BOOK EXCERPTS

 
 

Think BIG!


You have to think anyway, so why not think big?

- Donald Trump


History suggests that multiple gains in stock market can be made only by investing for long term.

Start early and stay long. During last 34 years stock market has returned gains of the order of 15.88% (compounded annual gains). With these kinds of returns an investment of only Rs 20,000 per month for 40 years can get you Rs 18 crores.

And this calculation is based on actual stock index returns during last 34 years. When you invest in Index funds, there is no headache of monitoring or shuffling your portfolio.

If you are able to get guidance of good advisor who can earn you about 20% returns per annum, then the corpus can very well swell beyond Rs 36 crores!

If your dreams do not scare you, they are not big enough.

- Ellen Johnson Sirleaf

 
   

Boiling frog syndrome

What would happen if:
1) Frog is thrown into hot water in kettle?
    - To save life due to this sudden change, the frog would instantly jump out of water

2) Frog is placed in water at normal temperature and kettle is heated up gradually?
    - Due to steady rise in temperature the frog would keep on adjusting until the water temperature reaches boiling point. Now the frog tries to jump but is unable to do so, because it lost all its energy in adjusting with the water temperature. Soon the frog gets boiled alive.

What killed the frog? Many of us would say the boiling water. But the truth is; its own inability to decide when it had to jump out.

Like frogs, individuals too have wonderful power to adjust. Investors too fail to notice gradual increase/decrease in gap between ‘price’ and ‘valuation’ of stocks. It is only when the things reach the 'boiling point', they realize the problem, but it is already too late.

Don’t get swayed by the gradual changes not good for the company/industry/economy.

Often it happens that though economy continues to deteriorate, but stock indices move in opposite direction. Initially, investors get worried but...

   
 

Change track, from ‘NOISE’ to ‘Trend’

There are scores of investors who quit the stock investment after burning their fingers due to no clear strategy. They keep on repeating the same mistakes, get surrendered to emotions. If you want to make a killing, you will have to bring change in your investment style. The mindset that caused the problem cannot be the solution. What many investors view as the 'safe and correct' path, is actually the fear of change and lack of belief. Despite making continuous loses investors feel safer to maintain 'status quo'.

Day traders and very short term investors will agree that their mind is whole day busy in finding out the current share price of the stock. Also, at times at night they could not get proper sleep due to the trade being in heavy losses. They need to change their investment style.

Honest and sincere advice for investors who are unable to earn steady returns from short term trading: - For six months get detached from this rat race, invest after thorough research and relax; you don’t have to be busy all the time. You can find how calm the real investment is.
 

Just when the caterpillar thought the world was over, it became a butterfly

- Anonymous


The eagle has the longest life-span of its’ species. But to live a life upto 70 years it has to take a tough decision in its 40’s, when its talons, beak and feathers become weak. To survive further, it has to knock its’ beak against a rock until it plucks it out. Now eagle will have to wait for a new beak to grow back and then it will pluck out its’ talons and then feathers. It gets new talons, beak and feather in a period of about five months and thereafter it can live happily for further 30 years.

To have what few have, do what few do

- Robin Sharma


 
 

Annual Report: Treasure or a waste

This goes back to the year 1990. I owned very few stocks in my portfolio, so I used to get limited Annual Reports for study. I used to visit my stock broker who owned large number of shares and hence tons of Annual Reports were available. I used to sit on the floor, clean the dirt from Annual Reports and collect those reports. At that time he was the biggest and the best broker in the town.

Once the Broker asked, 'Do you know how the stock prices move’? He continued ‘They are moved by big brokers. Do you think you can make money by reading these reports?'

I continued my work and visited his office for several years.

Around the year 2000 that broker went bankrupt (Diwalia). Reportedly, he himself got engaged in speculative trading activities.
 
 

Don’t react but respond

Reaction is - to act immediately on the occurrence of an event. Mostly, results in an extreme action. Don’t react immediately on any event or hearsay.

Respond is - to give thought to the event, weigh the pros and cons and then decide the course of action, avoiding the extreme action every time.

Try to understand the situation and then respond if required.

In times of high volatility, there are all sorts of rumors going round the market. If you Sell or Buy on such rumors, soon you will lose your shirt. First get it confirmed from the company office or BSE / NSE exchange, and then decide the course of action.

Consider this; Union Elections results are out and market friendly party could not form the Government. An Investor can act in following manners-
• Sell all the stocks.
• Fine tune the stock portfolio so as to make it more skewed towards defensive stocks and keep 15% cash ready.

The first one is reactive strategy, while in the second one the investor responded to the event and is ready to take advantage of any major dips.

   

All Birds find shelter during a rain. But Eagle avoids rain by flying above the Clouds. Problems are common, but attitude makes the difference!!!

- A.P.J. Abdul Kalam