for the long run.”
Last week, we successfully published our 100th blog post in ‘We Are The Living’. The journey has been very transformative to say the least. To start this blog was a random whacky idea we picked from some online expert. The blog has been helpful in surprising ways. In this 101st post in ‘We Are The Living’, I would like to state these reasons and hope that they can persuade you to start your own blog too.
Encounter my devils
The lenses that in which we view our world as children often become some of the hardest filters to get out of in our life. Mine had been about my height. Even now when I write this sentence it gives me a little uncomfortable feeling. The first time I really caught this bull by its horn was in the post ‘The Joy of Acceptance.’ I can confidently say I felt infinitely better after I wrote and published that article. It was also reassuring to know that it helped many others with the same struggle.
Another of my devil was my stinginess which I faced in ‘Why we should celebrate.’ Putting my fears, inhibitions and guilt in black and white made me take a step back, accept and handle them much better.
We have all had struggles with bottled up emotions, frustrations, unhappiness, embarrassment, guilt etc. But how about flipping it up bottling up your happiness, joy, love and so on. I do not mean bottling up in the conventional way of not expressing it to the outside world, but quite literally bottling it up. i.e writing it up and putting it inside a bottle.
This was an idea that was made famous by Elizabeth Gilbert of the novel ‘Eat,Pay,Love’. We heard it though from Tim Ferris who was coerced by a friend to use it to stop and celebrate, enjoy his success and happiness before moving onto the next thing.
Quitting our jobs and giving up our house, to travel around India for one year is one of the most radical things we had ever done. Now that we are back from the epic journey it is time to look back and reflect how the year has been for us and what we had learnt in the journey.
(1) Start before you are ready
Before every trip most people plan judiciously. A packing lists that covers all possible scenarios, like rain coat if it rains, 5 kinds of accessories, 3 colours of lipsticks etc to match the dress that we carry and might buy. Things to do before the trip like cancel the newspaper, inform the maid, close the water taps, get a new cylinder etc. Even a short trip of one week can be overwhelming if we keep such exacting demands on ourselves to be prepared for everything and to look perfect in every part of the trip.
In reality, we can never be fully prepared and ready for all the demands of travel or life.
As Tim Ferris says ” The stars will never align and the traffic lights of life will never all be green at the same time. If it’s important to you and you want to do it ‘eventually,’ just do it and correct course along the way.”
So like Nike says ‘Just do it.’ Atleast get started.
This is one of the oldest books on investments and personal finance that has survived time and covers all the basic knowledge required for a beginner wealth builder. The fable covers simple advice to start wealth building to most common mistakes committed by those in their journey to financial independence.
Dan Pink in this book discusses the changing landscape of Selling where buyer is now the King and all of us are sellers in one way or other. He challenges a lot of accepted norms of selling. He also proposes new ways that has worked for people who thrive in this new environment. Dan has divided the book into three parts. Lets us now examine each part of the book individually.
Baijnath, a small town in Uttrakhand has a complex of 18 temples of Lord Siva and other Gods. The temples may have been built by the Katyuri rulers during the time they ruled this part of the kingdom. The temples are extremely beautiful and are a sight to behold.
Several local myths regarding the temples exist. One that our driver told us was that the entire temple complex was built over night by magic. The ASI and Uttrakhand tourism boards proclaim the different temples in the complex in completely different centuries. This published fact ofcourse never bothered our driver for he totally believed in his story of the over night creation.
I have also heard the same story in Tabo monastery where a local insisted to one of the visitor that the paintings were created by magic in a single night by the grace of Buddha.