Sunday, August 03, 2014

A Stock is a Business that you can See around

In a recent lecture on 'Mind your Money' that I attended, the speaker asked how much money was required to be happy. The answers were varied, from a few lakh rupees, people also wanted 100 crores to be happy. When asked how they arrived at that number, the answers were very vague, something like buying villas to seeing the world to responses that it looked big enough.

One of the best responses I have heard is that 'it depends on what you want to do with all the money?'. If you want to start a charity hospital that brings you happiness, then that is what is required. If you want to stay healthy, then you know what that takes. So the question is 'what is your life's purpose?'. Financially free is the one who does not have to work to achieve his life's goal. An investor recently said, an average Indian can lead a luxurious life with Rs 10 Lakh a year assuming he is living in his house. With a 3% tax free dividend income from equity, it would mean a corpus of Rs 3 crores to be financially free and wealthy. what I like about these thoughts is that it helps you put a method into the madness. The goals and hence the amount of money required varies based on the upbringing, peer group, culture etc. But the core is to investigate what is your life's purpose.

Many investors are scared today to invest as they feel the markets have shot up and may not move further to offer any meaningful return. When the markets were lower, they were waiting for correction to invest. When there were corrections they were worried about the sudden movement and wanted to wait for markets to stabilize. When the market stabilized, they were not sure which way it would move now. The point is we will know where the markets were only in hindsight.  

The investor's job is to keep investing systematically in stocks of sound companies that can deliver healthy growth in the long-term with superior cash flows, high ROE & ROCE, honest and competent management having MOS.The institutions involved in the stock market make the business speculative, but the investor must be very aware and guard himself against emotion and develop lifetime of patience. As an example, Sun pharma after its IPO in 1994 did not offer investors any return for almost 5 years. But when its prices started moving, the returns were abundant.  Rs.1000 invested in the IPO in 1994, has grown to over Rs. 314,000. Its run by a very competent management. 

On a lighter note, happiness and money have little in relationship. Money is like the size of your shoe. It can’t be too big or too small, or it may hurt.