What has budget to do with investing

I was recently talking to an investor who said he is waiting for the budgets to enter markets. Previously he was waiting for the RBI Monetary policy to be announced to enter the markets. I am sure he would have been waiting for some other event to have occurred for investing. This is a sure shot case of doubting what you are doing or simply having no clarity. As many fund managers say, they are investing in a 100 Companies to diversify risk. Diversification is done by people who are not sure of what they are doing. The answer to this is business perspective investing as the Great Warren does. Budgets or otherwise, investments are made when you find the right kind of businesses that generate cash and increases earnings year and offer superior Return on Equity. These are those companies that are run by very sound management, more so they are business where they have a very unique value to offer or stickiness. Such companies rarely come under pricing pressure because of competition or economic vagaries, except in the very short sense. Finding such companies only need common sense. Wise investors invest when the prospects of the business seems the bleakest. There are short term setbacks that can not affect the underlying business model or services it offers.

Since the market is mostly full with speculators, they offer premium in analysing present results. If the company in question had bad results, the markets beat them down even if the company has history of doing well and rewarding high earnings. The market then believes the future is bad which not the case is. To the intelligent investor, these provide the rare and great opportunity to invest with a long term perspective. This sounds astoundingly simple, the trouble is for the ones who monitor the sensex on a regular basis. Instead monitor the quarterly results of the company in question. How many of us do that? Unfortunately there is no formal education available in business perspective investing. But think about it.


The great Graham believed markets comprised of 2 components. One is long term investment oriented, which means over a period of time markets will price the stocks based on its business earnings. The other component is like a casino; investors gamble based on the short term fluctuation of prices based on news and events. They speculate based on the impact daily information would have on the price movement of the stock. The long-term investment nature of the market will surely and always hike up the prices of company’s stock, if it is the right business adding to the company’s net worth and demonstrated continuous growth in its EPS.

I wish you a very eventful and happy week ahead.

Naresh Pisharody

cpnaresh@gmail.com

http://investin.blogspot.com/

Is it a right time to invest?

The markets have turned volatile and have corrected a bit, this is something that we always expected. The question now is, is that all or should I wait for more corrections before I invest. It is impossible to time the market. As someone who has been investing for many years now would realise, it is nerve wrecking to follow the index on a daily basis. I had given it up many years ago after my initial brush with trading. A trader’s life is full of highs and lows and is more like an addiction. There investment life is also relatively shorter. Thankfully I had given up this limited career long ago and entered the beautiful world of investing like a true and intelligent investor. It is about investing in a company as if you are buying its business story. If you investing in say an infrastructure company, you are doing so since you believe in the infrastructure prospects of the business. You do so because you believe there is a lot more of roads and bridges that need to be built and your company can profit from it. This is called Business perspective investing. This is relatively relaxing experience though it needs a lot of mental discipline and understanding. For such an investor, the interim losses are not a cause for worry but would be an opportunity to invest further. We follow the company financials regularly and see if the earnings and other parameters grow regularly. Look at earnings as the return from an investment made in the company.

For a long terms investor, it would make sense to invest regularly irrespective of the way index moves. Invest regularly and similar amounts. Subject to of course valuations of the price and the company identification parameters. Not everything is reflected in balance sheet. We need to deepen our contacts and get a insider view of companies. It will pay well to look for low PE companies that conform to select criteria and hold them for a period of 2 to 3 years. The next decade will see multi baggers from sectors like infrastructure and capital goods. There are also value picks emerging in education sectors. The markets have corrected quite a bit and more of this I am expecting as more bad news emerge. The European crisis is already being spoken about. Next would be Japan and US which are in deep red. Lets us prepare for action by investing in small amounts and continuing to do it as the market gets into more buying zone as I would like to call it. Beware of the real estate mafia still as a lot of illegal and launder money is lying there. I would avoid companies where customers buy purely based on price and have nothing else to offer like say a brand, or an innovation, a secret formula or IP. Recently I was looking at a company and was amazed to see the kind of innovative products they offer. Infact they do not restrict their manufacturing to any specific sector but specialise in innovation and making products that simplify our lives in multiple ways. They make products from automotive supplies to stationery to electronics to healthcare. These are the kind of companies I look to invest in as they have as warren calls them Consumer Monopoly. They have the power to price their products and also retain their earnings. But then it makes sense only to buy it at the right price. One parameter I look at it is the earnings yield.

The next event market looks forward is the budget. There is pressure on government to pull the plug on easy money and remove stimulus over time. Easy money will have to stop soon as the debt burden across all governments by dolling out such subsidies will become insurmountable. These will be action packed days and we are going to see prolonged times before a convincing recovery. Time to invest. And Investors seeking Knowledge will reap huge profits.

With Best regards,

cpnaresh@gmail.com

The New Decade heralds

The term dead cat bounce is derived from the idea that even a dead cat will bounce if it falls from a great height. This phrase has been used in Stock Markets to describe a downward move followed by a significant price increase. The price fails to continue upward and instead falls again downwards, and exceeds the prior low. A very secretive investor whom I met recently used this phrase to describe the current recovery of the stock markets. He was speaking about an impending correction which many pundits believe is in the offing. Like all great investors believe, it is not wise to time the market and wait. At the same time it may be worthwhile to study independent companies with in a sector and research thoroughly before investing. It would be advisable to invest gradually in small proportions over 4 to 6 months to take advantage of cost averaging. Infrastructure as many know is an area where the government is spending. Infrastructure bottlenecks, have long been a drag on Asia's third-largest economy, knocking an estimated 2 percentage points off its growth. The country requires $500 billion investments in infrastructure till 2012. The bulk of the government spending, 85 per cent to be precise is in power, water and urban infrastructure. Companies that operate in this area are very well poised to return value to investors.

Most stock investors do not get better than average results and are in a way not entitled to it as they base their investments on hot tips and general news in the media. They are not being provided by a specialist who charges for his service. I know a lot of people have the anxiety of waiting for a correction, specially the ones who are sitting on cash. Market tests the patience and as Warren Buffet termed it, markets can be irrational longer than man can remain solvent. That summarizes everything aptly. For a long term fundamental investor, stock indices are incidental and stock prices can be best ignored. As Warren states it, the period for holding a good company is lifelong. There is a lot of meaning in this which needs to be elaborated. The human mind is wired in a manner that we react to the market sentiments. The brain is fused to buy high and sell low. An intelligent investor is the one who can get out of this psyche. If your horizon is 20 years, the most practical thing would be to invest in well researched company every month automatically. For a life long holding, the best choice would be to buy into total stock market index funds. What keeps people from succeeding in the markets is the attention that they pay to what market is doing currently. We have to exercise our right to ignore the markets and the value of our shares on a continual basis to succeed.

This decade is significant. At the turn of last decade, India per capita income crossed USD 500 and we saw the way economy and markets moved in the last decade. At the turn of this decade. India has crossed another significant mark, per capita income of USD 1000 and there is going to be a new wave of consumption and consumerism. Many companies are focusing on the emerging trends to ensure they don't miss this wave. For us as intelligent investors, it is of paramount importance to identify those growth areas and be invested.

Wishing you a very happy Makara Sankranthi.
Naresh
cpnaresh@gmail.com

Opportunities in Uncertain times

The closure of the Tata Steel's Corus Steel Plants in UK will result in loss of 1700 jobs. This is only an indication of the kind of economic crisis that the economies of the world are still grappling with. The Steel major, second largest steelmaker in Europe has faced a situation of low demand and off-take after many mills around the world had closed unable to even pay the power bills. The employment figures that the US Markets vastly rely on were also not encouraging. I recently listened to a CEO of a large US corporation expecting this recession to last a very long time and called it a L shaped recovery. L indicates the going down and staying there for a long-time. This is opposed to many stock and business analyst who come on TV and speak reassuringly of the recovery and asking gullible investors to fall prey to their excessive greed. They are doing a job. It is the job of every intelligent investor to measure the reality through his eyes. All that is required is common sense and not a fancy degree on economics to understand the glaring reality. Dubai is an example of showcasing story of greed and returns. The real-estate had heated too fast ahead of genuine demand.

The Indian business scene is somewhat different. The Indian economy in stark contrast to the west is not heavily debt driven. The savings rate is one of the best in the world and we have a very strong regulator of banking system, the RBI. The immediate forecast may be a little tumultuous and bumpy but that should not sway away the intelligent investor. He welcomes and embraces such opportunities. People in the know of things actually admit the financial crisis in the west and know of a few large banks that are on the verge of collapse. These will trigger the meltdown of financial markets all over the world bringing great opportunities to invest in companies that comes a begging.

Meanwhile we have heard of more fraud coming out at Satyam and the new management of Mahindra expressed their intent of putting back the company on fast rails within the next 6 months. I am sure that this new management will put them into a place they as a company deserve. Whenever such information of fraud comes out, the markets offer its trademark response - off beating down the shares. Remember when Raju admitted to the fraud initially, how analyst came on TV and assured the share would reach zero or be de-listed. I was very sure that none of this would happen. There was this company with customers and revenue flows. What had happened was one of the biggest frauds in Corporate India, no doubt. But with Market again not able to distinguish Risk from Uncertainty grace it its best treatment. I know of a few Intelligent Investors who had invested knowing the truth that the value of any business is its customers and invested at highly discounted levels.

Such opportunities of uncertainty will prevail at all times offering opportunities to invest and create wealth. Recently the telecoms stocks came under the hammer with a ravaging tariff war. While valuations will change with an imminent change in tariffs, markets generally over react.

The Government of India has recently announced the fresh round of divestment in all PSU’s and divest up to at least 10%. The Government wants to raise around Rs. 60,000 cr and thereby boosting the capital markets and will ease the pressure on our fiscal deficient economy. These funds will be used use in development and infra projects.

Should we invest into such stocks now?
Post elections I had picked stocks like SBI, NMDC and few more due to this reason.
I foresaw the disinvestment happening but now however they have rallied too much for delight. Let bygones be bygones. Market throws up surprises always.


A few more topics of interest to think would be Gold and the Energy & Power sector.

Do all these happenings mean anything to investors like us?
I would like all of us think and look forward to your valuable comments.

The Market is tired

Another year is drawing to a close. It is time to rest a bit and so is it for the indexes. They have been running tirelessly for long. There are a few facets that will lend itself to the behavior of the index. It is the year end for many FIIs that have book closures and will close their positions, January RBI policy announcements are expected to tighten liquidity to rein in inflation, many IPOs are sucking up liquidity from secondary markets. The markets are oversold and running out of steam. This is seen in the leading stocks from their valuations. It is difficult to predict exactly when, but there is good certainty that the markets will correct. This will provide an opportunity for all of us to buy assets at a good discount to their value. So be in cash and hold on to Gold.

I've been getting a lot of people asking me when I'll sell my gold...

First; I have to tell you it is much, much too early to focus on this. This is a time when very few people have gold, many more countries will move their reserves from dollar to Gold and you will see this happening soon. The dollar will loose its old charm as the pressure mounts on US’s foreign creditors to look at other avenues.

To be a successful investor, you must think independently. But I'm only human, so it feels great to find a stock you believe is an excellent company with a first-class management, recommend it to your readers, remind everyone when it gets cheap, defend it against numerous critics... and then watch it deliver disproportional returns. As Buffett doesn't buy unless an investment fits into the four filters he used for decades.

• An understandable, first-class business

• A sustainable competitive advantage

• An able and trustworthy management

• A bargain price

I am right now studying a company in renewable energy. They have had recent setbacks due to inappropriate management decisions in the past. True value buys emerge during special market conditions, bad business decisions, extraordinary industry happenings and extreme pessimism. But if you go by the filters, you will be able to separate the wheat from the chaff. I am reminded of the story of Sudip Dutta who moved to Mumbai in 1988 from small town of Durgapur after his father passed away and he could not support the family. He started working as a packing assistant earning Rs. 15 per day and twenty years later, today he is the largest aluminium foil maker with business over Rs 500 crores. India is full of such entrepreneurial spirit and Indians can take on the world.

Things that you'd think are impossible could be happening with regularity in the next decade or so. Let us just sit back and watch, and wait. As they say, patience rewards the intelligent investor.