ExpertDabbler

I thought I could give some insights on investing based on some personal experiences and on my observations about the movement of the relevant markets over a period of time. My area primarily has been the real estate market and stock markets. Being a typical middle class guy born to a salaried father, I was brought up on the ultimate dream of every middle class family - Sondha Veedu.

Later on once we had that, my views on real estate has been more from an investment perspective than the emotional “sondha Veedu”. My take on real estate as an investment in India is

Good. Because with a surging population, there will always be demand for one’s own piece of land/roof.

But make sure you do not need that money for some time. Letting out the property is a cool idea. You can actually pay off the loan EMI with some other person’s hard earned cash. Cool. But be careful with the tenants. Some times you need to hire “specialized resources” to chase troublesome tenants.I don’t want to write about the way one alcoholic tenant tortured me some time back. This happened after the “bang” time.

(ioiio, link kudukkalai, thirupthiya?)

Also, its never a good idea to buy when the market is soaring and prices going up by the hour. Frankly, that is the time to sell. Take for instance, the real estate situation prevailing now in Tier II cities like Coimbatore.

What were once playgrounds in the sub-urbs have suddenly become hot properties with prices ranging from 2 lakhs to 4 lakhs per cent(cent is 436 sq.ft). A 2400 sq ft feet plot, also known as 1 ground, costs a small matter of Rs.15 lakhs nowadays. Worse, apartment culture which was never in the lexicon of Coimbatore and Madurai, are suddenly in vogue and people cough up Rs.25 lakhs to buy an apartment. Highly unrealistic for a city like Coimbatore in my opinion. Coimbatore economy does not have the bandwidth to support such large investments by a middle class family. Just because banks give loans does not make buying houses fashionable. A 25 lakh loan comes along with an EMI of Rs.20,000 for twenty years. Honestly, If I do not have any onsite chance, I would not dare enter into such deals. But unfortunately, most of the guys do it nowadays anyway.

A shrewd investor will wait patiently till some of the purchased houses and flats eventually come up for sale in a few years down the line.

The reason for this kind of hype in Coimbatore is the news that IT majors like Wipro, CTS have invested big there. It is interesting to note that there was hardly anybody to invest in Coimbatore real estate when the serial blasts happened in 1998.

Eee kaaka illai.Blog comments madhiri koovi koovi vithanga.

“Appave Naina vai oru plot vanga sonna Mudhaleetu Medhai PK ku Oru O podungappa”

One very important lesson for every investor - times change faster than we realize. In just a matter of 7 years, prices have now gone up manifold.

Now, lets see the general rules of thumb for investing in stock markets in particular one by one.

Rule no 1: Discipline.

Just because the market is going up now, does not necessarily mean it will
always be up. And just because the market goes down does not mean the market will go further south. This change in trend is technically called “correction”. A good investor has the guts to invest when the market goes down and looks like going further down and has the prudence to sell his stake when the market is going up and looks like further headed northwards. Easier said, tougher to do.

Actually, investing at an individual level has got more to do with discipline and guts rather than any rocket science.

Discipline!. Engeyo ketta madhiri irukku illai?

Rule no 2: Difference between speculation and investment

Also related to rule no 1. The two most deceptively dangerous terms used interchangeably in the financial history of mankind are “Investment” and “Speculation”.The tough part is differentiating between the two. A speculator is always looked up as an investor when the market is bullish. And an investor is always looked down as a risk hungry speculator when the market is bearish. Both do the same - invest. But the reasons for doing what they do differ.

Rule no 3: FDs, Nisht.

The worst thing you can do to your money is keeping it in Fixed Deposits in banks. The foolishness will strike you if you realize that the rates of interest is around 4 to 5 per cent per annum. The rate of inflation growth is about that level. Whats more, the interest you earn from such deposts is taxable if it crosses a level just above peanuts in value(exact amount ku Sambhar ai ketkavum) which means, by keeping the money in FDs, we are effectively losing money. So never ever let FDs be part of your investment strategy. Nowadays at least in Indian Banks, there is little difference between the Interest offered by Sb a/c and FD a/c.

I see FD more as fees / penalty paid for keeping the reserves secure than as investments. Sorry Bankers.

Rule 4: Logic:Market Behavior :: Logic: Vijaykanth Film

Stock markets’ behavior on a particular day hardly reflects the state of the economy or anything worth reflecting about for that matter. It is always irrational. It is marked by either euphoria or panic, both unwarranted.

Think about the historic 800 point crash last March. And think about the booming sensex now. There is as much logic in market sentiment as in a Vijaykanth film.

A good investor never worries about the prices of the stocks and the Sensex movements on a day to day basis. This might sound strange given the number of browser windows which show ICICIdirect.com in offices. My sympathies with them. Just because they have an account in ICICIDirect or 5paisa does not make them an investor. Most of them are daily traders who think they can make an aweful lot of money by buying and selling something everyday. The sad truth is, it will all even out when you look at it from a 6 month perspective.

For instance, I know one person bought some 1000 of our company shares when it was trading at Rs.115. He bought that because some broker told him that the prices will go upto 140 in double quick time. To his utter dismay, the prices plummeted to 90 bucks. 25 x 1000= 25000 wiped out just like that. which brings us to Rule 5.

Rule 5: No Gambling Please, we are not in Vegas.

Always invest in your spare money. Never on borrowed funds. Period. In fact, the latter is called gambling.

Rule 6: Research.

Do some original research. Reading business magazines and blindly following the reccomendations is, alas, not exactly research. I have reasons to believe that some writers are in the rolls of vested interests. A real investor, does research about management of the company, the company’s market share, the trend in the industry in which the company operates, the earning potential of the company, the PE ratios of siiilar companies, the market prices of the shares of the competitor companies, the competitve advantage of the company and about the company’s customers’ overall satisfaction.

idhellam therinchukka nogudhunna invest pannadeenga.

Rule 7: Invest periodically.

History has shown that people who invest regularly, periodically have always been able to make better returns

Rule 8: Believe in the philosophy of Value Investing.

Investng in the stock market is the best way to go in terms of returns and liquidity. No other mode of investment has given as high returns consistently as the stock markets. But stocks are intrinsically risky too. So what to look up when you want to buy shares? Being optimistic when the market is bearish and prudent when the market is all fine advice, but do we know how high is high enough and how low is low enough?

Here comes the most enduring philosophy of investing first elucidated by Benjamin Graham and applied to perfection by the God of the capital markets, the Oracle of Omaha, the second richest person of the world - Warren Buffet.

More in part 2(whenever i write that)

Note:
“Ivlo pesariye nee evlo kaasu sambadhiche?” nu ketkum maha janangalukku, en blogger profile innoru murai padikavum:-))
And this post is dedicated to the original perpetrator of investment gyaan in blogosphere Padmashree Baby K