5 Stocks that are ready to Zoom

Frankly there are no such stocks to offer. Such has been the caption in ads of brokers who are taking advantage of the bull markets witnessed in last few months. Why are you in a hurry to deploy cash when you have a lifetime to do it? Why are you in  a hurry to invest when you were doubting all these days? This is a good time to start buying but not to burn out. What you start today should be a marriage that lasts a lifetime. Just as you would invest and manage in a relationship through its highs and lows, so also you need to persevere in stocks.

One of the most beautiful messages I heard recently was, the whole world is the sum total of results of the actions of a few individuals who have realized and actualized their full potential. We can count the people who have made a difference around be in business or in social enterprise. Many of us may not be able to achieve that in this lifetime, this is the harsh reality. But what we can indeed do is to be aware of that fact and also be aware of those gifted individuals and partner with them. That's to me what the stock market provides as an opportunity. It is definitely not a platform to park your limited and time bound surplus cash with the hope of making a killing in a few months. As Thomas Phelps puts it, Fortunes are made by buying right and holding on. An average investor would sell his stock once it appreciates by 30% and then he looks for another idea. He does so to avoid the regret of losing his potential gains, should the stock go down. The market requires a lifetime of dedication and patience.

A stock is bought for a future value that you can fairly predict today. The future is may be 10 or 20 years from now, so you actually get it for a small percentage of its final value at vesting. Honestly this is over simplifying investing, as there are many variables during this period including emotions, cycles and business changes that can happen over the long term. Hence it is paramount to monitor them and make course corrections if required, but broadly that should remain our main job as investors.

Recently I was meeting an investor retired from a PSU who was asking me what ideas I was working on. He seemed fairly knowledgeable about the markets and he was aligned to my philosophy of business like investing. We got talking and then I asked the seemingly middle class person about his holding. When he revealed the figure, I was pleasantly shocked and asked him how he managed to do that, to which he replied ‘I never sold’. Most investors ask me why they would invest if they can’t sell, or if they can’t book profits. I go back to the basis of business like investing. If you were running a very profitable and successful hosiery unit, would you sell it? How does it change when you hold the stock? Hold to your stocks as long as their earnings are increasing year after year. Anybody who does not believe in this philosophy is looking at stock market as a gambling den or purely to keep himself busy.

Investing is a boring profession. You are better at it if you have other occupations that can keep you busy.

Blogs that may be of interest

How our attitude determines our wealth

The 60:40 Ratio

How important is it to pick the right stock in comparison to bearing the right attitude?

You could have invested in the best companies but without developing the right attitude, you would rarely gain from these stocks. One might end up selling at the wrong time and lose out on all the potential gains. Wonder how many people would have ridden on our stock recommendation CERA when we invested in it at 200 levels? it’s been a multibagger of 8 times. Frankly not too many people made money as most sold in fear, when it at best doubled. On the other-hand people who wanted to be part of a promising sector, a well managed business would have held on to it. I still hold because I consider my self a business man who has invested in a sanitary-ware business, because I am confident that the management of CERA will deliver growth in earnings and I will sell only when one of these changes. Thus I stop seeing stock price movement as a need to buy or sell. For that matter, if I want to start a business in another fledgling sector, I would rather look at an existing franchise rather than build it up grounds up. 

A word about management, they are the people who make it happen. So one needs to be very cautious before trusting your business with them. if you look around in your own place of work, you can see how some people can bring magic to the results, some exclusive set of minds who have ability to execute their plans well and evolve constantly in all conditions. Invest with them. We have examples like Dilip Shanghvi or Sunder Genomal, you will rarely go wrong by trusting in their ability to execute.

When I looked at how people waited for months to get their bullets delivered, I had already missed investing in a great brand, but I caught up later as I saw during my recent long weekend outing, the craze and pride that bikers have for their hobby together with a spendable income. I believed the opportunity for the company was large and they can exhibit consistent growth into the future even with a current market cap of Rs 35,000 crore. The stock market provides a great opportunity to set up your business in no time. What would you do if you were to set up a business? You would study the industry, or follow your domain expertise, talk to people in the industry, verify details and once you are convinced you would make your financial outlay.

Investing in stocks is no different to setting up your business. When you approach stocks with this mindset, it becomes business like investing. What I refer to as building a right attitude. This is far more important than identifying the best stocks. Today we are in a world of information overload, so all data are available. Yet very few make money in stock market, it is because there are no institutions to train on building the right attitude.

This blog in a humble contribution in building the right attitude to investing.

We are still holding on to Our Kiler Stock, it has only doubled 

email for more information ram@learninvest.in or research@learninvest.in

A Simple Brief

If you cannot write the reasons you are buying a stock for, then do not buy it. I was referring to simple notes made a few years back (August 2011) when we bought a consumer stock with idealistic brand value. The personal note said that the company is growing and poised to grow at >25% for several years and its brand is desirable by millions of Indians. It’s a relatively new company with passionate promoters in an old industry that will never change, the trends of consumerism is driving its markets bigger. We then checked discounted cash flow and other financial metrics to consider valuations to make a BUY decision. The stock was then 2200 but had appreciated multifold already, almost 8 times in the previous 4 years when we bought. To the many I discussed this stock with, it had already appreciated 8 times leaving no headroom. this is a common mistake our brains will do, comparing with the past than what is possible. Behavioral scientists attribute the reason for this; we are bad at estimating future prospects so we compare with the past which makes it easy.

In the above example it was easy to look at the fact that it had run up very fast and made people believe they lost out on the opportunity and the risks are high. What was difficult was to analyze future prospects of the industry, the financial metrics as this required effort and a lot of work to be put in. We miss many opportunities due to improper comparison. Here the tendency to compare with past than what is possible. Comparison changes the value of things as a Harvard psychologist Dan Gilbert puts it. To loosely translate his example, if a great company that you believe in goes through a price correction from 9500 to 8000, you call it cheap. But if I tell you that it has moved already now to 8800, you will say it is expensive. Gilbert says 'our beliefs about what will make us happy are often wrong'.  He gives an example of how you would decide between two options of getting Rs 10,000 today and Rs 11,000 after a month. Now if you are given an option of getting 10,000 after 12 months and Rs 11,000 after 13 months, you may change your decision although the situation has not changed considerably. Our brains are developed to decide from fewer choices, if the situation gets complex we behave irrationally.

In the investing world, it is paramount to be aware of our brain's limitations and therefore  be disciplined & trust a process than our instincts. 

On teacher's day I got to listen to PM Modi speak. To  a student's question whether he aspired or ever imagined that he would become PM some day, he said he never did, he was never even a class leader . He only wanted to work with absolute sincerity. He never wanted to become ‘someone’. He exhorted students to work with dedication while enjoying what they do and that will make them someone in the path. Such a great lesson it is. 

There is so much truth in it for us and as investors there are obvious lessons too. Look for companies managed by leaders with dedication and sense of purpose; they will go on to deliver the best for shareholders.

Like in life, not all companies are created equal. I heard ‘nobody makes wealth from salary; it’s from how they invest what they save’. Move from a pay check mentality to net worth mentality.

Knowledge is wealth :The business that will grow at 25%; email ram@learninvest.in

How to know of a multibagger

Our Attitude decides our return

Our attitude decides our return. Stock market is not meant for everyone, anyone who is engaged with stocks will not make money.  People with a special attitude or those focused on building the specific attitude are likely to create wealth investing in stocks. If you do not have or can not develop the right behavior, do not invest in the markets. Those who are looking for pure returns on their invested money, like watching movements every day or what returns came about etc. are lilely to be losing money.

Will Rogers rightly say that "I am more concerned about the return of my money than the return on my money."

Its not mandatory that every one has to invest in stocks, its actually antithesis for people who are obsessed with the markets. Markets are not for everyone, understand if markets suit you...

What is the right attitude? Its Long term, which is now a cliched and over abused term. Second is margin of safety to ensure your down side is limited. This means very few investment opportunities per year and invest regularly. This seems to be contradictory: Investing regularly is time diversification. If nothing else, you may be able to buy cheaper and be rewarded better.

If you lose patience or attitude over a very long term, you can lose out on the gains. The best companies are quoting at huge valuation and may go into stock price hibernation for years at stretch. In a market frenzy like today, there is limited or no margin of safety.

Focus on building the right attitude and if the markets suit your personality and genes, stay on to be rewarded. Or move on to other opportunities.

For details on our portfolio, email ram@learnivest.in

Other blogs that may interest you

The Stock that rose 7 times in 3 years

Killer stock that went up 80% in 10 months

A Stock is a Business that you can See around

In a recent lecture on 'Mind your Money' that I attended, the speaker asked how much money was required to be happy. The answers were varied, from a few lakh rupees, people also wanted 100 crores to be happy. When asked how they arrived at that number, the answers were very vague, something like buying villas to seeing the world to responses that it looked big enough.

One of the best responses I have heard is that 'it depends on what you want to do with all the money?'. If you want to start a charity hospital that brings you happiness, then that is what is required. If you want to stay healthy, then you know what that takes. So the question is 'what is your life's purpose?'. Financially free is the one who does not have to work to achieve his life's goal. An investor recently said, an average Indian can lead a luxurious life with Rs 10 Lakh a year assuming he is living in his house. With a 3% tax free dividend income from equity, it would mean a corpus of Rs 3 crores to be financially free and wealthy. what I like about these thoughts is that it helps you put a method into the madness. The goals and hence the amount of money required varies based on the upbringing, peer group, culture etc. But the core is to investigate what is your life's purpose.

Many investors are scared today to invest as they feel the markets have shot up and may not move further to offer any meaningful return. When the markets were lower, they were waiting for correction to invest. When there were corrections they were worried about the sudden movement and wanted to wait for markets to stabilize. When the market stabilized, they were not sure which way it would move now. The point is we will know where the markets were only in hindsight.  

The investor's job is to keep investing systematically in stocks of sound companies that can deliver healthy growth in the long-term with superior cash flows, high ROE & ROCE, honest and competent management having MOS.The institutions involved in the stock market make the business speculative, but the investor must be very aware and guard himself against emotion and develop lifetime of patience. As an example, Sun pharma after its IPO in 1994 did not offer investors any return for almost 5 years. But when its prices started moving, the returns were abundant.  Rs.1000 invested in the IPO in 1994, has grown to over Rs. 314,000. Its run by a very competent management. 

On a lighter note, happiness and money have little in relationship. Money is like the size of your shoe. It can’t be too big or too small, or it may hurt.

Every single day, allow it to pass

 

Probably one of the best statements I have heard in investing world. When the prices of stocks increase, we rush in to buy and when they fall, we rush in to sell. Both are inverse of what we should be doing; why are we behaving this way? Is there a way out?

Yes. Once invested in the right companies, allow each day to pass, knowing only fully well that businesses need time to grow. The stock market is not the business, they happen elsewhere. The stock market purely is a platform to buy them and not a place where profits are made. Businesses make profit by executing their business well, reviewing their strategies time to time and making changes when required. So do not follow the what the stock market is telling (in terms of the price changes) instead focus on what the businesses are telling you, whose stocks you own.  are the strategies in tune, are the promoters transparent and honest enough, is the Net Profits and earnings growing every year, if so are changes to get there happening? These should consume our energy and not the stock prices alone. Prices are an outcome of those questions we ask.

We almost always overestimate our capability. When the stock price of our recent pick goes up, we congratulate our self on our ability to have foreseen. If the stock price goes down, we promise ourselves to exit if price comes back to our purchase price. There is no value we associate to the business, first when we bought the stock and then when we decide to sell.

Buy decision have to be predetermined by 'margin of safety' (on a roll of stocks that we have already filtered), which is generally appealing during a downtrend. So as a buyer we should prefer markets going down rather than going up. Our attitude towards market vagaries will decide our investing fortunes.

In the last couple of months, stocks have run up very fast. This is to the surprise of many as they stayed out of the market. Unfortunately, there are not too many stocks which offer sufficient margin of safety. Don't blindly buy because the share price has been going up. Only when the tide goes out do you discover who's been swimming naked.

A great investor once told me not to measure a stock by its price but with its market cap, this is quite a revelation. What he meant is to look at the stock as a business and by examining the market cap you are actually evaluating the size of the industry that of competitor, the growth prospects of the industry, headroom etc.

As Warrren Buffet wrote to shareholders “You don't have to be a genius to invest well. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ. To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing or emerging markets. You may, in fact, be better off knowing nothing of these.”

To develop the right attitude which alone is required to achieve investing success, write to ram@learninvest.in

Check Your Stock Tolerance Level Here

Procastination

When I wrote Cash for Clunkers I freely encouraged my friends to follow the same. I even shared with them what stocks to invest in. The portfolio which I hold as is today, comprising 2 lesser stocks, is 80.17% up.  None of my friends could ride the wave. When is the best time to start investing?  Tomorrow!

This is truer if the decision involves applying one’s mind, like in investing or  if it involves arranging for papers and documentation. Making a simple commitment like paying an advance can help tackle procrastination. If the decision involves signing a cheque, people tend to procrastinate to overcome anxiety and stress in handing money over. Often when one is exposed to too many investment options, he tends to procrastinate.

The effect of procrastination can be understood with a financial implication. A person investing Rs 25,000 per month from the age of 39 will have a retirement corpus at age 60, of Rs. 4.43 Crores (compounding at 15% per anum) as compared to a person who started one year later at age 40, who would have Rs 3.78 Crores as his corpus. The effect of procrastination by one year costs Rs 65 lakhs

As a great said "Don't use the hardships of your past as excuses to deny the possibilities of your future”

A friend whom I advised investing in mutual funds as he did not have enough time, is today sitting on a 15% CAGR over a period of 5 years, that's a dream run. He took the first step to listen, trust and start. The momentum took care of the rest. Most people is today's world suffer from broken focus syndrome, there are too many distractions, interests to pursue and options available. 

Investors who did not act on our 3 great investment ideas lost opportunities to make money. Huge money.

Our Cera Idea made Rs 194 into Rs 1250 in 3 years.

The Killer Idea which we Repeated again went up 40% in 7 months.

See for yourself what procrastination can do.  The right to start is now! 

With yet another Pharma stock we have identified with great growth prospects, impeccable historic growth and a huge upside events possible. For details please mail ram@learninvest.in

Is The market Risky Today?

This is the time, when the ones who had invested in equities and held on to it, feel vindicated. The past years have been tumultuous but I personally invested continually and today my feeling is not that of but vindicated, but that of assurance. Nothing as changed in the model since I began investing more than 2 decades ago. My first investment was in 1993 or so, in the Morgan Stanley mutual fund. This was the first time such an idea was marketed and I remember public frenzy to invest in it. It was supposed to be first come first serve, people stood in long que for hours together (heard people stood overnightJ), what followed was my first learning experience. 

There is not dearth of opportunities. It’s never an opportunity missed. Since then I have attended and read numerous behavioral investing classes and books. It’s taken a long time before my old faiths were broken and new ones instilled. Looking back, I really enjoyed losing money, the wealth of information that alone has taught me is  inexplicable.

Today I stand totally confident, that equity is one of the best opportunities in our generation, provided one has developed the right mindset or philosophy. To me the most important ingredient to be successful in investing, is to develop the right philosophy. There is no other financial sophistication required. The world just comes around.

There always exists a possibility of Market making a huge advance as much as it may go in for a significant unexpected collapse, making the returns in the range of its average. Where then do we get to lose huge money? It is very difficult, a task that can only be accomplished by the over thinking monkey mind. Learn to master it and success is our way.

Coming to more mundane stuff, I am currently taking an exposure in small company which is operating in a murky industry, where there are no scruples. I stumbled upon this company surprised by the way the promoters handled this business, so very different and refreshing from the heard. This is very small cap company, hence the reward risk ratio is not very encouraging and I am hoping to see some corrections. I am fairly bullish that this is going to be a multi-bagger with zero debt on its balance sheet. More on it soon.

The markets have run up very fast in Anticipation, a normal one to follow Despair. (Please see I am oblivious here about the reason.) Does it mean the market is riskier than what it was 6 months ago? The answer to me is NO. If you say it is risky, it always was and will always be.

Other posts you may like Scratch and Win

Scratch and Win

If only life was that easy, you could scratch and live of it !

The 'belief within' though brings the magic results. Its important to develop a positive and growth attitude in everything we do including investing. Otherwise its easy to get carried away like the market highs we see now and sell-off or get away. Keep reminding ourselves, businesses will continue to invest and grow over the next many decades irrespective of election results or other noises that distract us.

Magicians talk about working the subconscious to get us winning results. Winning at investing is a mental pattern, its about how you think and its the 'believes in us' that bring the results. Successful investors create magic in their portfolio and when they talk about the returns, it looks mystery. There is a charm to their hidden stories. Al Koran recommends to roll your money notes and put a rubber band around it. It represents without beginning and without end. I have practiced this for many years, it makes your subconscious work with your intellectual capabilities.

Most often we look for formulas that have worked for others, stocks that did well for some one else, this is 'knowing bias'. if it is repeated, it must be true, we are taught. Nothing is farther than truth in investing. The world is changing at a pace unseen, so it is important to be flexible and open to newer possibilities.

just look at how different investing is from real life practices, in life you count on past experiences, in investing it is counterproductive. Again in life you strive to be the best, but in investing it is better to settle for an average performance. You don't take action in case of a crisis or you don't expect greater returns if you paid for it. None of the normal rules apply here.

For the uninitiated, those who do not follow much of what we discuss, you stand a great chance at maximizing your wealth by playing the Index Investing Game. It takes hardly anytime, needs no mastery, does not consume time. Instead of predicting which stock will go up or what sectors will do well next year, just invest in Index fund and forget about it. Most fund mangers will under-perform it anyways. Stocks will likely outperform inflation, it will go through a roller coaster ride in the short run, which can create heart burns for those who don't understand this well. But in the long run, they will offer consistent returns and create real wealth after inflation.