Thursday, December 26, 2013

Check your Stock tolerance level here

What does 'Risk Taking' mean to an investor? This is an important aspect to being successful in stocks and making money in the markets. Risk taking ability is the most exploited term and most equity investors believe they are high risk takers.
Knowing your real risk taking ability is crucial to be successful. To know your risk taking ability, look at your past record and be honest, how much loss have you suffered in a single stock before you sold?  In my own career as a beginner, I have held on the stocks till they have lost about 50% before I sold. There are people who have sold the moment the stock dwindled from their purchase price by 10%. Almost all investors sell at some stage when the stock price declines, to save their hard earned money as analysts on TV and News Paper proclaim gloom and doom ahead. People who have thus lost money will spend rest of their lifetime investing in Fixed Deposits trying to beat inflation.
Research has proven that investors fear making losses more than they cherish the prospects of making money, that explains the 'Risk taking Ability' and our reaction of selling at a loss.
The solution to this is widely ingrained in our investing philosophy.  The bear markets always come around and if you are invested in the right stocks, call it risk tolerant stocks, you will eventually make money in ways better than a bank FD. Our LearnInvest 9 stock portfolio is a standing example to this. They have gone through the sleep test; I have slept well at night with this allocation of stocks irrespective of market conditions. And this is because I know the business the stock represents.
This new year, we wish all the readers a very prosperous and health life ahead. Our new year gift, a Killer stock that I referred in my previous blog an Apparel Brand that is set to grow for many years ahead. Please email to receive the report.

Saturday, December 14, 2013

Selling in market high ?

Many friends called me to find out if I am selling as the market hit historic highs. The answer to this is blindingly obvious to me and to most people who have understood our philosophy, You don't make 55% (since Jan 2012) for nothing, recall my blog in Jan 2012  Cash for Clunkers.
Our decision to sell is not based on stock prices but instead on the growth prospects and other fundamental filters. The case in point is when we sold titan stocks recently because the whole business model went awry as the rbi regulated gold imports and titan lost the great advantage it had through leverage. On the other had if we had sold out Cera , again a stock we recommended to buy at 2 high levels, we would have lost out on its continual growth prospects.
I recently met up with an investor with whom I resonate in investing philosophy. He always looks at making 5 times the money in as many years. But now the most key information, he has not made a single investment in the last 2 years. He passes an opportunity unless it is very obvious, with sufficient margin of safety.

In our philosophy too, we believe once invested, money is made by waiting for the business to grow. The investor I met believed money is made when investments are done in distressed situation that offer sufficient margin of safety and the great companies are available at juicy valuations. In out constant research to identify such business gems, we found this company that was silently making a kill in its business with its product used by all and found everywhere around. Its Killer balance sheet, with no net debt, pre tax return of 65% on operating assets, continually paid dividends form operating cash flow, demonstrated continuous eps growth. And to our surprise, it offered margin of safety, something which has become difficult to find these days.
Many of my family members had disapproved of my decision to invest in stocks as they felt it was risky. Sure enough, an investor takes risk, but only when the odds are in his favour.  You need huge patience and hence you can’t have this as a primary job, as a job is an activity and you can’t have an activity of waiting. I therefore believe, investing is not supposed to be an active profession; it can be developed as a hobby that yields income. And one piece of advice, if you want to get rich in stocks, save at least 20% of your earning and invest regularly.
 When the next crisis appears in the horizon, may be in the form of a fed rollback or bad election results, most investors will rush to the exit gate. Do have cash ready to go all in, preserve your buying power till then. But for those who have bought those gems, keep holding and enjoy the roller-coaster ride. Someday you will have more than you wanted.