Value Investing : Random Thoughts

2005-11-23T03:13:00.000-08:00

Money Managers Who Made It…
_____________________________

Ever wonder how much you can make investing other people's money? Well here is a list who have made money. The main theme being that if you produce superior returns consistently – you will be rewarded.

This list was compiled from the 2005 Forbes Issue. Some of the names were an eye opener for me...

Note - Of course Don't forget the big daddy of them all - Warren Buffett, with a networth of $40 Billion. I am sure he needs no introduction.

George Soros (Networth - $7.2 Billion, Age - 75, Source - Hedge Funds)

Famed financier failed in crusade to defeat President Bush last year after donating more than $25 million to anti-Bush groups MoveOn.org and America Coming Together. Hungarian-born, fled Nazis, attended London School of Economics. Founded Quantum Fund 1969. Currency speculator made $1 billion "breaking" British pound in 1992. Closed Quantum in 2000; now managing $8.3 billion (assets) Quantum Endowment Fund.

Edward Johnson III (Networth - $6.5 Billion, Age - 75, Source - Fidelity)

With family controls Fidelity Investments, nation's largest mutual fund company, with $1.1 trillion under management. Father, Edward II, acquired FMR 1946; phenomenal stock picker: "The market is like a beautiful woman—always fascinating, always mystifying." Ned joined firm as an analyst 1957. Manager of flagship Magellan Fund 1965, then president 1972. Master marketer created mutual funds for wide range of investment strategies. Not involved in day-to-day money management today but still questions fund managers about stock picks. Renowned for frugality, reduced ownership for estate planning 1995; family still holds 49% stake. Daughter Abigail (see) serves as Employer Services division chief.

Charles Johnson (Networth - $3.7 Billion, Age - 72, Source - Franklin Resources)

With brother Rupert runs Franklin Resources, mutual fund company started by Rupert Sr. in 1947. Yale grad, former Army lieutenant, serves as chairman. Son Gregory sits as president and CEO. Today more than $425 billion assets under management with offices in 29 countries and more than 100 investment products.

Edward Lampert (Networth - $3.5 Billion, Age - 43, Source - Investments)

Hard-nosed chairman of ESL Investments merged Kmart with Sears, Roebuck in November, capping one of the greatest corporate comebacks in history. ESL Sears stake, worth $8.8 billion, roughly 60% of firm's assets under management. Missed sales estimates last quarter; booted CEO, became chief marketer and merchandiser. Lawyer's son inspired by grandmother, devoted viewer of Wall Street Week; spent spare time in high school reading corporate reports, financial textbooks. Skull & Bones member at Yale; landed job at Goldman Sachs, mentored by Robert Rubin. Founded own firm in 1988, annual returns averaging 29%. Snagged early investment from Richard Rainwater: "Eddie is the single best investing mind in the world today." Other Forbes 400 clients: Michael Dell, David Geffen, Tisch family, Ziff brothers.

Rupert Johnson (Networth - $3.1 Billion, Age - 64, Source - Franklin Resources)

With brother Charles (see), runs Franklin Resources, mutual fund company started by Rupert Sr. in 1947. Washington & Lee grad, former marine, vice chairman. Today more than $425 billion assets under management with offices in 29 countries and more than 100 investment products.

James Simons (Networth - $2.7 Billion, Age - 67, Source - Hedge Funds)

Degree from MIT; taught at Harvard. Worked as code breaker for Department of Defense during Vietnam. Founded Renaissance Technologies hedge fund firm 1982. Flagship Medallion fund averaging 34% annual returns since 1988. Most expensive fees in the business: 44% of profits, 5% of assets. Hires Ph.D.s instead of M.B.A.s; employees use computer modeling to find market inefficiencies. Launching fund for institutional investors that could handle $100 billion. Chairs Math for America; group donated $25 million last year to train 180 New York City math teachers.

Henry Kravis (Networth - $2.5 Billion, Age - 61, Source - Leveraged Buyouts)

With first cousin George Roberts, partnered with fellow Bear Stearns mentor Jerome Kohlberg (see) to form leveraged buyout firm Kohlberg Kravis Roberts 1976. Used junk bonds to buy underperforming companies, reworked balance sheets, sold for profit. Kohlberg exited in 1987. "Barbarians at the gate" best known for $25 billion RJR Nabisco buyout 1989. Other high-profile deals: Safeway, Primedia, Duracell. In July bought Toys "R" Us for $6.6 billion with Bain Capital and Steven Roth's (see) Vornado Realty; acquired SunGard Data Systems for $10.6 billion with Blackstone Group. Kravis: gregarious New York socialite, big donor to Metropolitan Museum; wife, Marie-Josée, a director of poverty-fighting Robin Hood Foundation. Roberts: soft-spoken, spends after-work hours on the driving range at Stanford.

George Roberts (Networth - $2.5 Billion, Age - 61, Source - Leveraged Buyouts)

With first cousin Henry Kravis (see), partnered with fellow Bear Stearns mentor Jerome Kohlberg (see) to form leveraged buyout firm Kohlberg Kravis Roberts 1976. Used junk bonds to buy underperforming companies, reworked balance sheets, sold for profit. Kohlberg exited in 1987. "Barbarians at the gate" best known for $25 billion RJR Nabisco buyout 1989. Other high-profile deals: Safeway, Primedia, Duracell. In July bought Toys "R" Us for $6.6 billion with Bain Capital and Steven Roth's (see) Vornado Realty; acquired SunGard Data Systems for $10.6 billion with Blackstone Group. Kravis: gregarious New York socialite, big donor to Metropolitan Museum; wife, Marie-Josée, a director of poverty-fighting Robin Hood Foundation. Roberts: soft-spoken, spends after-work hours on the driving range at Stanford.

Stephen Schwarzman (Networth - $2.5 Billion, Age - 58, Source - Investments)

Son of dry-goods-store owner studied at Yale with President George W. Bush; founded ballet society to meet girls. Harvard M.B.A., then managing director at Lehman 1978 at age 31. Cofounded buyout firm Blackstone Group 1985 with $400,000, with partner Peter G. Peterson. Today 4 buyout funds own 87 companies with $110 billion enterprise value. Led bankruptcy restructurings of Enron and Global Crossing. Last year appointed chair of Kennedy Center in Washington, D.C., immediately donated $10 million. Splits time between $30 million Manhattan duplex, estates in the Hamptons, Palm Beach.

Bruce Kovner (Networth - $2.5 Billion, Age - 60, Source - Hedge Funds)

Dropped out of Harvard Ph.D. program after fit of writer's block. Used $3,000 MasterCard line to trade soybeans at age 31. Made $40,000, didn't hedge; lost $23,000 hours later. Founded hedge fund group Caxton Associates 1983. Today $11 billion under management. Juilliard chairman, opera enthusiast owns Steinway grand piano, plays every night at midnight: "A great piece of music can take you to a place that is pretty powerful and positive." Devout Republican chairs American Enterprise Institute think tank, funds Manhattan Institute, New York Sun newspaper.

Steven Cohen (Networth - $2.5 Billion, Age - 49, Source - Hedge Funds)

Wharton grad started trading options at Gruntal & Co. 1978; made $8,000 profit on first day. Founded hedge fund SAC Capital with $20 million 1992. Today manages more than $6 billion in assets; average annual return of 40%. Firm's 40-odd portfolios believed to account for as much as 3% of NYSE's daily volume. Highly secretive investor commands one of the highest performance fees in the business: 50% of the profits if certain benchmarks met. Avid art enthusiast has spent more than $300 million since 2000 building collection: Warhol, Pollock, Degas. On boards of Robin Hood Foundation, Michael J. Fox Foundation.

John Calamos (Networth - $2.1 Billion, Age - 65, Source - Mutual Funds)

Son of Greek immigrants swept floors at family's Chicago grocery store. Developed passion for stock market in teens after investing parents' $5,000 nest egg. Joined Air Force after earning M.B.A in 1965; served year in Vietnam. Became stockbroker, specialist in convertible securities. Founded Calamos Asset Management 1977. Took public last October, stock up 46% since. Risk averse: "We don't get caught up in just a good idea that's not priced properly in the market." Assets under management up 750% in past 5 years, to $41 billion. Nephew Nicholas serves as co-investment chief.

Charles Brandes (Networth - $2.0 Billion, Age - 62, Source - Money Management)

Benjamin Graham disciple founded investment firm in 1974. After careful analysis invested in high-intrinsic-value companies at low stock price; waited for market to adjust. Today Brandes Investment Partners manages $95 billion. Author of Value Investing Today. Serves on boards of Salk Institute for Biological Studies, Whittier Institute for Diabetic Research.

Paul Tudor Jones (Networth - $2.0 Billion, Age - 51, Source - Hedge Funds)

Traded cotton after studying economics at U. of Virginia. Started Tudor Investment 1985. Early success predicting 1987 market crash; turned prescient short positions into 201% gain. Never a down year; worst performance in 2000, when offshore Tudor BVI Global Portfolio fund delivered 11.6%. Said to charge 23% of profits and 4% of assets. Now focusing on Asia: last year created Australian affiliate, opened Singapore trading office. Avid pheasant hunter, bass fisherman owns property around the world, including getaways in Florida Keys and Zimbabwe. Founder New York City's Robin Hood Foundation.

Herb Allen (Networth - $2.0 Billion, Age - 65, Source - Investment Banking)

Scion of investment boutique Allen & Co. always keeps a quiet profile, but continues to rack up loud returns: more than 40% a year since mid-1980s. Forges lucrative relationships with media honchos by hosting annual retreat in Sun Valley, Idaho.

H Wayne Huizenga (Networth - $2.0 Billion, Age - 67, Source - Investments)

Bought used garbage truck in 1962 after dropping out of college, transformed small trash hauling operation into waste management behemoth WMX. Bought 19-store video rental chain Blockbuster 1987; expanded, sold to Viacom for $8.4 billion 7 years later. Owns big stake Auto-Nation, pro football's Miami Dolphins.

Fayez Shalaby Sarofilm (Networth - $1.8 Billion, Age - 76, Source - Money Management)

Egyptian-born "Sphinx" endures as prime repository of Texas oil money. Also manages blue-chip stock funds for Dreyfus, but assets under management ($40 billion) in decline as performance fails to keep pace with S&P 500. Son Chris being groomed to take over, or maybe sell the company. Other offspring regulars in Houston's social and arts scene.

Stanley Druckenmiller (Networth - $1.8 Billion, Age - 53, Source - Hedge Funds)

Stock analyst for Pittsburgh National Bank after dropping out of economics Ph.D. program at U. of Michigan. Started Duquesne Capital Management 1981. Left to work for George Soros 1988; believed to have kept 30% of mentor's incentive fee. Parted in 2000 after sustaining massive tech sector losses. Returned to Duquesne Capital to run No Margin Fund: $3.5 billion equities portfolio with big positions in banking, energy.

Tom Gores (Networth - $1.7 Billion, Age - 41, Source - Leveraged Buyouts)

Israeli immigrant spent his 20s learning buyout business alongside older brother Alec (see) at Gores Technology Group. Split in 1995 to form Platinum Equity: conglomerate manages 21 companies with $8 billion in sales. Recent acquisitions: General Electric's IT Solutions; American Racing Equipment.

Dirk Ziff (Networth - $1.5 Billion, Age - 41, Source - Inheritance, Hedge Funds)

With brothers Daniel and Robert (see both). Father, William Ziff Jr., built Ziff-Davis publishing empire (PC Magazine, Car & Driver, Boating), sold for $1.4 billion in 1994, retired to Florida. Siblings reinvest proceeds via Ziff Brothers Investments: hedge funds, corporate debt, equities, small stake in DreamWorks SKG. Och-Ziff Capital Management Group manages $10.7 billion in assets.

Robert Ziff (Networth - $1.5 Billion, Age - 39, Source - Inheritance, Hedge Funds)

With brothers Dirk and Daniel (see both). Father, William Ziff Jr., built Ziff-Davis publishing empire (PC Magazine, Car & Driver, Boating), sold for $1.4 billion in 1994, retired to Florida. Siblings reinvest proceeds via Ziff Brothers Investments: hedge funds, corporate debt, equities, small stake in DreamWorks SKG. Och-Ziff Capital Management Group manages $10.7 billion in assets.

Daniel Ziff (Networth - $1.5 Billion, Age - 33, Source - Inheritance, Hedge Funds)

With brothers Dirk and Robert (see both). Father, William Ziff Jr., built Ziff-Davis publishing empire (PC Magazine, Car & Driver, Boating), sold for $1.4 billion in 1994, retired to Florida. Siblings reinvest proceeds via Ziff Brothers Investments: hedge funds, corporate debt, equities, small stake in DreamWorks SKG. Och-Ziff Capital Management Group manages $10.7 billion in assets.

Kenneth Griffin (Networth - $1.5 Billion, Age - 36, Source - Hedge Funds)

Started small investment portfolio from Harvard dorm room as freshman in 1986 after reading article on Home Shopping Network in FORBES; managed $1 million by senior year. Started Citadel Investment Group with $1 million investment from trader Frank Meyer 1990. Today manages $12 billion in assets. Stiff fees: 20% of profits, all corporate expenses paid by investors.

Michael Price (Networth - $1.3 Billion, Age - 53, Source - Investments)

Prickly money manager sold Heine Securities to Franklin Resources for $670 million and 5-year employment contract in 1996. Now manages private firm, MFP Investors: $1.6 billion under management, much of it his own money. Reputation for painstaking analysis, shaking up management. Disputes Forbes 400 estimate: "You guys make things up about people every year, so you can keep making things up about me."

Thomas H. Lee (Networth - $1.3 Billion, Age - 61, Source - Leveraged Buyouts)

Good-natured buyout titan having golden year. With Edgar Bronfman Jr. took Warner Music public in May. Followed up by flipping commodities outfit Refco in August. Harvard grad started investing with $150,000 inheritance 1974. Greatest hit: Snapple, bought for $135 million 1992, sold to Quaker Oats for $1.7 billion in 1994.

Alec Gores (Networth - $1.2 Billion, Age - 52, Source - Leveraged Buyouts)

Founded Gores Technology Group buyout firm 1987 after selling computers out of his father's basement. Prefers to buy divisions of technology firms, merge them to create new companies. Conglomerate now has 30 companies, including Real Software, Adventa, Voicecom Telecommunications. Brother, Tom (see), runs Platinum Equity.

Robert Day (Networth - $1.2 Billion, Age - 61, Source - Money Management)

Money manager founded Trust Company of the West 1971; sold 70% of company to French bank Société Générale in 2001 for $2.5 billion. Owns 600,000 acres of timberland in Florida. Low-profile philanthropist serves as chairman of $1 billion W.M. Keck Foundation, offers grants in engineering, science, liberal arts.

David Tepper (Networth - $1.2 Billion, Age - 47, Source - Hedge Funds)

Ran junk bond desk at Goldman Sachs after master's from Carnegie Mellon University 1982. Founded Appaloosa Management 1993; 30% average annual returns, including 150% in 2003. With wife, Marlene, gave $55 million for Carnegie Mellon's Tepper School of Business.

Jerome Kohlberg (Networth - $1.2 Billion, Age - 80, Source - Leveraged Buyouts)

Left Bear Stearns in 1976 to start leveraged buyout shop KKR with Henry Kravis and George Roberts (see both). Opposed to hostile takeovers, left in 1987; missed out on famed $25 billion takeover of RJR Nabisco.

Thomas Bailey (Networth - $1.1 Billion, Age - 68, Source - Mutual Funds)

Michigan State grad stepped down last year as chair of Janus, mutual fund outfit he started in 1969. No wonder: company still trying to shake off stigma of 2003 market-timing scandal. Fund managers accused of ripping off investors; firm settled with regulators in August 2004 for $100 million. Janus' $130 billion in assets under management little changed since settlement.

William Gross (Networth - $1.1 Billion, Age - 61, Source - Bonds)

Navy stint in Vietnam. After M.B.A. from UCLA, became securities analyst at Pacific Life. Discovered how to make money with bonds: trade, don't buy and hold. Handed $10 million portfolio to manage 1973. Stellar returns justified $20 million bonuses in the 1980s. Bond division spun off to create Pimco. Public 1994. Sold to German insurance giant Allianz AG for $4.7 billion in 2000; personally made more than $400 million. As Pimco chief investment officer earns $40 million annual salary. Obsessively secretive: Kept second wife-to-be in the dark about wealth until they were engaged.

Kenneth Fisher (Networth - $1.1 Billion, Age - 54, Source - Money Management)

Father, Philip (d. 2004), ran own investment firm, built reputation with buy-and-hold philosophy, early tech investments. Ken worked at dad's shop after college, struck out on own 1973. Father of the price/sales ratio, author (Super Stocks), long-running FORBES columnist. Today Fisher Investments manages $27 billion. History buff; currently studying interaction between finance and behavioral psychology.

Nelson Peltz (Networth - $1.1 Billion, Age - 63, Source - Leveraged Buyouts)

With partner Peter May runs publicly traded buyout firm Triarc. Wharton dropout made first fortune with acquisition, merger of Triangle Industries and National Can 1985. Sold company 5 years later for $830 million profit. Bought Snapple in 1997 from Quaker Oats for $300 million, sold 3 years later for $1.5 billion. Arby's owner outbid for Burger King by Texas Pacific Group in 2002.

Mario Gabelli (Networth - $1.0 Billion, Age - 64, Source - Money Management)

Read market reports for fun, bought first stock at 13. Founded Gabelli Asset Management 1977; launched first mutual fund 1986. Today company provides advisory services to more than 30 mutual funds, invests most of $29 billion assets under management in equities. Public offering 1999; owns 50% stake, Bill Gates owns 13%. Columbia business school grad skips salary, bonuses, stock options; prefers management-fee-based compensation instead. Lucrative tradeoff: earned $55 million in 2004.

Wilbur Ross Jr. (Networth - $1.0 Billion, Age - 67, Source - Leveraged Buyouts)

Financier completed $4.5 billion sale of International Steel Group to Indian mogul Lakshmi Mittal in October. Cash and stock deal created world's largest steel company. Lawyer's son got start parking cars at racetrack in Monmouth, N.J. Dreamed of being a writer; worked on literary magazine at Yale. Summer job on Wall Street, then position at Rothschild 1976. Began running private equity fund 1997, founded WL Ross & Co. three years later. Buys up companies in tired industries like coal, steel, textiles; cleans up balance sheet, improves management, sells for profit. Today manages about $3 billion in 7 private equity funds, 2 hedge funds. Preparing for public offering of International Coal Group: set to raise $250 million. Other investments: real estate, banks in Japan, auto parts supplier Collins & Aikman.

Louis Bacon (Networth - $1.0 Billion, Age - 49, Source - Hedge Funds)

Secretive hedge fund manager raised in Raleigh, N.C., studied literature at Middlebury College. Met Wall Street tycoon Walter Frank while working summer job on fishing boat, started trading a year later. Launched Moore Capital 1989; up 86% in first year after correctly guessing Gulf war's effect on oil prices. Global macro trader now runs 4 funds from London and New York. Assets under management: $9.6 billion. Signature Moore Global Investments fund returned an average 24% a year since 1990. Charges steep fee for performance: 25% of profits, 3% of assets. Avid hunter owns 435-acre Robin's Island in Long Island Sound, where he throws traditional English hunting parties.

2005-10-30T22:22:00.000-08:00

Famous Quotes
_______________

Here are some pretty insightful quotes on investing

"Compounding is the Eight wonder of the World" - Albert Einstein

"Risk comes from not knowing what you're doing." - Warren Buffett

"In the short-run, the market is a voting machine but in the long run, the market is a weighing machine." - Ben Graham

"The most dangerous words in the investment business are, "this time it's different."" Â John Templeton

"It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong."- George Soros

"Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise" - Peter Lynch

2005-10-08T05:44:00.000-07:00

How The Stock Market Works - An Interesting Anecdote

It was autumn, and the Red Indians on the remote reservation askedtheir New Chief if the winter was going to be cold or mild. Since hewas a Red Indian chief in a modern society, he couldn't tell what theweather was Going to be.

Nevertheless, to be on the safe side, hereplied to his Tribe that the winter was indeed going to be cold andthat the members of the village should collect wood to be prepared. But also being a practical leader, after several days he got an idea. He Went to the phone booth, called the National Weather Service andasked "Is the coming winter going to be cold?" "It looks like thiswinter is Going to be quite cold indeed," the meteorologist at theweather service Responded.

So the Chief went back to his people and told them to collect evenmore Wood. A week later, he called the National Weather Service again."Is it Going to be a very cold winter?" "Yes," the man at NationalWeather Service again replied, "It's definitely going to be a verycold winter."

The Chief again went back to his people and ordered them to collectEvery scrap of wood they could find. Two weeks later, he called the National Weather Service again. "Areyou Absolutely sure that the winter is going to be very cold?"

"Absolutely," The Man replied. "It's going to be one of the coldestwinters ever." "How can you be so sure?" the Chief asked.

The weatherman replied, "The Red Indians are collecting wood like Crazy."

This really is how stock markets work!!!

________________________________________

Its really proves how the small investors work themselves into a self fulfilling phrophecy, of creating the demand by buying into stocks, and then when the price rises because of that demand, they buy more because they see the stock rising. This keeps on happening till an external event happens that spoils the party.

(Recently SEBI spoiled the party for the Penny stocks and now there have been over 100 stocks that have hit the lower circuit breakers for the last 15 trading days. So who was the looser - It was the set of people who were holding the stocks on that crucial day. They never got an exit and now have a 50-60 % loss on their holdings.)

Who can they blame but themselves...

This event serves as an important reminder to me that should never loose touch with reality...

2005-09-05T04:50:00.000-07:00

What really is Asset Allocation?

According to a definition I read - "Asset Allocatoin is the percentage breakdown of an investment portfolio. This shows how the investment is divided among different asset classes. These classes include shares, bonds, property, cash and overseas investments. Institutions structure their allocation to balance risk and ensure they have a diversified portfolio. The asset
classes produce a range of returns - for example, bonds provide a low but steady return, equities a higher but riskier return. Cash has a guaranteed return. Effective asset allocation maximises returns while covering liabilities."

The first question that comes to my mind is that what are the potential asset classes? Let me run a summary

STOCKS

I for one surely am comfortable with Stocks. They come with

- Liquidity - One can sell stocks today and get cash in 2 days
- Benchmarking - You have the indices and industry peers to see if the asset you hold is cheap or expensive
- Choice - You have a universe of 7000 stocks to choose from (2000 if you consider the actively traded ones)
- Growth - The underlying asset (company) is working to get more efficient and get more returns I think that stocks are a great asset class and every individual should own it. The percentage of allocation will be different from person to person and even for a person may change with age.

REAL ESTATE

This is one big asset class and I have heard people making fabulous money by dabbling in it. I am not really comfortable with it because of

- Black Money - Amount of black money involved ( It could range from 10% to 80% of the deal value)
- Liquidity - Have you ever tried to sell a property in the market at the rate the broker was ready to sell comparable property. I tried to do so and the brokers buy price was 15% lower than his sell price
- Transparency - or the total lack of it. I was planning to buy a plot of land in an estate that the builder had taken from the State Govt on a 99 year lease. Before closing the deal I asked for a copy of the agreement they had entered into with the state govt. They initially made excuses but when I insisted bluntly refused that. So I chose not to buy (The property price has doubled since then but I still dont regret the decision)
- Transaction Costs - Currently the stamp duties vary from 5% to 14%. That is a huge amount as compared to any other asset class

GOLD

Indians are in love with it. There was a report in ET that Indian households hold $200 Billion of gold. India has been the largest importer of gold for as long as one can remember. Infact a CMIE report claimed that if all the gold was sold and put in productive assets Indian GDP will incrementally grow by 0.6-0.7% every year. I look at the opportunity cost and feel that
I can and never will invest in gold.

Another aspect is that in India you can hardly find gold of the purity it is stated to be. The jewellers sell gold at 22 Carat but the actual range normally is 12 - 19 Carats depending on how desperate is he to make money. And since gold jewellery is only sold by individuals in really bad financial times (which practically happens to very few people) these charlatons never get caught. So a shock awaits you if you try to sell and old piece of jewellery. One would be lucky if one gets even 70% of what one paid for the piece.

DEBT

There was a time in India that one could easily get 15-25% returns on debt investments. With the capital preserved, why would anyone invest in anything else if there was such an opportunity. This was partly due to high inflation and the closed Indian economy. Then between 2000-2004 the GOI India bond fell from 14 to 6 % the debt funds gave returns between 20-25%. Now in the rising rate environment with stable inflation I dont think those returns can be matched in future. If they can I will definitely invest in it.

CASH

Sitting on cash gets you no returns except 3% before tax on the saving account. So why would one choose to have this asset class. First of all its very liquid and secondly in an environment where there is a danger of other asset classes giving negative returns this is a safe place to park your money.

Having read what I have to say on asset classes you would come with the impression that I am totally biased towards stocks. Well I would tend to agree but I realise the importance of asset allocation and diversification. I should not be putting all my eggs in the same basket. So shares will always get the highest allocation among the assets (as I believe that I will get the best long term returns in it) I will always have some real estate (I need to live somewhere), gold (after all I have to please my wife), cash (I am not sure if I can buy food with a share of HLL) and art (I like to think I will discover the next MF Hussain of tomorrow though I know I won't). I will get into debt only if inflation gets in double digits.

What I am trying to say that Asset Allocation is very important irrespective of what one has made money in. A top down approach will help one clarify one's mind and make sure that one doesnt drown in the aftermath of one own's success.

2005-08-26T04:43:00.000-07:00

The Virtues of Patience

Patience is one of the essential fundamental of investing - I am sure no one would deny that.
How many times has it been that one found a good investment after diligent research and then bought it waiting for the reward. Weeks, months, years would pass and then one would loose patience and sell. And then the stock would move up and reach levels which one never thought possble. The wait would have been rewarded if one had the patience.

Had one been patient with his investments he would have been amply rewarded in the current run...

One point that continually is reinforced at the Berkeshire Hathaway annual meeting is that Mr. Buffett and Mr. Munger have an unbelievable reservoir of patience. They are fine sitting & doing nothing until an intelligent opportunity presents itself to them. For instance at one meeting, Buffett stated that he had read Anheuser-Busch’s Annual Reports for 25 years before investing. Buffett has stated many times that one of the reasons that investing is such an interesting field is that an investor only has to swing at the perfect pitch and can let those that aren’t in one’s circle of competence pass right by. Have such an incredible amount of patience is certainly one of the biggest reasons both have been so successful.

As Warren Buffett said at the 2005 meeting "Successful investors are always searching for opportunities, they don’t act every day but they do learn every day"

Patience is needed because it takes time for sound investments to work their magic. All I can say is - IN INVESTING IT PAYS TO BE PATIENT

2005-08-21T00:13:00.000-07:00

This is one of the rare periods in the Indian Stock Market where the indices are at their all time highs but in valuation terms still not overpriced (The Sensex PE is 16 which is nowhere close to the PEs of 40-50 sthat we saw in 1991, 1994 and 1999 bull markets).

The indices have been gaining non stop for the last 16 weeks ( I havent ever noticed such a trend since I started investing) and that can only be explainedby the huge amount of foriegn money that is being pumped into the Indian stock market.

If you compare the key indices, the gains in Nifty or Sensex (160% gains since the lows seen in September 2001) they are dwarfed by the gains in CNX midcap index ( rose from 492 levels in September 2001 to 3600 currently - a gain of more than 600%).

What has happened there is amazing. Take a case in point - Pantaloon Retail that was trading at Rs 17 in 2002 today is quoting at Rs 1800 ( a gain of over 10,000%) in less than 3 years. There are many other stories that I can recount, but what I am trying to say is that midcaps and smallcaps, from a position of extreme undervaluation have reached a stage where they match or even exceed index stock valuations.

The way the IPO are getting over subscribed (20 - 100 times) and the listing premiums (Vivimed labs whose IPO was priced at Rs 70 finally closed at Rs 220 on the day of listing) indicate that there is euphoria and buying frenzy, that goes beyond the underlying fundamentals of the economy.

That is where you need to be cautious about. Its difficult to find value and so for investors like us its time to go back to the basics and renew your pledge to your conservative style of investing.

2005-08-21T00:08:00.000-07:00

This is my first post and im exited at starting a blog...

The idea of a blog is amazing. Its like a public personal diary. To find an outlet for all the random thoughts that go through your mind can be really helpful & cathratic. The one thing that I am dreading is how to make sure that this is not just another idea that I have and will grow out of it...

Anyway the reason for starting this to find an outllet for my thoughts on investing. I have been hugely influenced by Warren Buffett, Banjamin Graham and the concept of value investing. I have developed a passion for it and have been trying to build a investing model based on this concepts. Applying these thoughts to the Indian Capital Market has been challenging and has
really enthralled me these last few years (8 years to be exact).

So I want this blog to evolve as a record of experiences around investing and medium to network with like minded individuals. There have been many who have influenced me in my journey and I am really thankful to them. I aim to meet the rare creed of value investors, who have the ability, patience and discipline to be long term value investors.

I have been rambling now but that's what I enjoy about blogging. I can do whatever comes to mind. Well to all u readers (and to me of course... ) - HAPPY INVESTING