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Message of Sri Sai Nath of Sirdi and the stock market 30/05/2008

The message of Sri Sai Nath of Sirdi, which affects us most, when we visit the holy shrine, is written all over the place. In two simple words, the sage gave sound advice which is applicable to the investors. It says “Sradha- - Saburi” meaning “faith and patience”. There are the two most important principles or habits-whatever you may call them-which should guide the investors in stock markets (read mutual funds also).

Wild and short term fluctuations of the stock market, should not lead us to loose our faith in the market. The market decides the true value of stocks at the moment. Since there are so many players in the market. The current value reflects the collective evaluation of the stock and not evaluations by individuals. Individual stocks are part of the stock market. If we have faith in the stock market today how can we loose that faith suddenly tomorrow; just because the stock market has lost some few hundred points. You should enter the stock market if you have faith and some under standing. If you have faith, maintain that faith and don’t panic or loose it suddenly.

If you are an investor have patience. Patience is indeed, the name of the game. We are not saying that patience means not selling any stock or mutual fund, once you have bought it. We only mean you should have time horizon for your investments. And time horizon cannot be from one day to three months. You don’t buy gold for one day (unless you are an active trader), or property for one month……then why buy a stock or mutual fund for such a small period. If you are an investor, you should have a reasonable time horizon. For a suggestion, why not follow the same horizon as long term bank FDs i.e. buy stocks of good companies or good mutual funds for at least two to three years. Have patience.

Remember the message of Sri Sai Nath.. Shradha--- Saburi.

Random thoughts 31-12-2007

Real Estate	Stocks [ includes equity based mutual funds]
One never makes loss in real estate, is the general experience, over the years, if the property is residential. Commercial property is now giving very good results.	There are definite chances of losing money, if the scheme is not well picked or the stock is not of a good company. However, over the long term, chances of making losses are much less.
In select locations, the returns are very high, while in many others, such as mid towns, appreciation is slow.	Returns depend on market situation. In bull market, returns are very fast. In bear market, returns may be negative. Long term experience of good companies has been very good.
While, calculating, returns on sale of property, many owners, do not take into account factors such as cost of carrying the property, costs involved in its maintenance, costs of transaction etc. Returns seem higher than they actually are.	All costs are generally well reflected in the returns.
Long term Institutional loans are available to individuals for purchase of real estate.	Loans for purchase of Stocks or mutual funds are generally not available. This is because lending institutions do not consider such financial products safe enough to lend money to. However, banks do give advances against pledged stocks of select companies.
The IT ACT provides tax benefits for long term housing loans, to give a boost to housing sector. This is available for the self occupied property. Interest up to the limit of Rs 150000 is deductible from income.	No such benefits are available, except for limited tax exemption under the tax savings schemes of mutual funds. However, long term gains from investments in Stocks and mutual funds are tax free in the hands of the investor.
To invest in real estate, you require, comparatively, large amount of funds. Starting range will be several lakhs of Indian rupees.	You could start investing in stocks and MFs with as little as INR 5000. Most of the funds allow monthly investments from Rupees 500 onwards.
Stamp and registration duties involve expenses to the tune of 8 to 12 percent of registered amount. Thus transaction costs are very high.	Transaction costs are very low. Most of the MFs are charging entry fee from 0 to 2.5 percent in India . Brokerage on stocks is much lower.
Real estate transactions are requiring more time and effort, involving physical visits to several offices. This adds to transaction costs.	Transactions in Stocks can be done on line and this keeps the costs very low. There are different slab rates, and one can take advantage of lower rates.
Getting a buyer may be problem, especially if you are in a hurry to raise funds.	Online sale makes buyer hunt redundant. One should take care to select those stocks which have substantial volumes, otherwise you may get into trouble. Number of such stocks is very large and you should have no problem in picking good stocks. Take expert advice whenever in doubt.
Liquidity may be a problem, if you do not get a buyer in time.	Liquidity is not a problem if you are working through a reliable broker.

Disclaimer: We do not accept responsibility for consequences of financial decisions taken by readers on the basis of information provided herein. The aim is to provide a reasonably accurate picture of financial and related opportunities based on information available with us.

Random thoughts 03-12-2007

Why Invest for Long Term?

Historically it has been found that long term investing brings better average returns.
Long term investing gives time to the fund managers to take mature investment decisions.
Investing in good equity stocks is like planting trees which bear fruit on maturity.
Investments are for future needs and wealth creation. They are done with surplus funds after meeting the immediate requirements.
Quick returns are like fireworks. They burn out fast. In a volatile market, you may make quick profits. You may also make quick losses. Our experience shows that the net result is wiping out your capital.
When you invest in equity, you are investing in a business. In fact, you are buying a part of that business. You will make profit when the business makes profit. And this requires time.
When you invest for long term, you are able to take advantage of the power of compounding over several years.
Investing over long periods encourages you to save, as you learn to manage your affairs with limited funds at your disposal. Saving is the first step towards creating wealth.
Even if you generate profits in the short term, you will have to decide as what to do with those profits; spend or reinvest. This way you will be spending more time managing your money rather than generating it.
You may decide your long term horizon. Beginning from a year, it could be 5 years or even longer.

The choice is yours.

Random thoughts 26-11-2007

Building a colorful basket

First Select at the sectors in which you wish to invest. The number could be from 5 to ten.
In each sector, select the companies of your choice. You could even select more than one company in each sector. But keep in mind, building a diversified portfolio of stocks is the objective.
Gather information on these companies. You could do your research on so many portals available today. You may also directly log on to the website of the company. But do some reading yourself.
Finalize the list of company stocks.
Decide on the quantum of funds you wish to invest directly into equity.
Allocate this fund to each sector . It is not a bad idea to allocate funds equally to each sector. After all, diversification is the idea.
Decide on the time horizon. We suggest, a minimum period of 12 months.
Start investing in stocks.
You may spread your buying over a period of , let us say, one month. This will enable you to take advantage of market fluctuations. But don’t try to time the the market to get the best price. It is not possible.
Whenever you buy, try to buy in all the selected stocks. This will ensure your basket is colorful at all times.

Random thoughts 13-11-2007
Why not put all your eggs in one basket?

If you invest in only one company, you will gain only if shares of that company go up. You will miss out all others.
Fortunes of companies are strongly linked to their owners and managers. If you are investing all your money in only one company, you are, in fact committing all your resources to a small set of owners and managers. You are missing our on all others.
If you choose only one company, you choose only one sector, let us say , oil, while you miss out on all others such as Health.
If you are very positive on one Industrial House, You may at least, consider investing in various companies of that house, so that you get benefit of diversification.
Now a days, domestic markets are no longer insulated from global happenings. So, there is more need for diversification than ever before.
Even within specific sectors such as infrastructure, new opportunities are opening up. As an investor, you should consider taking advantages when they arrive.
Historically, diversification has shown better chances of saving wealth when it has been created. History has its lessons, which should not be ignored.
If you are too much in love with one stock, and think that it is giving you the best results, just compare those results with two or three other stocks which you would have considered for investing, Chances are, You will find that there are some stocks which did better! A little research always brings its own rewards.
Human life and happiness, does not depend on any one commodity. At best, it depends on a basket of commodities. For example, health care products, communication products, entertainment, gas, etc. etc. So why not look for good stocks in various fields.
How many stocks in your basket? Certainly not hundreds, as it will be difficult to manage them. For some, five to ten is a good number. Take your own decision as per your capacity. But diversification is no longer only a choice. It is a necessity.

Random thoughts 23-10-2007

Do,s and Don’t,s

Do not sell in panic.
Do not buy in panic.
Do not watch the market constantly unless you are a day trader.
Invest systematically and regularly in stocks of your choice.
Invest for long term, i.e. at least for a year.
Review your investments every year.
See if the company is declaring regular dividends. Is the stock price going up steadily over the one year period or stagnant? Take a further investment or divestment decision.
Read a lot on the companies of your choice. What do the other say about them?
It is a good idea to discuss companies with your friends who are knowledgeable and take interest in such investments. It will keep you alive to the situation. But take your own informed decisions, not based on tips or inside information. This is an age of transparency.
If you believe in the growth story, get information about it. What new projects the company is going to take up.
If you are buying through a broker, see that he makes payments within the stipulated time, when you sell. In short, operate through a trusted broker.

Random thoughts 06-10-2007
Ten reasons to buy a mutual fund and another ten to sell them.

Reasons to buy a Mutual Fund	Reason to sell a Mutual Fund
You have generated surplus funds by savings or by inheritance or profits in business or some other legitimate source.	You need money for meeting essential expenses
You wish to invest in financial instruments that have potential of giving better returns than fixed income instruments.	There are no other short term investments for liquidation
If you have better risk appetite than those who want solid security only and not good returns.	You have to pay back high interest bearing loans [ like credit card dues / personal loans ]
If you have some basic knowledge of Mutual fund business and mutual fund categories.	The fund house is on the verge of collapse and is not likely to pay your money back when you need it.
If you are planning to meet your increased financial expenses in future	The specific scheme is consistently giving negative returns for past one year as compared to its bench mark
If you are planning for a better life style in future with less stress	The fund corpus has become very small as compared to other funds
If you wish to avoid high risk and daily up down of equity market.	The fund NAV shows higher losses in % terms as compared to losses in stock market indinces
If you wish to use the services of a fund manager for investing in the equity and other financial instruments.	To make sectoral changes with a view to generate higher returns
If you wish to put your money to use and save it from being lost.	To harvest some capital gains
To save income tax	To invest in better schemes

Random thoughts 21-09-2007
Prudent investments in stocks and mutual funds.

When considering investing in stocks, keep in mind the following.

Stocks should belong to some industry or venture or service enterprise. Don’t take it for granted. There may be stocks which look cheap, but the company has long disappeared. Though this is not likely to happen now, as SEBI is vigilant, but why invest in a company which is not visible.
The Industry should be alive and doing business.
Data about the industry should be available on the web, written literature etc.
Industry should be located at a place where it should be possible to go and visit the office. The place should be easily approachable.
Products of the industry should be available in the market and you should be able to see them or use them.
Do you use the product? Would you like to use their product in comparison to their competitor’s product?
How do you rate the price of a new venture? Try to know the industry and what is the position of the market for the products of the Industry?
What is the book value of the stock you propose to purchase?
Is the stock holding its value during daily ups and downs of the market? Is showing less volatility as compared to market indices?
Do the promoters of the company have substantial stack in the company?