Archives for July 2014

Industry Analysis: Banking – Part 1

First a warning – Banking is not within my circle of competence. This post is an attempt to put forward whatever little I have studied and know about this industry. It’s now upon you to build on the same and learn more about how this industry works.

About Banking
Wikipedia defines a bank as…

…a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly by loaning or indirectly through capital markets. A bank links together customers that have capital deficits and customers with capital surpluses.

Banks have come a long way from the temples of the ancient world, but their basic business practices have not changed.

50% of the "early bird seats" for my Kolkata Value #Investing Workshop are gone! Register now if you wish to attend – https://t.co/dVRV8D4bmd

— Vishal Khandelwal (@safalniveshak) August 1, 2014

Banks issue credit to people who need it, but demand interest on top of the repayment of the loan. Although history has altered the fine points of the business model, a bank’s purpose is to make loans and protect depositors’ money. Even if the future takes banks completely off your street corner and onto the internet, or has you shopping for loans across the globe, the banks will still exist to perform this primary function.

Now, due to their importance in the financial system and influence on national economies, banks are highly regulated in most countries.

How to Identify Managers Who Can Run Away With Your Money

One of the first written codes of law in recorded history come from Hammurabi, who ruled the kingdom of Babylon 1,750 years before Jesus walked the earth.

He is known for the set of laws called Hammurabi’s Code, which were written almost 3,800 years ago, and were inscribed on stone tablets standing over eight feet tall. Owing to his reputation in modern times as an ancient law-giver, Hammurabi’s portrait is in many government buildings throughout the world.

Here is one of the several laws that Hammurabi formulated in his times…

If a builder builds a house for a man and does not make its construction firm, and the house which he has built collapses and causes the death of the owner of the house, that builder shall be put to death.

Well, if Hammurabi’s Code was to be implemented in today’s times, we would have seen a lot of corporate managers being taken to task in the ways the law suggested.

One Big Investing Lesson from Bhagavad Gita

Karmanye vadhikaraste, ma phaleshou kada chana,
Ma karma phala hetur bhurmatey sangostva akarmani

This verse is from Bhagavad Gita, where Lord Krishna explains Arjuna to him to perform his duties, as the latter was not willing to fight the epic war of Mahabharata.

Karmanye vadhikaraste, ma phaleshou kada chana – You have the right to perform your actions, but you are not entitled to the fruits of the actions.

Ma karma phala hetur bhurmatey sangostva akarmani – Do not let the fruit be the purpose of your actions, and therefore you won’t be attached to not doing your duty.

In essence, Krishna asks Arjuna to keep on performing his duties without being attached to the result of his actions. “Forsake do-ership,” Krishna says.

What Krishna tells Arjuna is encapsulated in the idea of Karma Yoga or the “discipline of action”. The word karma is derived from the Sanskrit kri, meaning ‘to do’.

15 Things You Must Know About Your Money

“You write so much about what your readers need to know about money and investing,” said my wife as I sat down to write my next post. “Why don’t you write what people must know about their money? You know, the real truth about money…like the 10 commandments on money?”

As always, I thought she had a point. 🙂

So, here are a few ideas – not 10, but 15 – that I’ve picked along the way, and that I believe are some of the most important ones you must know about your money,

You think too much about your money. Stop doing that because your money doesn’t think about you.
You are not your money and your money is not you but you best look after each other anyway. You might be together for a while.
You’ll never have more money to save and invest than you do right now, so find a way to save and invest more of what you’ve got.
You don’t have a I-have-less-money issue. It’s a how-you-manage-your-money issue.
You’ll never be perfect with managing your money, so aim for getting better.
You’ll never live in the future or the past, so find a way to be happy with your money in the now.
Your financial life doesn’t get better, you do. Life is life – it will happen to you. It’s your job to get better in the middle of it all.
Your ‘average’ financial position is not the problem. It’s the consequence.
Even though you might not feel it, think it, believe it or hear it, you are good enough with your money than most experts would have your believe.
Your happiness works from the inside-out. Money really can’t buy you more happiness.
Your money is your responsibility, not anyone else’s. So stop blaming others when things go wrong.
Master your fear of not having enough money in the future, and you’ll master your life.
Real success is not about what you earn, own, achieve or win but who you become along the way. So work towards ‘becoming’, not towards ‘having’.
If you’re in the luckiest 1 per cent of humanity that has money, you owe it to the rest of humanity to think about the other 99 per cent.
Money just brings out the basic traits in you. If you were a jerk before you had money, you are simply a jerk with a billion rupees.

These last two thoughts come straight from Warren Buffett, who knows about money better than what you or I can ever know.

Finally, as the famous proverb goes, “If you want to feel rich, just count the things you have that money can’t buy.” (Like that smile on your child’s face when she is with you)

So play the money game, but only for the excitement of playing it.

Don’t take it too seriously, for life’s too short to be wasted running after money.

Women & Investing: What Men Must Know

I started writing this article addressing women readers and why they must take control of their investment decisions instead of leaving it to the men to do it all.

But then, after a very sensible advice from my wife (and I’m saying ‘sensible’ without any pressure to say so) :-), I changed the content of this post to address the men…

…and what they should know about “women and investing”.

Note that I’ve used “women and investing” together simply because, as my wife says, while I understand investing, I don’t understand women! And I believe, she is right.

So here I am writing some of my thoughts on “women and investing”, and why all men must take note of it.

But first, why is this article for men and not directly for women?

The Best Investment for Your Child (Hint: You Can’t Buy It)

If you opened this post with the hope that I will provide you the best investment tip for your child, I’m sorry to disappoint you as it is not about that.

But then, you may want to still read it till the end, because the ‘best investment’ that I’m talking about today is one that your money can’t buy.

Yes, that’s true!

The idea to write this post came from a disturbing article I read in a newspaper some time back.

It was about how parents these days are too busy to talk to their kids. The article laid bare some worrying results from a study, which indeed are reflections of today’s fast-paced, consumption-driven society of ours.

An Experiment of a Reluctant Walker

An Experiment of a Reluctant Walker Today’s post isn’t about investing but about health, and one of my experiments towards the same. So you may close this window if you are not interested in reading anything here except investing. 🙂

I recently bumped into a college friend at the supermarket who told me how frustrated he was with his “fat body”.

My interest was sparked when he told me how he has “tried everything” over the years but nothing worked.

Curious, I wanted to know what “everything” was. Here’s the list as I remember it: several gym memberships, expensive personal trainers, exercise bike for home, tennis lessons, health retreats, and big weight loss targets.

How to Analyze Any Industry

This is Lesson #18 of my Mastermind Value Investing Course. I am sharing it here given a lot of request from readers.

One of the legendary investors, Peter Lynch, who successfully ran Fidelity’s Magellan mutual fund for more than a decade, has often mentioned that investors are well advised to buy a business that’s so good that an idiot can run it, because sooner or later an idiot will run it.

Now, Lynch’s comment begs an important question – What dictates a company’s economic returns?

I am not asking what determines a company’s share price performance or what determines stock price returns for shareholders. Instead, it’s more important to know what drives a company’s economic profitability and sustainable value creation.

Safal Niveshak is 3 Years Old!

Safal Niveshak is 3 Years Old Yes, it’s time to put on the big boy pants…Safal Niveshak completes three years today. 🙂

A lot has happened in these quick three years, but as with any three-year-old, I’m just getting started.

Most of all, I want to thank each and every one of you for “raising” this initiative to this point — it truly could not have happened without you, dear tribesman.

I know I’ve said it before, but it bears repeating – Thank you so much for reading, for commenting, for your interest and support, for keeping me honest, for helping this entire movement of creating smarter and independent stock market investors become greater and spread wider.

You are magnificent, and I am supremely grateful for your time and attention.

I do feel very fortunate on many levels and I’ve been wanting to use this little milestone to do something special. So I’ve decided to give Safal Niveshak’s birthday to charity: water, a non-profit organization bringing clean, safe drinking water to people in developing countries.

Help Me Celebrate Safal Niveshak’s 4th Birthday
If you go to the special page I’ve created on charity: water and buy a well for a village that doesn’t have one, you can supply clean water to two people for twenty years. If just a few hundred of the readers of Safal Niveshak do it, we could alter the lives of a few thousand people for a generation.

Our world is facing a crisis around the issue of water — something we all need, and which most of us take for granted.

Yet for around a billion people, water is something that they’re constantly thinking about — in fact, their lives revolve around the logistics of getting it for their family.

Millions who are unable to access clean water simply don’t make it to their fifth birthday.

It’s a massive problem with many complexities that make my head spin, but my hope is that this birthday, Safal Niveshak and its tribesmen can do something small to make a difference.

Help me reach the goal to raise US$ 1,500 (original target was US$ 1,200, which I raised considering that it was met in quick time…and so more people will benefit now) for Safal Niveshak’s 4th Birthday campaign I am running on charity: water. I have pitched in with a US$ 200 starting contribution and will fund the shortfall, if any.

I’m not asking you to do it as a favour to me (that would be silly) but as a favour to you. Because it feels good to see a fellow being survive to see the beauty of life for the next many years.

So, if Safal Niveshak has touched your life, I would be happy and honoured if you can help the guys at charity: water provide clean-drinking water to a few of those who do not have access to this precious and necessary resource of Mother Nature.

I would also be happy and honoured to hear your thoughts – in the Comments section below – on your journey with Safal Niveshak so far.

Thanks again for being there!

The Delusion of “Acche Din”

“Acche din aa gaye hain! (Good days are here)” exclaimed my friend Ravi as he visited me after a long time.

“Why, what happened?” I asked in my usual state of confusion.

“Arrey, haven’t you see the stock market?” he said, “How fast it is rising!”

“Oh great!”

“And I have made tonnes of money in this rise!” he said with the best smile I ever saw on his face for a long time.

“Wow!” I exclaimed to show how I shared his happiness. “So, happy days are here again?”

“Yes!” Ravi replied.