Vijay Kedia’s rules of investment

Introduction

Vijay Kishanlal Kedia is a trader turned into a fundamental investor. He took good bets in Punjab tractors, ACC, etc… when they were still unknown stocks. He has been a trader for the first part of his life and struggled to make a living and learnt to become and fundamental investor since them he has made a fortune.

Here is his advice to anyone who want to become a fundamental investor. These are the rules he applies to his investments.

  • Create a fixed income from outside the market for your livelihood.
  • Be informed and read a lot.
  • Invest your saving and not the earning in the stock market. Don’t trade.
  • Don’t invest from borrowed money
  • Invest for a minimum of 5 years (Go long).
  • Invest only in companies with the best management and let the worry about running the company.
  • Your investments belong to the market and the profit belong’s to you. Book your profit and invest in a house.
  • Keep a balanced mind. Do not be very optimistic in uptrends or very pessimistic in downtrends.
  • Better to invest in Good Management in bad business(Sector) than Bad management in good business
  • Don’t invest in IPO’s

An explanation is due for some of the topics.

Invest your saving and not the earning in the stock market

What is Saving? The book Richest Man of Babylon talks about  keeping 10% of what you earn to yourself and investing it in for the future, the next 70% for leading a good life and the rest of the 20% for paying of debt (Could also be used for investing if you have no debt). This is your saving, that 10% of your earning.

Now that we have defined saving, Let us explain the principle with an eample.

Let us assume, after researching you plan to invest Rs. 1 Lakh in stock A which is currently @ Rs.100 and you find out from a friend that stock B which is at Rs.50 has a habit of continous hitting Rs.55 and comming back to Rs.50 and never seen it breaching Rs.50

You are thinking, “Hey! this is a chance to make a quick captial appriciation before investing in Stock A. You are confident and are convinced that Rs.50 is the bottom and it is simple to convert you 1 Lakh to 1.1 Lakh.”

Wait ! But the market has other Ideas. You make your invest and suddenly over a period of time Stock B has fallen to Rs.40 and is not going above Rs.45. What to do? This is not the stock you wanted to invest in.

You decided to cut your loses, But at the meantime, Stock A on which you have researched has gone up from Rs.100 to RS.117. Therefore by trading for quick cash you have put your savings at risk and now instead of getting more shares of Stock A you got even less shares.

You might argue that as betted (Never make bets, only fundamentally sound decisions.), Stock B could have increase 10% you would have made a handsome profit (But this is often not the case).  But at the same time, Stock A has gone up 11.7% therefore you are getting a lot few shares than you would had if you had the conviction to stay with your investment.

Your investments belong to the market and the profit belong’s to you.

Here what Kedia means is that till your investments are in the market, there is always an risk of losing. Your investments might simply disappear, if the business does something drastic. Therefore the money belongs to the market.

The money only belongs to you when you convert it to cash by books profits. He advices you to cash out periodically and invest in a house of property.

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Brexit : The 2016 event that sent shockwaves across global markets

 

Image Courtesy: spectator.co.uk

 

What is ‘Brexit’ ??
Brexit is an abbreviation of “British exit“, which refers to the June 23, 2016 referendum by British voters to exit the European Union.
British Prime Minister David Cameron, who supported the UK remaining in the EU announced he would step down in October.

What has happened?
A referendum – a vote in which almost everyone of voting age can take part – was held on Thursday 23rd June 2016, to decide whether the UK should leave or remain in the European Union.

Leave won by 51.9% to 48.1% who said Remain(close call).

The referendum turnout was 71.8%, with more than 30 million people voting. It was the highest turnout in a UK-wide vote since the 1992 general election.

Referendum has been a popular method to gain the overall population’s opinion on a national matter. It works in countries with relatively smaller population, but for countries like India this method is a distant dream as of today.
It is important to understand that the ‘outcome’ of this vote need not be considered as a decision per se, though the government  has power to turn down the vote, PM David Cameron decided to respect the principles of democracy and decided to go ahead with the people’s choice.

Opinions are divided on whether Britain was right to leave Europe. Pro-Business camp felt let down as their products would be hard to sell within Europe and hiring of young immigrant workers from Europe will not be easy now. While others have argued that the EU has burdened UK with regulations costing the British economy as much as 350-600 million pounds per week. After Brexit, the UK will now be able to amend some EU laws to make savings shrugging off the burden from EU regulations.

What is the European Union?
The European Union – often known as the EU – is an economic and political partnership involving 28 European countries. It began after World War Two to foster economic co-operation, with the idea that countries which trade together are more likely to avoid going to war with each other. It has since grown to become a “single market” allowing goods and people to move around, basically as if the member states were one country.

What happens now?
For the UK to leave the EU it has to invoke an agreement called Article 50 of the Lisbon Treaty. Invoking this would then set in motion the formal legal process of withdrawing from the EU, and give the UK two years to negotiate its withdrawal.
Please note that until the entire legal and official policies are complete, status quo (current conditions) still continues.

What are the issues revolving around Brexit ?

The economy: Economic growth, bureaucratic red tape, corporate independence, EU membership fees, the EU budget and fiscal policies are contentious issues.
Immigration: One of the founding principles of the EU is free movement for European citizens between EU member States. The increase in migration into the UK is a controversial topic. Pro-EU parties cite evidence for the positive economic benefits of immigration while anti-EU parties argue that immigrants take away local jobs and hurt individual wages.
Sovereignty: The primary slogan of the Leave campaign is “Take Back Control”. The relevance of EU laws over British ones and decreased national autonomy are the main talking points of the  Leave campaign while the Stay campaign has advocated Europeanism and oneness.

What is the impact on India ?
According to some analysts, Britain leaving the EU could set the stage for a Free Trade Agreement between Britain and India. Indian companies are the third largest source of foreign direct investment for the UK and the FICCI has warned about “considerable uncertainty for Indian businesses” and “adverse impact on investment” if Brexit were to occur. British Indians are the single largest ethnic minority population in Britain, and the 1.4 million-strong community will no doubt be affected by the vote. Prime Minister Narendra Modi has spoken in favour of Britain remaining in the EU, calling the UK India’s “gateway to Europe” and affirming that “India always
stands in support of a strong and united Europe.”

What was the immediate impact on world stock markets?
Global stock markets lost about $2 trillion in value on Friday after Britain voted to leave the European Union, while sterling suffered a record one-day plunge to a 31-year low and money poured into safe-haven gold and government bonds. The S&P 500 finished down 3.6pc, while the Dow Jones index was down 3.39pc, all but erasing gains made since the start of the year and showing the biggest falls since August. The Nasdaq ended the day down 4.12pc, its worst fall since 2011.
As for the Indian Markets, the BSE Sensex took a staggering blow on friday 24th June reaching intraday low of nearly 1100 points and eventually closing the day down 604 points (-2.24%) at 26397 and NSE Nifty ending at 8088.60, down 181.85 points (-2.2%). The total investor wealth, measured in terms of cumulative value of all listed stocks including that of promoters, slipped by about 2 lakh crores.

Sources:
Investopedia
BBC
The Telegraph UK
Reuters
Moneycontrol
The Logical Indian

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Valuation: Four Lessons to Take Away

Introduction

Aswath Damodaran is a Professor of Finance at the Stern School of Business at New York University, where he teaches corporate finance and equity valuation.  He describe himself as a teacher first, who also happens to love untangling the puzzles of corporate finance and valuation, and writing about his experiences. The has written several book on valuation which are listed in book section.

The following are my notes on this Video.

Four basic questions while valuing a company

  1. What are the cash flow the company is getting from those existing investments?
  2. What is the value I see the company creating with future growth?
  3. How risky are these cash flows?
  4. When will your business be mature business?

Continue reading Valuation: Four Lessons to Take Away

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Trading long term in markets using Richard Whyckoff method

The first question you might have on your mind is why are we talking about technical analysis in a fundamental analysis site ? This post is to explain how operators can test your patience over a fundamentally good story. which you might otherwise decide to exit because your investments are not growing how it should and you feel your money is stagnant instead of taking this opportunity to accumulate more.

Stay Positive !

Continue reading Trading long term in markets using Richard Whyckoff method

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Reading an Annual Report

An investor knows the importance of reading the annual report. But it takes time to gain expertise in doing so. Here is a series of small videos that help you in reading annual reports.

Introduction

Vishal Khandelwal is a well known in among fundamental  investors in India. He is know of his educational website safal niveshak. He has MBA in Finance. He worked has a stock market analyst for 8 years before quitting his job to become a fundamental investor.  Ever since then he has been an educator and Investor and wishes to leave the world a better place then it is now.

Part 1: Quick Overview

What are the sections that you should pay importance too in an annual report ?

Continue reading Reading an Annual Report

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William Ackman: Finance and Investing

Introduction

William Albert Ackman is an American hedge-fund manager. He is the founder and CEO of Pershing Square Capital Management LP, a hedge-fund management company. Ackman is considered a contrarian investor. He considers himself an activist investor.

Here Ackman explain the business and finance with a example of Lemon ade stand startup business. The following are  explained in the video

Books Recommended

Keys of Successful investment

Continue reading William Ackman: Finance and Investing

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Warren Buffett – Reasonability in investing

Introduction

Warren Buffett hardly needs an introduction. Warren Edward Buffett is an American business magnate, investor and philanthropist. He is the most successful investor in the world. Buffett is the chairman, CEO and largest shareholder of Berkshire Hathaway.

In this video Buffet talks about the reason-ability required in investing. I encourage anyone who want to start thinking like a fundamental investor  to watch this video as it transform the way you think about life and common stocks.

The following are my note on the video which I plan to improve over time as I plan to watch it again and again an run these thoughts around in my mind.

Continue reading Warren Buffett – Reasonability in investing

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Chromatic India – Avoid

Current Price: 3.34 (-2.34%)| Face value: 10 | Book Value: 47.18 | Company Website | BSE | NSE

I got very interested in the company as it had 264 Crores (Cr) of reserves and 9 Cr of debt. To top it all just 7.07 CR total shares available (Listed & non-listed).

Given That:

Total no. of shares (70,785,855) * current price (4.7 – Rounding to 5) 5 = Rs. 35,39,29,275 (35 Cr)

While Reserve are @ Rs. 264CR, therefore the share price from reserves could easily be Rs. 37 / share.

The next thing that was very attractive is that the book value is Rs. 47.18 and lifetime high of 135.20 on 29 Dec 2010

Continue reading Chromatic India – Avoid

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The Psychology of Human Misjudgement – Charlie Munger

The Book recommended





The 25 Cognitive Bias

  1. Reward and Punishment Super-Response Tendency
  2. Simple, Pain-Avoiding Psychological Denial
  3. Disliking/Hating Tendency
  4. Doubt Avoidance Tendency
  5. Influence-from-Mere Association Tendency
  6. Reciprocation Tendency
  7. Social-Proof Tendency
  8. Inconsistency Avoidance Tendency
  9. Contrast-Misreaction Tendency
  10. Authority-Misinfluence Tendency
  11. Deprival Superreaction Tendency
  12. Envy/Jealousy Tendency
  13. Drug-Misinfluence Tendency
  14. Mis-gambling Compulsion
  15. Liking/Loving Tendency and Disliking/Hating Tendency
  16. Availability-Misweighing Tendency
  17. Stress-Influence Tendency
  18. Reason-Respecting Tendency
  19. Use-It-or-Lose-It Tendency
  20. Stress-Influence Tendency
  21. Senescence-Misinfluence Tendency
  22. Twaddle Tendency
  23. Lollapalooza Tendency — Confluences of Psychological Tendencies Acting in Favor of a Particular Outcome
  24. Benefits of this Psychological Thought System
  25. Special Knowledge Problems Lie Buried in the Thought System

Continue reading The Psychology of Human Misjudgement – Charlie Munger

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