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Friday 20 April 2018

Weekly reading: some interesting stuff

The current economic recovery is the third longest in history, and if it goes on another year, it will be the longest in history — there’s nothing to say it can’t [keep rising],” said Marks, founder and co-chairman of Oaktree, the largest investor in distressed assets in the world. “There are no laws of nature or physics at work here. So there’s nothing to say it can’t go on another year, another two years, another three years. Anything’s possible.

No economic recovery has lasted more than 120 months, or 10 years. The U.S. recovery is in its ninth year. While there is no apparent reason why the recovery couldn’t hit a new record, Marks said it might be one of those historical limits that could stick.

When there’s too much money, when there’s too little risk aversion, when there’s too little fear, too much eagerness, etc. — that’s how you get excesses to the upside that have to be corrected to the downside.

The “supreme irony” of the shift to passive is that the actions of active managers do determine the weightings of the stocks listed in an index in the first place, Marks said. “There’s a trend [toward] passive investment on the premise that the active investors don’t really know what they’re talking about. And yet the [modus operandi] of the passive investor is to emulate the decisions made by the active investors who they think are idiots. It doesn’t make any sense. That’s what passive is doing today and we have to wonder about the wisdom of passive investing.



Contrary to what Mark Zuckerberg mentioned, the benefits of GDPR regulations are not being made available to people all over the world. Facebook intends to change its terms of service to put all non-European users under the jurisdiction of its U.S. headquarters rather than the international headquarters in Dublin, Ireland. That means users in Africa, Asia, Australasia, and Latin America won't be covered by the European Union's General Data Protection Directive, which goes into effect on May 25.

Under the GDPR, companies can be fined up to 4 percent of their annual global revenue for not having sufficient customer consent to process data or ignoring the "privacy by design" principle that states customers' privacy rights must be handled as a core feature of the product, not an afterthought. In Facebook's case, that's $1.6 billion based on 2017 revenue. It's natural for the company to try to limit its exposure to that kind of punishment, but it undermines its narrative of contrition and a commitment to privacy. 



A tidal wave of retirement dollars flooded the mutual fund industry . The 401 ( k ) was invented in 1981 , just as the bull market began . By 1998 , roughly three of every four new dollars invested in corporate retirement plans were going into 401 ( k ) s . At the end of the decade , two - thirds of all active workers covered by a retirement plan were responsible for directing their own investments . Hands down , they chose stocks . By the end of the millennium, 401(k) investors had stashed 75 percent of their assets in equities. Even older employees preferred stocks: in 2000, 401(k) investors in their 50s had entrusted 49 percent of their savings to equity funds, another 19 percent to company stock.


Mahar, Maggie. Bull!: A History of the Boom and Bust, 1982-2004 (p. 23) - understanding if the impact of retail money through SIPs and pension funds coming into the Indian markets could mimic the US in the 80s, which then went on to have a 20-year bull cycle.

Wednesday 11 April 2018

Using Buffett's guidance to navigate the volatile markets

Argues Abhishek Basumallick, a known value investor: Of course, quality comes at a cost. Growth is good only when the return on equity is greater than the cost of capital. 

Porinju Veliyath of Equity Intelligence India says the basic principles of value investing never change from Graham to Warren Buffett. “When you get stocks at prices that are significantly discounted to their values, buy them. Assessing this value is all about value investing, says he. 

Basumallick says investors should keep in mind that growth in earnings, its sustainability, quality of business and management, the ability to re-invest a large amount of capital back into the business and, most importantly, the price that you pay for a stock will eventually determine your return on that stock. So, the strategy should be to buy quality companies at 'marked down' price when available. 

Read the full article on https://economictimes.indiatimes.com/markets/stocks/news/5-warren-buffett-quotes-that-can-give-you-direction-in-confused-d-street/articleshow/63709483.cms

Sunday 18 March 2018

ETMarkets Special Weekend Podcast: What is the right investment approach

My thoughts growth & value investing on ETMarkets Special Weekend Podcast: What is the right investment approach https://t.co/pPNPrtYftv 
Tune in now! Abhishek Basumallick says how to make a wise investment decision
ECONOMICTIMES.INDIATIMES.COM

Friday 23 February 2018

Guest Presentation to the CFA Society Kolkata Chapter

Yesterday, I made a guest presentation to the CFA Society Kolkata chapter. It was very heartening to see a lot of young students and investors interested in the process of wealth creation for the long term.




Friday 9 February 2018

Standing on the shoulders of giants

Yesterday Economic Times profiled me in an article. You can read it here - 
https://economictimes.indiatimes.com/markets/stocks/news/up-to-45-times-return-this-kolkata-it-guy-knows-multibaggers-better-than-coding/articleshow/62831441.cms

Sir Isaac Newton once said, If I have seen further, it is by standing on the shoulders of giants. I completely echo his sentiments. Coming from a typical middle-class background,  investing started off as a means of becoming financially stable and free, and over the years has become a passion and a way of life for me. I have learnt many things by sitting and spending time with some of the best thinkers of all times through their written words in books. Investing is on vocation which fulfils my passion and love for reading on myriad topics. 

Buffett and Munger are role models, gurus for me. I have learnt more than investing from them. I have learnt how to lead life. Over the journey of the last 17-18 years, I have had the privilege of learning from a lot of people. I cannot name all of them for some are very private persons and do not want to come into the limelight. I received a fair number of questions and comments on twitter (I have lately reduced drastically my usage of Facebook, so if there are some questions or comments there, I may have missed them). I have tried to group them and put one question for every group and will try to address here. 

Q. Could you guide me where to start to learn about investing?

One of the easiest books to start with is Peter Lynch's "One Up on Wall Street". Not only is it easy to read but it covers enough ground to make it worthwhile for beginners and also intermediate investors. Follow that up with reading a business daily like Economic Times, Business Standard or Mint daily. Also, a couple of business magazines from Outlook Business, Forbes India, Business Today etc. For those who are comfortable reading at length on a computer can take a magzter subscription. Keep at it and gradually you will start understanding about businesses and what drives them. 

You can get basic and advanced tutorials from http://www.investopedia.com/university/all/basics/
You can do them in the following order:
1. Investing 101: A Tutorial For Beginner Investors 
2. Stock Basics Tutorial
3. The Greatest Investors 
4. Understanding The P/E Ratio
5. Become Your Own Financial Advisor
6. Ratio Analysis Tutorial
7. Discounted Cash Flow Analysis

Investing is like any other vocation. You have to put in years of effort to become an "overnight success" :-)

Q. So far i have not invested anything in stock market.I would like to start it from tomorrow.Can you please suggest me some good company shares, and your valuable suggestions are welcome.

You need to do your own research and build your conviction. If not, even a small fall, and you will run towards the exit door. Taking someone else's stock picks will not help you get better as an investor. Even if you make mistakes in the beginning, they need to be your own mistakes. And you need to take the learnings in your own way from them.

Q. Only thing I was looking into article which seems missing is how do you prepare the very first list of companies out of thousands out there? 

The process of idea generation is not fixed. I can get ideas from reading newspaper or magazine articles, observing actual businesses or from financial screens. I also get a great deal of ideas from valuepickr posts and by speaking to fellow investors. Valuepickr, by far, is the best resource for serious investors in India.

Q. Wouldn't it be better if one were a bit more patient, based on qualitative parameters and the ability of the management as suggested by their history in handling tough times, rather than taking a decision based on price performance of the stock ?

The way I see it is to make money in a stock I need to be right in a few things - i) get the business correct, ii) get the valuation correct and iii) get the market mood correct. If any one of the three is completely wrong, then there is a major possibility of losing a large part of the capital. When a stock falls significantly (say more than 20-25% after I have bought), then one thing is for sure - I have made a mistake in understanding the market mood. I could be wrong on the other two aspects as well. So, I have found it useful to sell, book my losses and then evaluate with a fresh mind later. That way I will not get tied up with endowment bias. This has worked for me. People have to figure out what works for them and follow that path.

Q. Any book recommendations specifically for valuations? 

There are lots of books of valuations. And I have read a fair number of them. The honest answer is most of them are practically worthless :-) So, if you know the basic DCF and PE ratio analysis then you can cover 80-90% of stocks. Just make sure that you focus more on the process of valuation and the assumptions you are making than too much on the precision.