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Archives for February 2015

10 Secrets You Must Know about Financial Media

I have been holidaying for the past two weeks now, and have thus been almost away from thinking about the stock market or accessing any financial media.

In fact, I am currently in one holy city in India, where not many people have an inkling of what the stock market is all about, forget knowing or reading any of financial media. Life is thus good and simple here, largely because people are away from the noise of a big city and its constantly attention-seeking media!

Even I do not have much access to such media here, except when I turn on my laptop. This has given me a lot of time to think about the role of financial media in the life of investors.

I have always maintained that consuming financial media is often dangerous for investors, because almost none of it is good.

But if you are a consumer (most of us are), here are ten secrets I have to share with you on what financial media can do to your mind and behaviour over the long run, and why you must avoid most of it.

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The Most Important Thing You Need for Investing Success

Benjamin Graham wrote this in The Intelligent Investor

The art of investment has one characteristic that is not generally appreciated. A creditable, if unspectacular, result can be achieved by the lay investor with a minimum of effort and capability; but to improve this easily attainable standard requires much application and more than a trace of wisdom.

The ironical truth about investing is that, despite hundreds of rules that guide the practice of being an investor, there is no rule that works all the time, and in the same manner.

Investing is, after all, not like a game of football where the ground and the ball remain the same throughout the ninety minutes of play. It’s more like cricket where the pitch changes its behaviour with every new ball, and the ball changes is shape every time it’s bowled.

So, when you are an investor, the environment in which you play isn’t controllable, and circumstances rarely repeat exactly. What’s most important then is how you behave when others are behaving oddly.

One of the best tools to think and behave better in investing is what Howard Marks calls…

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How to Avoid Getting Cheated by Bad Investment Advice

“Come what may, I will not listen to anyone’s advice before investing my money this year,” said my friend Ravi. “I’ve had enough of bad advice last year!”

“Is this your New Year resolution?” I asked him.

“Yes! And this time I am not going to break it!”

“Let’s see,” I said while infuriating my friend who thought I did not believe he was really going to adhere to his resolution this year.

“See Ravi,” I told him, “I don’t want to disappoint you. But you have to go past a great obstacle to meet your resolution of not falling for your advisor or broker’s advice.”

“What do you mean?” he questioned.

“Okay, let me be very clear with you now.”
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Introducing: Safal Niveshak’s Value Investing Almanack

It’s easy to assume that learning ends when you’re in your early twenties. You finish college, and go into the “real world” of work. No more term papers, no more exams. A lot of people hardly ever pick up a book again – except perhaps to read on vacation.

Some people never give learning much thought. They pick up bits and pieces in an unstructured way, learning just enough to get through the job at hand.

But it’s important to understand that to accomplish great things in life, you have to keep learning. Investing is no different.

It doesn’t matter how smart you are or how knowledgeable you are as an investor. You can always learn more. To assume you’ve learned everything in investing is to stagnate, and stagnation does not bring success.

If you were to interview the most successful investors in the world today, there is a common denominator: they say they are always learning.

In fact, the simple reason investing legends like Charlie Munger and Warren Buffett are so wise and smart decision-makers is because they have never stopped learning. Instead, they have let the power of compounding work in their learning as well.

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Are You Playing the Stock Market’s Favourite Game?

One of the most popular questions that a business channel anchor or an analyst asks a company’s management is – “What’s your EPS estimate for the next quarter and year?”

For those who are not aware, EPS is the short form of ‘earnings per share’ and is calculated by dividing a company’s earnings/profits by its total number of shares.

During my initial days as a stock market analyst, even I was guilty of asking similar questions about earnings, though all I wanted to hear from the managements was their long-term outlook (like for 3-5 years) and not for the next quarter or year.

The truth is that the entire investment community is undeniably fixated on the EPS.
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I Hope You Learn This Investing Lesson Faster Than I Did

“So you are sure you will be able to meet your sales growth target for this year?” I asked as the CEO of the company looked at me.

“Yeah, we are pretty sure that we’ll be able to grow our sales by 30% this year and the next one, and 25% every year thereon.”

“And what are the risks you face?”

“Risks? Hmmm.” He looked out of the window for a minute, then turned back to me, and said, “I don’t foresee any risk for our company, at least not over the next one year.”

“That’s great!”

This was how my meetings with the CEOs or CFOs of companies went through when I had just started in my career as a stock market analyst.

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Introducing: The DCF Calculator

First things first. I had a wonderful workshop in Pune last Sunday. And here are the amazing tribe members who attended it…

My upcoming Workshops would be in Chennai, Delhi, and Mumbai, and you will get an update on the same soon.

Anyways, let me now focus on today’s topic. Ever since I shared my stock analysis excel a couple of years back, I have received innumerable questions from people who’ve found it difficult to handle the excel. 🙂

If you have been facing a similar problem, don’t worry, because I’m working on a few simple online calculators – like the one on DCF or discounted cash flow method below – that can help you analyze the financials of businesses and also value them.

Now, before you praise me for my tech skills which I don’t have, let me share that this calculator has been developed by my good friend and tribe member Anshul Khare, who is also working with me on other such calculators. Thanks Anshul!

Before you work on the calculator below, read this post I did on how to value stocks using DCF to understand the basics of sensible DCF usage, and how to avoid its misuse.

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