Tuesday, 31 January 2012

Counter-thought - A process

Most of us do not think of how or why our investments can fail. While buying, we either look at the fundamentals or consider technical charts or do a mix of both and then buy. However, we are sometimes fooled as something that we may not have considered in our analysis takes place and our investment goes down in value. For this it is critical to have, what I term, as Counter-thought.

In counter-thought, you do a sort of crystal ball gazing and think that you are one year from now and your investment has turned you a loss. Now looking back you have to point out the reasons why it did not work out as you had planned or hoped it would. Looked at it from this perspective, it is much easier to figure out the major risks that can result in a loss. For example, if you are buying a company based on its ability to rent out its real estate (e.g. Nesco), then one loss-case can be a natural disaster like earthquake/flood/fire which destroys the primary asset. Another one can be a overall slump in industrial and trade fairs and reduction of demand. If you sit down with a pen & paper (notepad on a computer would do just fine as well), then you can chalk out multiple similar scenarios.

Once you have these items in your investment risk list, you can categorize them based on probability of occurrence and its possible impact. Again, taking the same example, a natural calamity at the primary convention center for Nesco is a very remote probability event but with extremely high impact (i.e. its effect is potentially catastrophic for the company).

So, before you put in your money in a stock next time, do spend a bit of time on counter-thought.

Monday, 23 January 2012

Debts Funds: Their time has come


The expectation that interest rates in India will stabilize and then subside over the first half of calendar year 2012, has given rise to a good opportunity for risk averse investors to invest in debt funds. Not only risk averse investors, but also people who are usually fully invested in equities, would do well to put some of their money in them.


Historical Returns
In the past,October 2008 to January 2009, when RBI cut the Repo rate by 3.5% from 9% to 5.5% with WPI inflation trending down from 11% to 1%. The Gilt-Medium and Long Term category funds appreciated to 19% compounded return while Income Category increased by 11%.


My Personal Bets
My recent additions in this category are Pru ICICI Gilt Fund and Birla Sun Life Dynamic Bond Fund (G) in these two categories. I expect the gilt fund to do better than the income one, and so have a 60-40 split between them. Return expectation is about 12-14% in a year's time.

Thursday, 5 January 2012

Motilal Oswal Wealth Creation Study: Panel Discussion

Here are the 2 videos of the panel discussion at the Motilal Oswal Wealth Creation Study conference. 


Panelists are Ramesh Damani (host), Rakesh Jhunjhunwala, Madhu Kela and Raamdeo Agarwal


Learning from Security Analysis - Part 1

I have started re-reading Security Analysis, 6th edition, (also will add on things from the 5th ed). I have been putting it on the backburn...