Safal Niveshak

Wit. Wisdom. Value Investing.

In Investing, Catch the Right Anchor to Avoid Sinking

First, a quick question. Take the last three digits of your telephone number, and add 400 to it.

So if your telephone number ends in 146, adding 400 to it will give you the answer 546.

Now answer this question – In which year did Alexander invade India?

Think…think!

Even though your telephone number has nothing to do with ancient India’s battles, you will note that your answer to the above question would most likely revolve around the first number i.e., 546 in the above example.

Whatever number you come up with for the sum of the last three digits of your telephone number and 400, your guess for the year of Alexander’s invasion will be close to your sum.
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Infosys, Share Your Cash!

Well, this isn’t what I’m saying. This is what investors and analysts have been pestering Infosys to do for years now.

The company currently has accumulated almost Rs 151 billion (or US$ 3.2 billion in cash) on its balance sheet. That’s a lot of moolah!


But with ever rising cash balance, even the hounding it has received at the hands of its investors, analysts, and fund managers has risen over the years.
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Kill That Idea Before It Kills Your Wealth

“The hardest virus to kill is an idea,” said the character of Leonardo DiCaprio in the movie Inception. This idea – of the difficulty of killing an idea – is widely prevalent.

We see this in businesses where once a management gets an idea that sounds wonderful, it is very difficult to ask it to change its plans even if the idea is destined to fail.

Things aren’t any different in stock market investing.

Investors seldom expect to be wrong, and thus hold on to bad ideas – bad stocks – even when it seems clear that their original idea was faulty.

But this is a typical behavioral attribute and you can’t blame anyone who shows this kind of a tendency – of not accepting that his idea is bad, and therefore must be killed.

In this post, we look at the relevance of killing bad ideas in stock market investing, and how you as an investor can do that.
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Investing in Your Company Stock? Look Before You Leap

We recently discussed why too much love for your company could be disastrous for your financial future.

We looked at lessons from Enron and our very own Satyam where employees who invested in their company stock saw their savings go down the drain.

We also studied why even when your company might not be the next Enron or Satyam, you must not go overboard with your investment in its stock.

But we also suggested that you may have 5-10% of your financial investments invested into your company stock.

Now the question you may have is this – “How do I know whether my company’s stock is worth buying?”
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Why Too Much Love for Your Company Can Be Disastrous for Your Finances

If I were asked to give you the 10 commandments in financial planning, “Don’t buy too much of your company stock” would be right up there.

Nearly a decade after the collapse of Enron Corporation in the US, many employees still haven’t learned one of that episode’s clearest lessons: Don’t bet your nest egg on the place you work.

Enron employees certainly learned the hard way: Nearly two-thirds of their retirement money was invested in the company’s shares, which became worthless. Imagine yourself in their situation and seeing your stocks drop by 99% in a flash of a moment.

But Enron didn’t teach employees a lesson. Worldcom and Lehman Brothers workers suffered the same fate. They also saw their retirement dreams disappear along with their jobs.

In India, employees of Satyam Computers who bet their retirement money on their company’s stock faced the same issue. Everything disappeared before their eyes! [Read more…] about Why Too Much Love for Your Company Can Be Disastrous for Your Finances

Should I Buy Stocks? Should I Wait?

Imagine a scene from a typical 1990s romantic Bollywood movie. The heroine is sitting with a friend under a tree pulling leaves from a stem while chanting, “He loves me? He loves me not? He loves me…”

Her idea is to reach a positive response (‘He loves me’) by the time she reaches the final leaf.

Now replace the heroine with a stock market investor, and you might not need to replace the scene. Most investors I meet these days have the same question to ask.

“Should I Buy Stocks? Should I Wait? Should I Buy Stocks? Should I Wait?”

I hope that ‘leaf strategy’ worked in the stock markets as well!

Anyways, before we move ahead to answer this question our way, first let us look at this chart that shows the movement of Sensex and its P/E (price to earnings) since the start of the financial crisis in 2008.
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Sunday Afternoon Reads

A few interesting items for your reading pleasure:

  • Good read. A secret about the financial media you won’t see anywhere else (The Daily Crux)
  • Hmm. The $ Cost of 9/11 (The Big Picture)
  • Good read. September shapes up as a chilly month for equities (Financial Times)
  • Anna Hazare listening? Salaries of MP politicos zoomed 900% in 15 years (The Economic Times)
  • Oops! CAG flays RIL, but top brokerages say ‘stock ripe for picking’ (Moneycontrol)
  • Funny! Sensex could surge past 23,000 in one year: Reliance MF (The Economic Times)

What are you reading?

‘Great’ Stocks are Bad Investments for the Long Term

Infosys was a great stock in March 2000, but has returned its investors only 32% since then.

HUL was a great stock 10 years back, but has generated returns of just around 34% over these years.

The list of such ‘great’ stocks is endless – stocks that were loved so much by investors but failed to return much over the long term.

Let me clarify one thing here – ‘great’ here means stocks that investors love so much that they are willing to pay any price to own them.

This makes ‘great’ stocks really bad investments for the long term.

Confused?
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