Investment Beliefs and Biases

Investment Beliefs and Biases

Please Remember! When you invest, they are your own decisions (and none others); and hence the risk is completely yours.

I have been observing the Indian equity markets for nearly two decades. Lately, interest in academics also took me closer to understanding the Indian corporate world (to some extent). I have also had the fortune of participating in the capital markets in various forms including day-trading, speculating, and long-term investing right from the times where the trading in exchanges used to be based on open outcry system (instead of the current form of electronic tranding). A few thoughts based on the same have led to the write-up below:

Suggestions for learners

The following are a list of suggestions for those interested in learning the art of equity research and fund management:

(a) Liquidity is the single most important thing during volatile times and thus staying liquid whenever you perceive investment environment becoming highly volatile is a good idea.

(b) Whenever you make gains (from equity markets) – please separate out the money to be paid for taxes immediately. Ignoring tax implications while making gains could later on lead to terrible liquidity crunch situations and negative fallouts [based on own failure to do so … in fact, I was in a soup J].

(c) There is no substitute to experience – hence, stop depending on mutual funds and suggestions from investment experts, etc. (especially those who come on the broader media … given probable agency issue). Start investing your own money (whatever little) by using your own logic. You can always add to this the knowledge gained by learning from others experience (i.e., read lots of books and other materials written by experts who spent decades in the markets … instead of quickly following investment experts during a temporary bubble phase).

(d) Whenever you lose money – think over the issue and take a note of the reasons due to which you lost.

(e) Never invest money in businesses you do not understand – for example, [a] a complex manufacturing company with large number of subsidiaries; OR [b] a complicated investment company; OR [c] a information technology enterprise with a complicated business model (… I have lost money a couple of times).

(f) Avoid investment in companies with a shady management track record. The cues could come from many ways (for example, accounting jugglery done by the companies OR the political networking done to cover up a issue OR the public relations exercise taken up to cover up a wrong doing (could be social or environmental)).

(g) While doing analysis about a company, do make use of financial ratio analysis and cash flow statement analysis (i.e., most than just mere business analysis or following past track record). There are many good books available in this area. Chapters 4 and 7 of my co-authored book titled “Financial Accounting for Management” could be of beautiful starting point and of good help.

(h) Have patience (based on personal experience)

I have been associated in creating equity reports. The list includes:

ü Amit Spinning

ü Chambal Fertilizers

ü Dhandapani Finance

ü Eicher Motors

ü Hexaware Technologies

ü Jammu & Kashmir Bank

ü Linc Pen & Plastics

ü Madhya Pradesh Glychem

ü Noida Toll Bridge

ü Ramkrishna Forgings

ü Shree Rama Multi-tech

ü Wockhardt

ü Bajaj Auto Finance

ü Blue Dart Express

ü Crest Communication

ü Global Board

ü Godavari Fertilizers Chemicals

ü Graphite India

ü Gujarat Heavy Chemicals

ü Hatsun Agro Products

ü Hinduja TMT

ü Umang Dairies

ü Mercator Lines

ü Mro-tek

ü Nagarjuna Fertilizers Chemicals

ü Nijjer Agro

ü Pioneer Distilleries

ü Satnam Overseas

ü Thomas Cook

ü Zee Telefilms

ü Zicom Electronic Security Systems