SOME OF MY FAVOURITE INVESTMENT QUOTES

1.     Be not tempted to shoot at anything small.- Thomas Phelps

2.     Its impossible to produce superior performance unless you do something different.- John Templeton

3.     Never lose a holy curiosity.- Albert Einstein

4.     Taking risks is really the only way to consistently achieve above average returns- in life as well as in investments.- Sam Zell

5.     If everyone is going left, look right.- Sam Zell

6.     Economic success equals freedom.-Unknown

7.     Liquidity equals value.- unknown

8.     An investment in knowledge pays the best interest.- Benjamin Franklin

9.     Well bought is half sold.-Unknown

10. Don’t confuse genius with bull market.-Unknown

11. To make money in stocks, you must have vision to see them, the courage to buy them and patience to hold them. Patience is the rarest of the three.-Thomas Phelps

12. Wealth is the ability to fully experience life.-Henry David Thoreau

13. Don’t congratulate me when we buy it. Congratulate when we sold it.- Henry Kravis

14. Great stocks are a combination of stories and numbers.-Unknown

15. A good business is one that purchases on credit and sells on cash.- Unknown

16. Nothing has served me better in my long life than continuous learning.-Charlie Munger

17. There would be no stock market if everyone thought the same and did the same.-Unknown

18. A great investment opportunity occurs when a marvelous business encounters a one-time huge, but solvable problem.- Warren Buffett

19. Don’t be blinded only by valuation, address the opportunity as well.-Unknown

20. We read hundreds and hundreds of annual reports every year.- Warren Buffett

21. The person that turns over the most rocks win the game. And that’s always my philosophy.- Peter Lynch

22. The enemy of investment is activity.-Warren Buffett

23. Equity investment is dreaming as well as number crunching. Unknown

24. Always play for meaningful stakes.- Unknown

25. Don’t focus on how to spend less money. Focus on how to make more money.- Lyndon Forman

BARGAIN HUNTING

The best time to buy is when there is blood in the street.

Warren Buffet

Bargain hunting as an investment strategy is hard to follow. But results are extraordinary if you execute it with engineering precision and with some sort of discipline. The bargain hunter searches for stocks that have fallen in price and are priced too low relative to their intrinsic value. Typhically the best opportunities to capture these bargains come during periods of highly volatile stock markets. The bargain hunter searches for situations in which a large misconception has driven stock prices down, such as the arrival of near term difficulties for a business that are temporary in nature and should correct over time. To put it in different words, bargain hunters look for stocks that have mispriced as a result of temporary changes in the near term perspectives of sellers. The bargain hunters always investigate stocks when the outlook is worst according to the market. Bargain hunters always seek volatility in stock market to find investing opportunities. Bargain hunters seek misconception, and panicked selling because of the overwhelming presence of fear. Generally, investors’ fears become exaggerated in a crisis and so do their reactions. The typical reaction is to sell in a crisis. Bargain hunters look to take advantage of temporary problems that are exaggerated in the minds of sellers because of the sellers’ short term attitude. History clearly shows us that crises always appear worse at the outset and that all panics are subdued in time. When panic end, stock market bounce back with vengeance.

Bargain hunters must have right perspective and temperament to gain from these market events. Buying when the market goes down in panic can fetch you handsome returns to your portfolio. These kinds of panics are wonderful gifts to the bargain hunter.

Usually bargain hunters go exactly where the masses are not because that is the best place to spot bargains. Bargain hunters should be always mindful of the relationship between value and price and always seek to exploit it. Recently there were four classic bargain situations in the form of KS Oil, Ruchi Soya, IRB Infra and Karuthuri Global. These stocks were hammered badly because of the news of price rigging by promoters. SEBI also issued notice to the promoters. The market responded with panic and sends the stocks to the southward direction as if there is no bottom. These are fundamentally sound companies in the promising sectors like food and infrastructure and the fall is nothing to do with fundamentals. Particularly KS Oil and Ruchi Soya are very good companies with wonderful management. KS oil share price dropped from Rs 60 to Rs 28 and Ruchi Soya decreased from Rs 140 to Rs 81. This is really wonderful opportunity for bargain hunter.

Time and again market throws cheap stocks at you, we should exploit such situations to create wealth.

SOME INTERESTING STORIES OF STOCKS

It is fascinating and exciting to watch strange events in stock markets across globe. Enormous wealth has created in equity market by innovative human efforts. It is clearly evident by the following examples that equities offer us wonderful wealth creation opportunities in the long term. Let us look at some of the gem of stock stories.

· CoCa Cola: Coca Cola share was available at $40 per share in 1919. By 1995 that 1 share has grown (by way of bonus and right issues) to 47904 shares worth of $3.2 million.
· Wal-Mart: In 1970, 100 shares worth $ 1650. By 2002 the total value is of $ 4 million.
· Dr Reddy Lab: Rs.2500 invested in Dr Reddy Laboratories in 1980 is worth Rs.40 lakh today.
· Reliance: Rs.10000 invested in RIL in 1978 is worth Rs.13850000 in 2009.
· ACC: Rs. 1 lakh invested in ACC in 1979 is worth Rs.5.1 crore by 2006. A whopping 510 bagger.
· Century Textiles: Rs. 1 lakh invested in Century Textiles in 1.23 crore by 2006. A whopping 120 bagger.
· MicroSoft: $1000 invested in Microsoft when it went public in 1986 was worth $289365 by 2003.
· Intel Corporation: $1000 invested in Intel when it went public in 1971 was worth $ 1900000 by 2003.
· Dell Computer: Dell computer is a leading manufacturer of desktops and notebook computers. The company stock traded as low as $ 1 ¾ in 1993 on a disappointing outlook. Earnings in 1994 came in above forecast, the stock reacted strongly; the same year it claimed to $6 and continued to move up to $ 103 by 1997.
· Unitech: Unitech is the second largest real estate company in India. Rs. 1 lakh invested in unitech in 2000 has become Rs. 2.4 crore by 2009. The stock price increased from 34 paisa in 2000 to Rs. 83 by 2009.
. Berkshire Hathaway: Warren buffett's company was trading at $ 7.56 in 1962. Then it rose to $ 151000 by 2008. Now it is trading at $ 102000.

· Educomp Solutions: Carlyle, a global private equity firm bought 16% stake in Educomp Solutions in 2000 for Rs.10 crore. In 2005 Carlyle sold back those shares to Santhanu Prakash, the promoter for Rs. 60 lakhs with almost 94% loss. Less than six months after Carlyle exit, Prakash took Educomp public and today the same shares are worth Rs.300 crores.
What is the take away from these interesting stories across globe? To answer precisely; Long term. Enormous wealth has been created in the stock market in the long... LONG TIME.

A CURIOUS CASE OF BENJAMIN GRAHAM

Benjamin Graham is the father of security analysis. He transformed the practice of financial analysis from trade to science. He wrote two master pieces namely Security Analysis and the Intelligent Investor. He has given some extremely good concepts on investing. Let us discover some of them.
1. Mr Market.
Mr. Market has a fictitious character created by Ben graham to explain market behaviour. The stock market should be viewed as an emotionally disturbed business partner. Graham advised investors to look at market fluctuations from the Mr. Market’ perspective. He stated that the investors needed to imagine that they were in a partnership with a highly accommodating fellow named Mr. Market. Mr Market had the peculiar nature of being over optimistic or being over pessimistic on any given day. On a day when he was over optimistic he would ask for any price to get your share and when he was over pessimistic he was most likely to dump his shares on you at any price that you demand. Another characteristic of Mr. Market was that he doesn’t mind being ignored. If you don’t accept his offer today, he will come again tomorrow with a new quote. Graham advised investors to take advantage of Mr. Market but also warned not to be influenced or take guidance from him.
Mr. Market shows up his face each day offering a price at which he will buy your share of the business or sell your share. No matter how wild his offer is or how often your reject it, Mr Market returns with a new offer the next day and each day thereafter. It’s up to you to consider or reject. Buffet says the moral of the story: Mr. Market is your servant not your guide.

2. Margin of Safety
Benjamin Graham gets the entire credit for introducing the concept of margin of safety. In all his investment he searched for the margin of safety that made an investment acceptable to him. He once remarked, “Confirmed with a challenge to distil the secret of sound investment into three words we venture with the motto “Margin of safety”.

3. Stocks are businesses.
Stock is not just a piece of paper for Graham. It is a part ownership of the business. Graham went to great lengths to educate investors about informed investing. He emphasized investors to look at investing as buying piece of business rather than merely holding a stock. He wrote “evidently stockholders have forgotten more than to look at balance sheets. They have forgotten also that they are owners of the business and not merely owns of quotation on the stock ticker. What stock holders need today is not to became balance sheet conscious alone, but more than that to become ownership conscious”. Value investors regard securities not as just speculative instruments but as fractional ownership in the underlying business.

4. Importance of dividend
Graham was fond of cash rich and debt free companies to invest. He was incensed by cash-rich corporations that did nothing but stash excess cash in their accounts. He believed that if corporations could justifiably utilise retained earnings then it was acceptable but if they were merely holding excess and unutilised cash in the bank, then it amounted to a loss of opportunities for stock holders. He stated that cash-rich corporations need to distribute their cash to shareholders, who then had the option of re-investing the dividends in the company or use it in any other way they feel better.

WHERE IS BRAND INDIA ?

Last week I happened to be in the Tommy Hilfiger show room and saw tommy Hilfiger T-Shirt for Rs 2600. Quality is good but very expensive . I think this premium is because of its brand name, positioning and marketing strategy.
Tommy Hilfiger is a US brand targeting high end brand conscious customers. For academic curiosity I started examining Tommy Hilfiger as a case study . I went to shopper stop and visited other Indian brand counters and compared these products with Tommy Hilfiger . Quality wise, both products are more or less same .But Tommy Hilfiger T –Shirt looks a bit good due to its colour combination. There is a startling difference in price. Tommy Hilfiger costs you Rs 2600 whereas Indian branded T-shirt costs you around Rs 800. The difference is Rs 1800. A case of brand premium.
I decided to go a bit deeper and visited Tirupur, Tamil Nadu where Tommy Hilfiger T-shirts are manufactured . The Tirupur textile manufacturing company that makes T-shirt for Tommy Hilfiger is getting Rs 250 to Rs 350 per T-Shirt.
The modus operandi of Tommy Hilfiger is; create a world class brand with modern design and then source low cost materials from counties like India, China, Bangla and sold the products across the globe with slight finishing touch up. The case in point here is ,MRP is Rs 2600 and cost price is Rs 300 and additional expenses may be Rs 700 including finishing touch up, logistics etc. Profit is 2600-1000= Rs 1600.
What a wonderful business ! Almost all multinational companies are doing more or less the same kind of business.
But the sad part is we, Indians, cannot boast a single such kind of international brand. We are not leaders ; we are just followers . Let us look at some interesting international consumer brands. Coca cola, Pepsi, Colgate , HP, Apple, Nokia, McDonold , KFC , Tommy Hilfiger , Intel, Sony, Toyota , Benz, Nike , Google etc. huge international consumer brands.
Just think about Indian brands ....none comes to my mind. To some extent we can be proud of Nano and IPL.
Let us consider Infosys, of course it is a wonderful and most valueable company. But so far Infosys could not create a product with international brand- its only branded product is FINACLE a banking and financial service software product. Just compare Infosys with Microsoft . More or less both these companies started their operations at the same time . After 20 years in the business Microsoft created a wonderful brand product called windows, a cash cow of Microsoft . Microsoft made $60 billion revenue with $ 22 billion profit in 2008 whereas Infosys made only $ 4 billion revenue and $ 1 billion profit. Microsoft achieved this by creating a software product windows. Infosys focused on services and lagging behind Microsoft . If USA entirely stops outsourcing, Infosys will have to shut the shop whereas Microsoft has a competitive durability.
Let us look at the cost analysis of apple’s 30 GB Ipod with a price of $ 224. It is manufactured in China and consists of 424 tiny parts. Out of these 424 parts, 300 parts cost one cent or less . the most expensive component is the display module, costs $ 20 . China assembles and tests all parts for just $ 3.70. Apple gets the largest share of $ 80 per Ipod . A company can make abnormal profits by creating international consumer brand.
This is the premium for the brand Apple. I am searching for an Apple in Indian business landscape, if you find please convey.
It is high time for us to think and form a national brand strategy. A joint effort between the government and the private sector is required to create Indian brands.

SMALL IS BEAUTIFUL

Small Cap stocks ( having Mcap less than Rs 100 Cr ) are very exciting investments, because they can produce bigger gains in shorter timeframes than you would see with conventional stocks.Before you get all charged up on reading that we’re about to talk about the 10 stocks that are the best in India, wait.

How can we be talking of the ‘best’ stocks when we have seen the ‘worst’ all around us, for so many months now? You know for a fact that the BSE-Sensex is still down 27% since hitting its all time high in January 2008. But do you know that the index is still 259% up since its levels 10 years back? So just by staying invested in the markets, you would have multiplied your money 3.5 times over. And this is just about the broader index, which is made up of large cap stocks that anyways do not rise in multiples. After all, it’s difficult for companies with market capitalization of US$ 10 bn to double fast.
But what about a company that has a market capitalization of just around US$ 0.1 m , or at an exchange rate of 45 to the dollar, just about Rs 37 lac? It doesn’t take much to double or triple, right? Yes, it doesn’t. Or what would justify the fact that while the Sensex has returned 259% in the last 10 years, there are numerous stocks that have churned out returns of more than 10,000% over this period. Here are some of them.

10 best performing stocks over the past 10 years.

Company Name Stock price(June 1999) Stock price (June 2009) Gain %

Unitech Ltd. Rs. 0.3 Rs. 93 30900%

Kotak Bank Ltd. Rs. 3.1 Rs. 660 21200%

Matrix Lab Rs. 0.9 Rs. 209 23128%

Gujarat NRE Coke Rs. 0.2 Rs. 54 26975%

Mercator Lines Ltd. Rs. 0.4 Rs. 73 20206%

Praj Industries Ltd. Rs. 0.6 Rs.115 18225%

Anant Raj Inds. Ltd. Rs. 0.8 Rs.133 17009%

Aban Offshore Ltd. Rs. 6.0 Rs. 956 15833%

K S Oils Ltd. Rs. 0.5 Rs. 62 12220%

Era Infra Engg. Ltd. Rs. 1.01 Rs. 119 11682%

Seeing this table, you will know pretty rapidly that the best way to make money in the market is to invest for the long term. What this table doesn’t show is that all these stocks have been volatile like any other stock in the market, and you need to recognise that volatility is part of the ride. Now, when you commit to the long term, you quickly discover that the stocks that offer the best returns today were not really the well-known, widely owned names of those times. How many of you had heard of Matrix Labs or Praj then? Or for that matter how many really took Unitech seriously?

So, the trait that sets these stocks apart is that they were small companies with very small market capitalization. And although companies such as Unitech, Matrix Labs and Praj are much bigger in terms of size and market-cap today, tracked and owned by big institutional investors, there are quite a few small cap stocks waiting in the wings, doing all they can to become the next multi baggers.

So you now know for the fact that finding small stocks like the ones mentioned is a clear cut way to make tremendous wealth from the stock markets over the long term. You just need to invest in small companies that enjoy rising demand for their products, have great business models, firm financial foundations, and straightforward and visionary management teams.

So take this lesson from the market’s 10 best stocks, and put it to work in your portfolio by buying small cap stocks. Of course, you need to adhere to your risk profile (small caps are high risk stocks if your investment horizon is not long) before taking any such action.

K. Tushar Kanti Dayal

MPower Capital

JOHN BOGLE ON INVESTING

John C. Bogle …has the mind of an economist and the personality of a preacher.
Washington Post

One of the revolutionary investors in American financial history, John C. Bogle is an extra-ordinary human being. Founder and former chairman of The Vanguard Group is a savvy investor who helps millions of people to realize their financial dreams. I just completed his book “JOHN BOGLE ON INVESTING”. It’s really very interesting and insightful for investors who are serious about investments.
Fortune magazine clearly stated that, “Bogle is rattling the status quo among the mutual fund titans”. Yes, we should be thankful to him for he shows the world that mutual funds are not the all important in creating wealth instead they are wealth destroyers in the long run. Due to their short term pressures they wanted to show instant results and because of that they used to take short term investment dicisions which are clearly not in favour of investors. I am going to discuss some of the useful insights which will be helpful not only investors but also to become better human beings.
At Vanguard, the three main objectives of the business are:
1. Treating investors as part owners.
2. To operate on the lowest possible operating cost structure.
3. To create wealth in the long run.
It is surprising that in our present days where financial frauds and cheating are the order of the day, Bogle run his financial firm on honesty and succeeded like anything.
His personality is such that you cannot pass on unimpressed if you come across. His character is like a magnet which instantly attracts anybody nearing him.
William T. Allen while writing introduction to this book said that, “Virtue is a word that tends to embarrass us today. John Bogle’s life reflects such a deep commitment to the concept of duty, honor, candor, diligence, and service to others that the most complete summarization of the man is to say that he is a man of high virtue”. He further said that, “the value of life is measured by how one affects the lives of others, not by either celebrity or by balance sheet”. He further observed that, “the world is noticeably better place because of his efforts. The public was the principal beneficiary of his vision”. Absolutely stunning observation on a greatest role model of our times.
His investment philosophy is that the most effective means of building wealth is simply to emulate the annual returns provided by the financial markets, and reap the benefit of long-term compounding and minimizing the cost of investing.
His ideal investment program includes four elements:
1. Simplicity: Matching, not beating the markets; asset allocation that is strategic, not tactical.
2. Focus: Maximizing the productive economics of investing; minimizing the counterproductive emotions of investing.
3. Efficiency: Economical operations: minimization of frictional costs of fees and commissions and taxes.
4. Stewardship: Placing the interest of the clients first: unyielding emphasis on human beings and eternal values-integrity, honesty and candor.
He called the above program as “The majesty of simplicity in an empire of parsimony”. He said that ‘low costs, simply put, are better than high costs.’ He made investing simple and said that, ‘the one great secret of investing is that there is no secret.’ He further stated that, ‘reward is the first and most important dimension of investing. But don’t ignore risk, the second dimension of investing. But time moderates risk. The third dimension is cost. Time magnifies the impact of cost.’ He emphasized capital allocation in these words.
Own Stocks, the Course to Stay;
Hold Bonds, for They Will Pay;
Keep Cash Reserves for a Rainy Day.
He said that ‘there is a critical difference between designing a product that sells, and creating an investment that serves.’
The element of cost plays vital role in investment success. Bogle is highly cost conscious. He gives the reasons;
1. that companies having the smallest expense will have the ultimate advantage.
2. that companies having this advantage are the most desirous of correcting present abuses.
3. that companies which cannot long survive the present condition of affairs are determined to nullify every effort for reform.
It is clear from his observation that we must reduce expenses to thrive in the business. Simple investment ideas and basic human values are the foundation of his philosophy.