Notes on value investing

There is always lot of news around interest rates and as an investor, it is somewhat difficult to understand how they affect equities and bonds and what action to take as an investor. In the below diagram, I have provided a simplified view of how to think about interest rate cycles and what action to take depending upon which way interest rates are trending.  The key is to really think in terms of demand for and supply of money and how Governments, businesses and individuals are behaving. In a scenario where each one is saving/de-leveraging, demand for money is likely to be low and consequently, interest rates will soften. This is not good for banks in general. On the contrary, when everyone is borrowing, i.e., Governments and corporates are issuing bonds and individuals are borrowing, demand for money goes up and consequently, interest rates will rise.  This is very elementary - unfortunately, all my b-school education somehow did not incite me to think in ter...

VIJAY KEDIA’S 10-POINT FORMULA FOR SUCCESS IN STOCK MARKET (i) Never be dependent on the stock market for your livelihood or day-to-day living. Have an alternative source of income. This will insulate you from the volatility of the market and give you holding power; (ii) Never buy a stock except after thorough study into the stock’s fundamentals. The stock market is not a gamble. You must also be fully aware of news and developments that affect your stocks and learn to “ connect the dots ”; (iii) Invest according to your risk profile. Ensure that other asset classes also have an allocation. This will again insulate you from the risk that equities carry and give you holding power; (iv) Never trade in stocks. Never use borrowed funds to buy stocks. It is extremely risky and can lead to “ instant death ”. Less than 1% of the trading population makes money. Also, trading requires special aptitude which a normal person lacks; (v) Invest for a minimum period of five years. “ Rome was ...

THE WHISTLE - by Benjamin Franklin WHEN I was a child of seven years old, my friends, on a holiday, filled my pocket with coppers. I went directly to a shop where they sold toys for children; and, being charmed with the sound of a whistle that I met by the way in the hands of another boy, I voluntarily offered and gave all my money for one. I then came home, and went whistling all over the house, much pleased with my whistle but disturbing all the family. My brothers, and sisters, and cousins, understanding the bargain I had made, told me I had given four times as much for it as it was worth; put me in mind what good things I might have bought with the rest of the money; and laughed at me so much for my folly, that I cried with vexation, and the reflection gave me more chagrin than the whistle gave me pleasure. This, however, was afterwards of use to me, the impression continuing on my mind; so that often, when I was tempted to buy some unnecessary thing, I said to myself, Don...

An excellent overview of 16 businesses. Interesting and educative. 

This is an excerpt from interview by Safal Niveshak (SN). Acknowledge copyrights of Safal Niveshak. SN: When you look back at your investment mistakes, were there any common elements of themes? HH: Among the three things I look for in an investment – business, management and price – most mistakes happen in evaluating management. This happens especially if the management does not have a public history which can be evaluated. The typical management behavior which hurts investors is their overconfidence. Business managers rarely will admit that they cannot deploy the cash which the business is generating. They will find some or other use for cash and eventually deploy it in a poor business. Hence, it is best to use a higher threshold for management quality in case the business has historically retained most of the cash it generates. Also public history of management is a very good guide. Don’t expect the management’s behavior will change because you bought the stock. It almost ...

A note based on extracts from W. Buffet Letters. "An investment might be justified in a group of issues, which would not be sufficiently safe if made in any one of them singly. In other words, diversification might be necessary to reduce the risk involved in the separate issues to the minimum consonant with the requirements of investment. The instability of individual companies may conceivably be offset by means of thoroughgoing diversification. There is a close logical connection between the concept of a safety margin and the principle of diversification. One is correlative with the other. Even with a margin in the investor’s favor, an individual security may work out badly. For the margin guarantees only that he has a better chance for profit than for loss—not that loss is impossible. But as the number of such commitments is increased the more certain does it become that the aggregate of the profits will exceed the aggregate of the losses. That is the simple basis of the ...

A diversion - for a change posting something from the technology world rather than the value investing word. Multi-disciplinary thinking :) !     Beautiful is better than ugly.     Explicit is better than implicit.     Simple is better than complex.     Complex is better than complicated.     Flat is better than nested.     Sparse is better than dense.     Readability counts.     Special cases aren't special enough to break the rules.     Although practicality beats purity.     Errors should never pass silently.     Unless explicitly silenced.     In the face of ambiguity, refuse the temptation to guess.     There should be one-- and preferably only one --obvious way to do it.     Although that way may not be obvious at first unless you're Dutch.     Now is better than never.     Although never is often better ...