Saturday, June 27, 2015


 Courtesy :Oddball

Written by : Mr. Nate Tabik

Almost every investing study tells us that buying stocks at a low price to anything results in market beating performance.  Even just buying a S&P ETF and doing nothing else beats most investors and mutual funds.  If out performance is a matter of doing a few simple things and nothing else then why is everyone acting so crazy? And if earning market matching, or market beating results are so simple then why don't investors earn those sorts of returns?
Fidelity released a study discussing a performance breakdown for their accounts.  The clients that did the best were the ones who were dead.  The second best performing set of clients forgot they had Fidelity accounts.  It seems like a formula to beat the market is to start an account, forget about it, then die.  Your heirs will thank you and marvel at your investing prowess.

How is it that investing is so "easy", yet so hard?  If in theory all one needs to do is follow a few simple formulas, or invest in a few ETF's why aren't more investors matching or beating the market?

It's often said that investors are their own worst enemy.  Our own emotions get the best of us.  When the market is roaring higher we get excited.  When the market hits new lows we're too depressed to even open our account statements.

I believe investors fail for a number of reasons with the biggest being the lack of patience.  There are many investing strategies that make sense on paper.  The problem is few investors have the patience to see these strategies through to the finish.  It is more exciting to watch a stock jump up and down 2-3% a day, or see a battle ground stock bantered about on CNBC compared to owning a company that trades in tenths of a percentage point most days.  The thing is those tenths add up over time, especially for companies that continue to execute operationally.

Finding a reasonable investing strategy isn't an issue, it's sticking to it.  It is very easy to find undervalued investments, but holding onto those undervalued investments for years can be difficult.  For many investors it's fun to research and watch holdings, but it's no fun to watch a stock effectively do nothing for days, months, or years.  If the excitement is in the research then we'll continually be researching new positions and throwing out the old ones.

Another reason investors fail is because they're doing too many things at once.  A few net-nets, a few growth stocks, some shorts, a turnaround or two etc.  Their portfolio is a potpourri of strategies, many of them that are complex and require dedicated skills.  Each investor needs to find their own style and stick to it.  There is a reason there are so many funds with one focus.  It's much easier to be a bankruptcy fund, or a turnaround fund compared to a general value fund.  The same is true for individual investors.  It's much easier to focus on a specific corner of the market rather than invest in any and all things cheap.

Related to doing too much is researching too much.  Some investors fail because they can't see the forest through the trees.  They are so caught up in the minutia of an investment that they miss the big picture.

I enjoy reading message board posts related to investments I'm researching.  I'm always on the lookout for what I consider the obsessive investor.  For some reason these obsessive investors often congregate in oil and gas or mining stocks.  You've probably seen these posts.  A few books worth of material detailing the pressure of well bores the company had in North Dakota in 1988.  Excited posts about how rumors are swirling that carpeting is being replace at headquarters and maybe it's a sign of a buyout.

Buried within the pages of notes are usually a few nuggets of information useful to an investment thesis.  But my feeling is that the author probably has no idea, they are too consumed with finding out everything related to the company to realize this.  The ultimate irony is that the body of knowledge an obsessed investor can accumulate is about the minimum amount of knowledge every middle level employee at the company has.  In other words outside investors are always at a significant informational disadvantage to almost any company insider, even the lowest level employees at times.

My favorite investments are ones where the value is obvious and the investment rests on what I consider a few pivot points.  These are general assumptions.  The larger the gap between the current price and fair value combined with a small number of pivot points makes for investment success.  This is because each assumption, each estimation, and each guess adds uncertainty to a model.  At some point endless research can blind an investor from realizing what truly matters from what they think matters.

Once I realized that I didn't need compile an exhaustive list of company information to make good investments I began to simplify my research.  I only researched what was necessary to confirm or deny the pivot points I'd identified with an investment.  By doing this I saved myself the endless research.  Maybe the carpet color does matter in a merger.  Small details can be exciting.  But it's the boring details that matter, such as the age of the CEO, or the age of the Board.  Companies with graying executives and graying boards are more likely to sell their company.

The last reason I believe many investors fail is because they don't really know what they own, or why they invested in the first place.  Cloning investments is a very popular strategy right now.  And like all investment strategies cloning works well on paper, it generates market beating returns.  Just buy what Buffett buys and sell what he sells and you'll do well the story goes.  The problem is when we buy something on someone else's thesis it's hard to hold through thick and thin.  If bad news starts to come out on a cloned investment it's easy to dump it and say "maybe this is one the guru messed up on."

Closely related is when investors purchase stocks on a story basis.  That is they feel a given company will benefit from some larger trend at some point in the future.  Many times when these story stocks are purchased investors aren't conducting true due diligence to see if the company will actually benefit from the trend.

Story stocks are a favorite of the news shows.  There's a very specific reason for this.  There are two types of stocks, stocks that are great stories, and stocks that are great investments.  As someone who writes about stocks I can say that some of my best investments have been my worst posts.  This is because there was nothing exciting to write about.  There was no narrative or story around the stock.  It was cheap, and all an investor needed to do was purchase and wait.  Some of my best and entertaining posts have been about stocks that aren't necessarily great investments.  But they make great stories.  This is the same with the financial media.  Companies that make great stories aren't usually great investments.

When we look in the mirror we're facing the enemy of our returns.  The best course of action is to pick a strategy, stick to it and move on.

Sunday, June 21, 2015


Courtesy : ET

Only 10 days are left to exchange pre-2005 currency notes, including those of Rs 500 and Rs 1,000 denominations, at banks as the deadline to do so is ending on June 30.

Seeking cooperation for withdrawing pre-2005 currency notes from circulation, the RBI has asked the public to deposit the old design notes in their bank accounts or exchange them at a bank branch convenient to them.

The earlier deadline was January 1, but later the Reserve Bank of India had extended it till the end of this month. All pre-2005 notes continue to remain a legal tender. These notes can be exchanged for their full value at bank branches.

It is easy to identify pre-2005 notes. The currency notes issued before 2005 do not have the year of printing on the reverse side. In notes issued post 2005, the year of printing is visible at the bottom on the reverse.

The rationale behind the move to withdraw banknotes printed prior to 2005 is to remove them from the market because they have fewer security features compared with banknotes printed after 2005, RBI said.

It is standard international practice to withdraw old series notes.Post-2005 notes have added security features and help in curbing the menace of fake currency. Over 164 crore pre-2005 currency notes of various denominations, including of Rs 1,000 were shredded in regional offices of Reserve Bank in 13- month period ending January.

The face value of the shredded currency notes was around Rs 21,750 crore. As per the details given in Parliament in March, 86.87 crore pieces of Rs 100, 56.19 crore pieces of Rs 500 and 21.75 crore pieces of Rs 1,000 were shredded.

Only 10 days are left to exchange pre-2005 currency notes, including those of Rs 500 and Rs 1,000 denominations, at banks as the deadline to do so is ending on June 30.

Seeking cooperation for withdrawing pre-2005 currency notes from circulation, the RBI has asked the public to deposit the old design notes in their bank accounts or exchange them at a bank branch convenient to them.

The earlier deadline was January 1, but later the Reserve Bank of India had extended it till t ..

Only 10 days are left to exchange pre-2005 currency notes, including those of Rs 500 and Rs 1,000 denominations, at banks as the deadline to do so is ending on June 30.

Seeking cooperation for withdrawing pre-2005 currency notes from circulation, the RBI has asked the public to deposit the old design notes in their bank accounts or exchange them at a bank branch convenient to them.

The earlier deadline was January 1, but later the Reserve Bank of India had extended it till t ..

Saturday, June 20, 2015


 Courtesy : Investopedia

Investing is actually pretty simple; you're basically putting your money to work for you so that you don't have to take a second job, or work overtime hours to increase your earning potential. There are many different ways to make an investment, such as stocks, bonds, mutual funds or real estate, and they don't always require a large sum of money to start.

Step 1: Get Your Finances In Order

Jumping into investing without first examining your finances is like jumping into the deep end of the pool without knowing how to swim. On top of the cost of living, payments to outstanding credit card balances and loans can eat into the amount of money left to invest. Luckily, investing doesn't require a significant sum to start. Gain more insight in Invest On A Shoestring Budget and Should I Invest Or Reduce Debt?.

Step 2: Learn The Basics

You don't need to be a financial expert to invest, but you do need to learn some basic terminology so that you are better equipped to make informed decisions. Learn the differences between stocks, bonds, mutual funds and certificates of deposit (CDs). You should also learn financial theories such as portfolio optimization, diversification and market efficiency. Reading books written by successful investors such as Warren Buffett ..etc  are great starting points. 

Step 3: Set Goals

Once you have established your investing budget and have learned the basics, it's time to set your investing goal. Even though all investors are trying to make money, each one comes from a diverse background and has different needs. Safety of capital, income and capital appreciation are some factors to consider; what is best for you will depend on your age, position in life and personal circumstances. A 35-year-old business executive and a 75-year-old widow will have very different needs.

Step 4: Determine Your Risk Tolerance

Would a significant drop in your overall investment value make you weak in the knees? Before deciding on which investments are right for you, you need to know how much risk you are willing to assume. Do you love fast cars and the thrill of a risk, or do you prefer reading in your hammock while enjoying the safety of your backyard? Your risk tolerance will vary according to your age, income requirements and financial goals. 

Step 5: Find Your Investing Style

Now that you know your risk tolerance and goals, what is your investing style? Many first-time investors will find that their goals and risk tolerance will often not match up. For example, if you love fast cars but are looking for safety of capital, you're better off taking a more conservative approach to investing. Conservative investors will generally invest 70-75% of their money in low-risk, fixed-income securities such as Treasury bills, with 15-20% dedicated to blue chip equities. On the other hand, very aggressive investors will generally invest 80-100% of their money in equities.

Step 6: Learn The Costs

It is equally important to learn the costs of investing, as certain costs can cut into your investment returns. As a whole, passive investing strategies tend to have lower fees than active investing strategies such as trading stocks. Stock brokers charge commissions. For investors starting out with a smaller investment, a discount broker is probably a better choice because they charge a reduced commission. On the other hand, if you are purchasing mutual funds, keep in mind that funds charge various management fees, which is the cost of operating the fund, and some funds charge load fees.

Step 7: Find A Broker Or Advisor

The type of advisor that is right for you depends on the amount of time you are willing to spend on your investments and your risk tolerance. Choosing a financial advisor is a big decision. Factors to consider include their reputation and performance, what designations they hold, how much they plan on communicating with you and what additional services they can offer. 

Step 8: Choose Investments

Now comes the fun part: choosing the investments that will become a part of your investment portfolio. If you have a conservative investment style, your portfolio should consist mainly of low-risk, income-producing securities such as federal bonds and money market funds. Key concepts here are asset allocation and diversification. In asset allocation, you are balancing risk and reward by dividing your money between the three asset classes: equities, fixed-income and cash. By diversifying among different asset classes, you avoid the issues associated with putting all of your eggs in one basket. 

Step 9: Keep Emotions At Bay

Don't let fear or greed limit your returns or inflate your losses. Expect short-term fluctuations in your overall portfolio value. As a long-term investor, these short-term movements should not cause panic. Greed can lead an investor to hold on to a position too long in the hope of an even higher price – even if it falls. Fear can cause an investor to sell an investment too early, or prevent an investor from selling a loser. If your portfolio is keeping you awake at night, it might be best to reconsider your risk tolerance and adopt a more conservative approach. 

Step 10: Review and Adjust

The final step in your investing journey is reviewing your portfolio. Once you've established an asset-allocation strategy, you may find that your asset weightings have changed over the course of the year. Why? The market value of the various securities within your portfolio has changed. This can be modified easily through re-balancing. 

Saturday, June 6, 2015

Keep your head in the game even in the market's darkest moments.

 Courtesy :

It’s a lesson learned many times over in recent years: buy on the dips. For the past two decades, every time the market took a significant fall, investors who bought on the dip were soon were rewarded with a profitable bounce.
But the year 2000 taught investors a new lesson: there are no sure things in the stock market. With few exceptions the Dow blue chip stocks were anemic and the NASDAQ was abysmal. Anyone who spent the past year buying tech stocks on the dips knows now what’s it like to be kicked right in the assets. Instead of the dip and bounce, it was the dip, double-dip, and triple-dip.
Investors lost a whopping $5 trillion in market capital over an 12-month period—dwarfing any market collapse in the history of the U.S. stock market. At times like these, it’s easy to second-guess your investment strategy. And perhaps some second-guessing is in order. Once you’ve experienced the market’s dark side, you may have a better sense of what your threshold for risk really is. You also may have a better appreciation for diversification, dollar cost average, and some of the other conservative tenants of investing.
Just don’t get carried away. The one thing you don’t want to do is make a radical change in your investment approach. Remember, the past year was an exception. Most years, the market goes up. In fact, the Dow Jones Industrial Average has set new highs 17 of the past 20 years. The odds still strongly favor investors who keep their money in stocks.
So what should you do in a bear market? If you’re a long-term investor you do roughly the same thing in a bear market that you would in a bull market. You buy right through it. You make a continuing series of small bets. You select good quality companies and continue to build a position in those companies.
No question about it, it’s hard to get psyched up to invest good money in a bad market. In fact, it’s hard to keep from selling out of a bad market. You see your net worth continuing to fall. You see the money you invest being swallowed up into the steady slide of the market. You worry that the market may never turn around, and that all you’ve worked for, saved for, sacrificed for, will be lost.
Those types of emotions have caused more than a few investors to fail in the market. Fear drives many investors out of the market at the wrong time—when the market is near the bottom—just as greed lures them into the market at the wrong time—just as the market reaches an all-time high.
That’s why it’s important in times like these to focus on the long-term. And from a long-term perspective, market dives—painful as they may seem at the time—are the best times to add to your positions. Successful long-term investors see bear markets as "buying opportunities," when you can get stocks at bargain prices. Don’t think about how much you’ve lost. Think about how many more shares you can buy for the same amount of money.
The worst sustained bear market of the past half century occurred from 1968 to 1981 when the Dow Jones Industrial Average essentially stood still for 14 years. Now that’s a bear market! But even during that bear market, including dividends, you still would have earned an average annual return of about 4.3 percent. And that’s if you didn’t invest at all during that 14-year period.
But if you had continued to invest on a regular basis during that period, you would have set up your portfolio for a long and prosperous run. Once the market turned around in the early 1980s, investors who had a position in the market enjoyed exceptional returns over the following 15-year period.
An investor who added $10,000 a year each year for 14 years from 1968 through 1981—the worst period of the stock market of the past half century—would have seen his or her $140,000 investment grow to about $2 million by 1995 and $3 million by 1997. That’s an average annual return of about 15 percent. And all as a result of investing during the stock market’s darkest hours.
An investor who bought into the market right after the crash of 1987 would also have fared very well over the next 24 months. From its low of 1739 in the fall of 1987, the Dow moved up to about 2700 by the end of 1989—a two-year return of 56 percent. That’s why it would be a mistake to sell out of the market or cut back on your investments during slow times. Because once a market bottoms out, the returns on the bounce can be exceptional.
The hardest part is hanging in there while watching your investments plummet. Next time the market is tanking, and your commitment to stocks is wavering, here are some thoughts to consider:
Investing is a marathon, not a sprint. Wall Street experts tend to be on a different schedule than you. They’re running a sprint—looking for the best possible short-term returns—while you’re in a marathon—investing for the long-term. So when you listen to the Wall Street experts, you run the risk of getting caught up in their game, not yours. You don’t have to be concerned about the price of stocks today, about the next Fed meeting, or about whether IBM makes its numbers. Those are all short-term distractions. All you have to do is ask yourself whether the long-term prospects of the U.S. economy are solid, and where the electronics, medical technology, telecommunications, financial, and consumer markets are headed over the next 10 to 20 years. Clearly, unless we experience an unprecedented economic meltdown, long-term prospects continue to be strong for a broad range of American industries. That’s why it’s important for you to focus on the long-term and invest with an eye on the future.
The market always sets new highs. There has never been a crash of the U.S. stock market so severe that the market didn’t ultimately return to its former high, and move beyond it. That’s not to say it couldn’t happen. In the 1970s, the NASDAQ dropped dramatically, and did not return to its former high for about three years. After the recent market collapse, it may be some time before the NASDAQ returns to its all-time high of about 5100, but if history is any guide, the NASDAQ will ultimately rebound.
The goal is to build a winning portfolio. Your job as an investor is to build a portfolio of successful companies. If you can get a break on the price of those stocks while the market’s in the tank, all the better. Just keep building. Over time, that portfolio will serve you well.


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