Sunday, February 28, 2010

What has budget to do with investing

I was recently talking to an investor who said he is waiting for the budgets to enter markets. Previously he was waiting for the RBI Monetary policy to be announced to enter the markets. I am sure he would have been waiting for some other event to have occurred for investing. This is a sure shot case of doubting what you are doing or simply having no clarity. As many fund managers say, they are investing in a 100 Companies to diversify risk. Diversification is done by people who are not sure of what they are doing. The answer to this is business perspective investing as the Great Warren does. Budgets or otherwise, investments are made when you find the right kind of businesses that generate cash and increases earnings year and offer superior Return on Equity. These are those companies that are run by very sound management, more so they are business where they have a very unique value to offer or stickiness. Such companies rarely come under pricing pressure because of competition or economic vagaries, except in the very short sense. Finding such companies only need common sense. Wise investors invest when the prospects of the business seems the bleakest. There are short term setbacks that can not affect the underlying business model or services it offers.

Since the market is mostly full with speculators, they offer premium in analysing present results. If the company in question had bad results, the markets beat them down even if the company has history of doing well and rewarding high earnings. The market then believes the future is bad which not the case is. To the intelligent investor, these provide the rare and great opportunity to invest with a long term perspective. This sounds astoundingly simple, the trouble is for the ones who monitor the sensex on a regular basis. Instead monitor the quarterly results of the company in question. How many of us do that? Unfortunately there is no formal education available in business perspective investing. But think about it.

The great Graham believed markets comprised of 2 components. One is long term investment oriented, which means over a period of time markets will price the stocks based on its business earnings. The other component is like a casino; investors gamble based on the short term fluctuation of prices based on news and events. They speculate based on the impact daily information would have on the price movement of the stock. The long-term investment nature of the market will surely and always hike up the prices of company’s stock, if it is the right business adding to the company’s net worth and demonstrated continuous growth in its EPS.

I wish you a very eventful and happy week ahead.

Naresh Pisharody

Sunday, February 14, 2010

Is it a right time to invest?

The markets have turned volatile and have corrected a bit, this is something that we always expected. The question now is, is that all or should I wait for more corrections before I invest. It is impossible to time the market. As someone who has been investing for many years now would realise, it is nerve wrecking to follow the index on a daily basis. I had given it up many years ago after my initial brush with trading. A trader’s life is full of highs and lows and is more like an addiction. There investment life is also relatively shorter. Thankfully I had given up this limited career long ago and entered the beautiful world of investing like a true and intelligent investor. It is about investing in a company as if you are buying its business story. If you investing in say an infrastructure company, you are doing so since you believe in the infrastructure prospects of the business. You do so because you believe there is a lot more of roads and bridges that need to be built and your company can profit from it. This is called Business perspective investing. This is relatively relaxing experience though it needs a lot of mental discipline and understanding. For such an investor, the interim losses are not a cause for worry but would be an opportunity to invest further. We follow the company financials regularly and see if the earnings and other parameters grow regularly. Look at earnings as the return from an investment made in the company.

For a long terms investor, it would make sense to invest regularly irrespective of the way index moves. Invest regularly and similar amounts. Subject to of course valuations of the price and the company identification parameters. Not everything is reflected in balance sheet. We need to deepen our contacts and get a insider view of companies. It will pay well to look for low PE companies that conform to select criteria and hold them for a period of 2 to 3 years. The next decade will see multi baggers from sectors like infrastructure and capital goods. There are also value picks emerging in education sectors. The markets have corrected quite a bit and more of this I am expecting as more bad news emerge. The European crisis is already being spoken about. Next would be Japan and US which are in deep red. Lets us prepare for action by investing in small amounts and continuing to do it as the market gets into more buying zone as I would like to call it. Beware of the real estate mafia still as a lot of illegal and launder money is lying there. I would avoid companies where customers buy purely based on price and have nothing else to offer like say a brand, or an innovation, a secret formula or IP. Recently I was looking at a company and was amazed to see the kind of innovative products they offer. Infact they do not restrict their manufacturing to any specific sector but specialise in innovation and making products that simplify our lives in multiple ways. They make products from automotive supplies to stationery to electronics to healthcare. These are the kind of companies I look to invest in as they have as warren calls them Consumer Monopoly. They have the power to price their products and also retain their earnings. But then it makes sense only to buy it at the right price. One parameter I look at it is the earnings yield.

The next event market looks forward is the budget. There is pressure on government to pull the plug on easy money and remove stimulus over time. Easy money will have to stop soon as the debt burden across all governments by dolling out such subsidies will become insurmountable. These will be action packed days and we are going to see prolonged times before a convincing recovery. Time to invest. And Investors seeking Knowledge will reap huge profits.

With Best regards,