Tag - #Personal Finance #stock market

The Get Rich Slowly Investment Philosophy

 

 

 

 

 

 

 

 

The Get Rich Slowly Investment Philosophy

An investment philosophy contains the core beliefs that guide an investor’s actions and decisions when saving for the future. It’s like the money blueprint for the stock market. Without a defined philosophy, the choices become arbitrary. Investors buy and sell based on whim and emotion. When there’s a clear ideology, the options become limited to strategies that fit the investment beliefs.

Back when I was doing stupid stock-market tricks, I didn’t have a coherent investment philosophy. Today, I do. After a decade of reading and writing about money, I’ve come to believe that a smart investor should:

Start early. “The amount of capital you start with is not nearly as important as getting started early,” writes Burton Malkiel in The Random Walk Guide to Investing. “Every year you put off investing makes your [goals] more difficult to achieve.” The secret to getting rich slowly, he says, is the extraordinary power of compounding. Given enough time, even modest investment returns can generate real wealth.

Spread the risk. Another way to smooth the market’s wild ups and downs is through diversification, which simply means not putting all of the eggs into one basket. Own more than one stock, and own other types of investments. When investors spread their money around, it decreases risk while (counter-intuitively) earning a similar return.

Keep costs low. In Your Money and Your Brain, Jason Zweig notes, “Decades of rigorous research have proven that the single most critical factor in the future performance of a mutual fund is that small, relatively static number: its fees and expenses. Hot performance comes and goes, but expenses never go away.

Keep it simple. Most people make investing far too complicated. There’s no need to guess which stocks are going to outperform the market. Average investors probably can’t. For the average person, it’s much easier and more profitable to simply buy index funds.

Make it automatic. It’s important to automate good behavior so that investors don’t sabotage themselves. You want to remove the human element from the equation. It is recommended to create a monthly transfer from a savings account to an investment account.

Ignore everyone. Everyone might think that a smart investor pays attention to daily financial news, keeping his finger on the pulse of the market. But they are wrong. Smart investors ignore the market. If someone is investing for twenty or thirty years down the road, today’s financial news is mostly irrelevant. Decisions should be based on investors’ personal financial goals, not on whether the market jumped or dropped today.

Conduct an annual review. While it does zero good to monitor investments daily, it’s smart to look things over occasionally. Some folks do this quarterly. The author recommends once per year. An annual review lets the investor shift their money around if needed. And it’s a great time to be sure if the investment strategy still matches the goals and values.

Source: The Get Rich Slowly investment philosophy and strategy by J.D Roth

Asset Multiplier Comments:

  • Simplicity is often key to prolonged success having a simple investing philosophy limits the number of investment strategies at disposal. Adopting an investment philosophy that slowly compounds wealth will help investors outperform most other individual investors over the long term.
  • Investing based on emotions and whims may result in some lucky gains but it cannot be a sustainable basis for creating wealth.

A walk in the park

The legendary US-based investor, Bill Miller, provided a list of worries in his latest 2021 third-quarter letter: “Today’s worries include, but are not limited to, China’s regulatory actions, high and rising fuel and food prices, labor shortages, inflation or stagflation, the effect of Federal Reserve tapering, disrupted supply chains, potential default due the debt limit standoff and the ongoing dis-function and polarization in Washington.”

What should investors be worrying about now?

A walk in the park :  There was once a lady who liked to walk her young dog each morning using a very long leash. Her dog was always easily excitable. It would dart all over the place. You could never guess where the dog would be from one minute to the next. But over the course of the two hour stroll, you can be certain that the dog is heading east at five kilometers per hour. What’s interesting here is that almost nobody is watching the lady. Instead, their eyes are fixed on the dog. If you missed the analogy, the dog represents stock prices while the lady represents the stocks’ underlying businesses.

Optimism: There are 7.9 billion people in the world today who will wake up every morning wanting to improve the world and our own lot in life – this is ultimately what fuels the global economy and financial markets. This is the lady, walking steadfastly ahead, holding her dog on a long leash. And this is ultimately what investors should be watching.

Source: The Good Investors

Asset Multiplier Comments: –

As minority shareholders, we participate without any control or influence on the operations of a company. We trust the management to adjust the business depending on the headwinds or tailwinds that they face. What we need to focus on is on identifying businesses which have great products or services, guarantee longevity of profits and sustainable growth, and have the ability to withstand shocks and cyclical downturns. Stocks prices may be volatile for any number of reasons. Investors should tune this noise out and focus on movement of the business as seen in quarterly results. Performance of the business will eventually be the driver of share price.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

This Week in a nutshell (25th Oct to 29th Oct)

Technical talks

NIFTY opened the week on 25th October at 18,299 and closed on 29th October at 17671 during the week, the index lost 2.5%. Nifty is trading at an RSI of 43, with support at 17,565 and resistance at 18,158.

Among sectors top losers were Nifty Private bank (-3.6%), BANK (-3.0%), and IT (-2.8%). PSU Bank (+0.1%) was the only sectoral gainer in the week.

Weekly highlights

  • This week was a tumultuous one for stock prices as they reacted to this week’s results.
  • China’s Evergrande Group has stated plans to prioritise the expansion of its electric car sector over the main real estate businesses. Evergrande chairman Hui Ka Yan stated that the company’s new electric car initiative will be its major business, rather than real estate, during the next ten years.
  • The third-quarter earnings season resumed with results from US IT behemoths Apple, Tesla, Amazon, Facebook, Microsoft, and Google. Companies are indicating increased labor costs and operational disruptions impacting earnings.
  • The US budget deficit for 2021 totaled USD 2.77 trillion, the second biggest on record but a decrease from the all-time high of USD 3.13 trillion in 2020. Both years’ deficits represent trillions of dollars in government expenditure to mitigate the terrible effects of a worldwide epidemic.
  • Profits at China’s industrial firms rose at a faster pace in September even as surging raw material prices and supply bottlenecks squeezed margins and weighed on factory activity.
  • According to a CRISIL Ratings analysis of India’s top three PV original equipment makers (OEMs or vehicle makers) with a combined market share of 71%, a global shortage of semiconductors will moderate India’s passenger vehicle (PV) sales to 11-13 percent this fiscal, around 400-600 basis points (bps) lower than what could have been without the scarcity.
  • Last week, the number of Americans asking for unemployment benefits fell to a pandemic low of 281,000, indicating that the labour market and economy are still recovering from last year’s coronavirus slump.
  • Indian equities were downgraded this week by major foreign brokerages- Morgan Stanley, UBS, Nomura.
  • The foreign institutional investors (FII) continued selling Indian equities and sold shares worth Rs 1,57,023 mn. Domestic institutional investors (DIIs) turned buyers this week and bought equities worth of Rs 94,272mn.

 

Things to watch out for next week:

  • US Fed tapering expected, with an increase in interest rates. The central bank is largely anticipated to declare that it will begin unwinding its $120 bn monthly bond purchases, with the scheme expected to end entirely by the middle of FY23.
  • Several earnings reports are expected next week  including those from pharmaceutical giants such as Pfizer and Moderna in the US. In India, companies such as HDFC, Tata Motors, and Sun Pharma are set to announce earnings.
  • The next week will be a truncated one for Indian equity markets due to Diwali. 

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Demand growth visible despite price hikes – Blue Star

Update on the Indian Equity Market:

On Wednesday, NIFTY ended lower at 17,629 (-1.1%). All the sectors were losers today led by METAL (-3.0%), PSUBANK (-1.9%), and PHARMA (-1.9%). Among the stocks, TATACONSUM (+2.5%), ONGC (+2.2%), and UPL (+1.7%) led the gainers while HINDALCO (-4%), SBILIFE (-3.6%), and INDUSINDBK (-3.4%) led the losers.

Excerpts of an interview with Mr. B Thiagarajan, MD, Blue Star with CNBC TV18 on 5th October 2021:

  • The sales of room air conditioners in the month of Sep-21 were better than last year (Sep-20) and have reached the pre-pandemic levels.
  • The summer season, which is the strongest quarter for the company, was impacted by the second COVID-19 wave. It will be extremely tough for the company to make up for it in 2QFY22E and 3QFY22E.
  • However, demand from the month of Jul-21 has been considerably higher than industry expectations. As people are working from home and spending more time in their homes, they are renovating and upgrading their houses which could be the reason for robust demand. The company anticipates strong demand throughout the next festival season.
  • In 1QFY22, Bluestar was at 35% of pre-pandemic levels and in Sep-21 have reached the pre-pandemic levels.
  • The company is getting growth from first-time buyers, as the number of first-time purchasers has considerably grown. Despite the price seen in the months of Jan-21, Apr-21and Sep-21 the demand is not impacted. 50 percent of buyers used consumer finance schemes.
  • In terms of price hikes, there was an average rise of roughly 4% in the month of Sep-21.
  • On a YoY basis, the company anticipates a 1% decrease in margins due to raw material inflation, which would be compensated by operating costs. Hence the overall EBIT/PBT Margins would not be impacted.
  • The firm does not anticipate any significant increases in freight and commodities in the near term.
  • The B2B segment is performing well in the manufacturing sector. There are also various infrastructure projects like metro railway project and data center which are important segments for Bluestar. It includes air conditioning and electro-mechanical work. The company is closely tracking this segment and participating actively in the enquiries.
  • In the B2B segment, the important sector is building which includes offices and light commercial or retail (shops, showrooms, boutiques, and restaurants). Such kind of infrastructure is built upon in many Tier-3/4/5 cities. The manufacturing, commercial segment, and buildings account for 30%, 40%, and 30% of the B2B segment revenues respectively.

Asset Multiplier Comments

  • There has been a bounce-back in demand starting from July-21 which will likely be reflected in 2QFY22 sales numbers. However, a complete recovery will likely be visible in 1QFY23E.
  • Upcoming investments in infrastructure and a recovery in real estate bode well for the company that predominantly services large infra-projects. The Company will have the added benefits of PLI Schemes, New Greenfield Project in FY23 adding to top-line growth and margin improvement.

Consensus Estimate: (Source: market screener website)

  • The closing price of BLUESTAR was ₹ 871/- as of 06-Oct-2021. It traded at 52x/33x/27x the consensus earnings per share estimate of ₹ 17/26/32 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 845/- implies a PE multiple of 26x on FY24E EPS of ₹ 32/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

Banks not giving moratorium should not lead to Asset Liability Management (ALM) mismatch: Mr Ramesh Iyer, Mahindra Finance

Update on the Indian Equity Market:

On Tuesday, Indian indices ended on positive note for the second consecutive day. NIFTY ended up 98 pts (+1.1%) at 9380 level.
Among the sectoral indices, PVTBANK (3.6%), BANK (2.9%) and FIN SERVICE (3.4%) were among the top gainers while PHARMA (-2.3%), FMCG (-0.9%) and METAL (-0.3%) were the losers. INDUSINDBK (17.1%), BAJFINANCE (+9.3%) and HDFC (+8.3%) were the top gainers. SUNPHARMA (-3.0%), IOC (-2.3%) and NTPC (-2.1%) were the top losers.

Banks not giving moratorium should not lead to Asset Liability Management (ALM) mismatch: Mr Ramesh Iyer, Mahindra Finance
Over 75% retail borrowers have opted for loan moratorium
Edited excerpts of an interview with Mr Ramesh Iyer, Vice Chairman (VC) and Managing Director of Mahindra Finance dated 27th April 2020:

• When asked about the collection efficiency after Non-Banking Finance Companies’ (NBFC) operations being partially resumed, he replied that April was not expected to be good for collections because the moratorium was just announced and he is sure that most of the NBFCs would have made some collections.
• Mahindra Finance had about 15-20% collection efficiency but that largely came from the farming community. He is of the opinion that April and May both where the moratorium has been given, no one will want to come and pay.

• He informed that more than 75% of the customers have opted for the moratorium. Initially it was only about 60-65%. Then subsequently they would have reviewed their own situation and would have felt opting for moratorium. He believes that the 25% who are not asking for it, there would be about 4-5% or maybe little more who are fearing the interest that is going to be charged for the moratorium period and therefore they would have made the payment. They might not have the money to pay but fearing the interest, they would have made the payment. But they would come back and possibly negotiate on the interest and take the moratorium.
• When asked about the Asset Liability Management (ALM) mismatch due to the moratorium, Mr Iyer stated that it will depend from NBFC to NBFC. Mahindra Finance in particular always had a good match of ALM. So, banks not giving moratorium should not lead to ALM mismatch because he expects that the disbursements to not be there. Therefore, if the collections are not there to that extent that disbursements are not there, it should kind of offset each other to an extent. But again, it depends on each NBFC independently but the large ones should not have a mismatch.
• He further clarified that some of the banks are giving moratorium on the term loan. The Banks have not announced that but most of the private banks are giving moratorium on the term loans to NBFCs also.
• When asked his opinion on the Franklin Templeton issue is going to further tighten the liquidity in the system, he said that clarifications have been given. Even Templeton has put out some notes. So, this is a one-off case but definitely, whenever something like this happens, it does build up pressure in the system. But in any case, mutual funds were not actively providing funds to NBFCs in the recent past given their own redemption and inflow being a little low. Really what we are looking for is liquidity from the banking system and with so much action already taken by the RBI to provide liquidity in the system, he personally believes if the banks do open up to NBFCs and start providing them funds, then liquidity by itself should not be a problem.
• When asked about his outlook on rural economy and impact on rural cash flows, he said that it is not the farmers who are hugely impacted because it is not across the country that everyone is impacted. After analysis it is found about 65-70% of the districts do remain free from this problem but, the fact is because of the lockdown, the activities are low. But what is important and interesting is that the harvest has been good; wheat output is good, sugarcane is good, potato, onion is good, pulses are good and the government will buy and they will warehouse these products. So surely the farm cash flows should improve and the collections seen in April are coming from the farming community. So, he is not of the opinion that the farmers are impacted.
• He also informed that there is a demand for tractors. The dealerships in some of the locations have opened up. But because of the lockdown there has been a slowdown in the activities. If two months of activity is lost, there would be pressure in the collections and the consumers even if they have the money would like to hold it back and wait and what next happens. So, to that extent, the overdues will go and with three months moratorium provided by the Reserve Bank, if things were to regularise if not from immediate June but even in August, things should settle down well and we should not see increase in NPAs.
• But yes, if this was to get extended and not stop at May and was to continue to go longer then, one will need to relook at the situation and what happens next. But he believes that post August, things would start to look better and definitely rural is not as badly impacted as urban is.

Consensus Estimate: (Source: market screener, investing.com websites)

• The closing price of Mahindra Finance was ₹ 155/- as of 27-April-20. It traded at 0.76x/ 0.70x the consensus BVPS estimate of ₹ 189/205 for FY20E/ FY21E respectively.
• Consensus target price of ₹ 305/- implies a PBV multiple of 1.5x on FY21E BVPS of ₹ 205/-

Learn to love momentum

Joachim Clement writes on his blog that the global bull market in equities is seemingly never going to end and investors wonder about what they should do who have missed the boat and only partially invested in the current bull market.

The usual fear is that if they invest now, they might be investing at the top of the market. Another argument is that every asset class seems overvalued. Given extremely low-interest rates, bonds don’t seem a viable option, stocks aren’t cheap either and many alternative asset classes like infrastructure or REITs have become expensive as well. There comes a point when avoiding an asset class on valuation grounds or for fear of an imminent bear market becomes counterproductive. By standing on the sidelines for too long the opportunity costs in terms of foregone returns can become so big that it may take you years and even decades to make up for them.

Value investors and long-term investors, in general, tend to look down on traders, but there are a few things that long-term investors can and should learn from them. First of all, they should learn that time in the market is more important than timing the market. One can only make money if one is invested. But being invested comes with the inevitable risk of drawdowns, which can be short-term in nature like in the US at the end of 2018, or a massive global bear market like in 2008. To deal with these risks of decline in share prices it is important to learn from short-term investors to respect and even love momentum. If price momentum goes against your position for too long, you should sell the position and buy it back at a later point in time when price momentum is more favourable again.

The maximum declines between 1998 and 2019 have also been massively reduced, showing that these momentum-driven strategies can help you avoid severe losses. If you are worried today about high valuations or the possible end of the current bull market, then the most important thing for you is to get into the market with a sensible plan to get out when momentum turns. But this is fine-tuning. The most important thing for investors today is not to be afraid of the bull market.