Bringing Buffett's Wisdom to India

Sunday, April 19, 2009

Rational investors get rich slowly..Here is a killer opportunity for NRIs

Alright, thank for clicking.

I once read a book titled "Get rich fast", so I kept reading only to reaize that the author is getting rich on each of the titles that he is spewing out.

There is NO FREE LUNCH. You CAN'T GET RICH FAST.

But hold on..what does that mean? You can still get rich slowly right? Absolutely, that is my point.

If any of you have read about Buffett, the oracle of Omaha and the Sage of investing and the granddad of all the money managers, he compouned money at the rate of 24% every year since last 50 years. This year after the disastrous depressionistic era, he still ended up with 20% CAGR beating the S&P pants down.

I know you are waiting to hear where is the money?

If you know TATA MOTORS is on an agressive expansion with the orders flowing in for NANO, they are in depserate mode to raise capital. So they are reaching out to the public, giving 11% annual compounded quarterly which yields 12.83% and if you hold on for 3 years, you will simply get 45% return on your money. If Warren Buffett is in his 30s now, he would jump hand over fist for this kind of an opportunity.

So it is right there to grab. For NRIs you can transfer your money to an NRO a/c and then invest through that account.

http://www.tatamotors.com/ -- Visit this link. Oops I just have observed that the yield came down from 12.83% to 11.5%. That is how fast you lose opportunities.

Still, for all those small time players wanting to get big, here is your strategy.

Convert your forex to INR (get once in a lifetime exchange rate)
Invest that with ultrasafe for the 3 years.
Convert back that money into USD at low rate at that time (you bet, it would be 40rs in an year and then lower further)

Happy Investing,
If you like this blog, send me a note.
Will try to post more of them.

Saturday, January 24, 2009

What is Investing?

Can yo answer? Your clock starts now. You have 30 secs.
1 2 3 4 ..............STOP

Alright, I should give credit to the following statement to Benjamin Graham who practically invented the definition of investing on the Wallstreet. According to him "Investing is an activity that gives positive returns on the capital with out any loss of capital". Anything other that is called Speculation.

I'm sure now you must be thinking what the hell is that? So, if you are investing in an Idea say a Green technology, Alternative energy, New drug etc.. think before you invest. What is the chance of your success in that endeavor? Do you know the probability of success? There are 1000 ideas out there sucking cash out of investors and only 1 in 100 materializes. So if you go with 1 in 100 odds of making money then I don't think it is wise investing. You would rather visit LasVegas once.

Once we agree on the definition of investing then it becomes even more interesting. Now how do you actually invest. Isn't that Holy grail everybody is after.

Charlie Munger said"tell me where I'm going to die, and I will not go there". So true, If I know where to invest for a fixed 20% +ve return why wouldn't I go there and put my money! Beware of Madoffs of the world. That's exactly why when somebody says I will give you a fixed return upwards of 15% or for that matter any return more than 30 day TBill, they are basically Ponzi selling you something.

So, you would ask what then is Investing?

Investing with a business sense is what we call expecting a series of cash flows on any busienss you own. That is what is studied so meticulously under Value investing. It is all about figuring out what a business is worth and how much cash flow to expect from that business and what price to pay for that at what time.

Back to Basics: Calculating the growth rate of your portfolio

Back to Basics: Arithmetic Mean and Geometric Mean for your portfolio:

When you look at a Mutual Fund or a Money manager's returns, did you ever wonder on how to come up with the actual return on that portfolio for a given time series? Ok, here is the answer for you. To Calculate the growth rate of your portfolio you just calculate the geometric mean of all the annual returns. For e.g.

If a Fund A has the following returns from 1996-2002

1996 25%
1997 42%
1998 -65%
1999 2%
2000 12%
2001 -30%
2002 10%

1/6√(1+.25)(1+.42)(1-.65)(1+.02)(1+.12)(1-.3)(1+.1) - 1 = -.08 = -8%

So, in this caase the fund lost 8% every year for the seven year period or it grew at the rate of negative 8 percent. I'm sure you would not be happy to invest in this fund!
Coming to Arithmetic Mean, usually you say the average return for a fixed period such as an year, a half year, a quarter etc. Typically we consider the returns for an year averaged for that whole period and we come up with an annual return.

Finally to conclude: You have to use Geometric Mean to calculate the growth rate. You refer to an average return as an Arithmetic Mean only for a specific interval to get a better approximation of returns for that interval.

That's all for now. We will talk about other statistical measurements next time.

Thursday, November 20, 2008

Consensus a Science?

Decide for yourself. If you are following the crowd--you are making a big mistake. This is what Michael Crichton had to say about consensus.

Crichton:
“I want to pause here and talk about this notion of consensus, and the rise of what has been called consensus science. I regard consensus science as an extremely pernicious development that ought to be stopped cold in its tracks. Historically, the claim of consensus has been the first refuge of scoundrels; it is a way to avoid debate by claiming that the matter is already settled. Whenever you hear the consensus of scientists agrees on something or other, reach for your wallet, because you’re being had.
Let’s be clear: The work of science has nothing whatever to do with consensus. Consensus is the business of politics. Science, on the contrary, requires only one investigator who happens to be right, which means that he or she has results that are verifiable by reference to the real world. In science consensus is irrelevant. What is relevant is reproducible results. The greatest scientists in history are great precisely because they broke with the consensus.
There is no such thing as consensus science. If it’s consensus, it isn’t science. If it’s science, it isn’t consensus. Period. . . .”

Saturday, October 11, 2008

Successful Value and growth Investors

Warren Buffett
Charles Munger
Joel Greenblatt--Special situations and Distressed investing

Computerization and Opinions on Financial press

**This is an excerpt from the text 'Mastering Fundamental Analysis by Michael Thomsett'**
**I have just tried to use his comments here for wider audience. I have no copy rights on this paragraph**

" The computer has served to make the technician more efficient at producing opinion; it has not necessarily improved on the quality of that opinion. Graphic capability has made it easy to produce charts more quickly and for a wide and diverse number of stocks, industry groups, and indexes. This never improves the quality of information; it only makes quantifying easier. So even with more reliable scaling, faster output, and greatly improved turnaround time , questionable information remains questionable."

The above passage holds good every single moment in the stock market. CNBC pours opinions like a rainfall in Africa. How to weed out unimportant suff is the matter of awareness and knowledge which is hard to get. I hope there is a TV channel oneday which disseminates only knowledge rather than opinions. It may not occur because it will be left with no viewership.

Wednesday, October 1, 2008

My booklist

Mart Twain "A man who does not read is no better than a man who can't read"
I say "A book worth reading once should be studied thrice". Once I understood the power of good book with a lofty goal and audacious hope, it is just 'Sky is the limit' kind feeling. When you read a good book it is like having a conversation with great thinkers of the world.

Completed and In Progress: (Some of them second round)

The little book on Value investing - Finished

Investment Management - Flash read once

Extraordinary Delusions and the Madness of Crowds
http://www.amazon.com/Extraordinary-Popular-Delusions-Madness-Crowds/dp/051788433X

The Intelligent Investor: The Definitive Book On Value Investing

Revised Edition (Paperback) by Benjamin Graham, Jason Csaieig
(The best investment book ever according to Buffett.)
http://www.amazon.com/exec/obidos/ASIN/0060555661/csai-20

The Interpretation of Financial Statements (Hardcover) (Second round)
by Benjamin O. Graham, Spencer B. Meredith
http://www.amazon.com/exec/obidos/ASIN/0887309135/csai-20

Security Analysis: The Classic 1940 Edition (2nd Ed. Hardcover)
by Benjamin Graham, David Dodd
(The textbook Buffett used at Columbia)
http://www.amazon.com/exec/obidos/ASIN/007141228X/csai-20

The Five Rules for Successful Stock Investing: Morningstar’s Guide to Building Wealth and Winning in the Market
by Pat Dorsey, Joe Mansueto
http://www.amazon.com/exec/obidos/ASIN/0471269654/csai-20

You Can Be a Stock Market Genius : Uncover the Secret Hiding Places of Stock Market Profits
by Joel Greenblatt
http://www.amazon.com/exec/obidos/ASIN/0684840073/csai-20

Buffett : The Making of an American Capitalist
by Roger Lowenstein
http://www.amazon.com/exec/obidos/ASIN/0385484917/csai-20

The Warren Buffett Way, Second Edition
by Robert G. Hagstrom
http://www.amazon.com/exec/obidos/ASIN/0471648116/csai-20

2008 SEC Guidelines; Rules and Regulations; As of December 2007 (Paperback)
by Gorham & Lamont Warren
http://www.amazon.com/exec/obidos/ASIN/B0015GVPN4/csai-20

Value Investing Made Easy: Benjamin Graham’s Classic Investment Strategy Explained
for Everyone (Paperback) by Janet Lowe
http://www.amazon.com/exec/obidos/ASIN/0070388644/csai-20

The New Buffettology, by Mary Buffett and David Clark
http://www.amazon.com/exec/obidos/ASIN/0684871742/csai-20

Value Investing : From Graham to Buffett and Beyond, by Bruce Greenwald
http://www.amazon.com/exec/obidos/ASIN/0471463396/csai-20

Wall Street On Sale (Hardcover) by Timothy Vick
http://www.amazon.com/exec/obidos/ASIN/0071342052/csai-20

Baruch: My Own Story
by Bernard M. Baruch (Benefactor of Bernard M. Baruch College, CUNY)
http://www.amazon.com/exec/obidos/ASIN/156849095X/csai-20

Benjamin Graham on Value Investing: Lessons from the Dean of Wall Street
by Janet Lowe
http://www.amazon.com/exec/obidos/ASIN/0140255346/csai-20

The tree of knowledge - Reading

Understanding computers and Cognition - Reading

Wish List in the next 60 days:

Keys to Reading an Annual Report (Barron’s Business Keys) (Paperback)
by G. Thomas Friedlob, Ralph E. Welton, George Thomas Friedlob
http://www.amazon.com/exec/obidos/ASIN/0764113062/csai-20

Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports, Second Edition
by Howard M. Schilit
http://www.amazon.com/exec/obidos/ASIN/0071386262/csai-20

How to Pick Stocks Like Warren Buffett: Profiting from the Bargain Hunting Strategies of the World’s Greatest Value Investor by Timothy Vick
http://www.amazon.com/exec/obidos/ASIN/0071357696/csai-20

Financial Accounting (Fourth Edition) with CD-Rom (Hardcover) by Libby
http://www.amazon.com/exec/obidos/ASIN/0072850531/csai-20

The Analysis and Use of Financial Statements by Whitehttp://www.amazon.com/exec/obidos/ASIN/0471375942/csai-20

Common Stocks and Uncommon Profits and Other Writings (Paperback)
by Philip A. Fisher, Kenneth L. Fisher
http://www.amazon.com/exec/obidos/ASIN/0471445509/csai-20

One Up On Wall Street : How To Use What You Already Know To Make Money In The Market
by Peter Lynch, John Rothchild
http://www.amazon.com/exec/obidos/ASIN/0743200403/csai-20

Beating the Street
by Peter Lynch, John Rothchild
http://www.amazon.com/exec/obidos/ASIN/0671891634/csai-20

How to Be Rich, by J. Paul Getty
http://www.amazon.com/exec/obidos/ASIN/0515087378/csai-20

Keys to Reading an Annual Report (Barron’s Business Keys) (Paperback)
by G. Thomas Friedlob, Ralph E. Welton, George Thomas Friedlob
http://www.amazon.com/exec/obidos/ASIN/0764113062/csai-20