For Whom Wealth Matters
July 22, 2011 1 Comment
If being wealthy is important and you are on the look out for reading material to help you make money, sooner rather than later you are bound to come across books of the Rich Dad Poor Dad series authored/co-authored by Robert Kiyosaki and his associates.
Robert Kiyosaki,his books and educational materials are pretty controversial.He has his fans and his trenchant critics.
March 6, 2011 4 Comments
This book is pretty small – just a little over 200 pages.And I love it.I am naturally a bargain hunter and love shopping in sales.I also love getting high quality goods at bargain-basement prices.So It’s small wonder that I am attracted to value investing.The danger of shopping in sales is that a person picks up things they don’t have any use for or items that are not a perfect fit just because they are cheap.Then there is a danger of buying poor quality stuff just because it seems to cost so little.The same applies to buying stocks cheap.Sometimes the whole market is beaten down and all stocks seem cheap, but if I buy stocks of companies I would not normally buy because of their poor returns to investors,just because they are cheap,I am left with the problem of selling them when the market and the stock recovers.This is a problem for me personally as I have a tendency to get married to my stocks.At other times a stock sells for low P/E multiples simply because there is something fundamentally wrong with the company. Stocking up on the shares and hoping for a turn-around is pretty foolish.But I am an optimistic type and I need to force myself to turn away from such situations.Over a period of time I have found ways to control my habits.When the markets are down,I first establish a budget and then try to make a list of likely stocks and arrange them in order of attractiveness depending on Buffett-style criteria and tell myself that I’m to invest over 80% of the budget on only the top 5 of my list.I find this stops me from stocking up on not so great businesses that I might find hard to sell later.Then I have accepted the fact that I am a speculator at heart.I no longer try to fight the urge but try to use the Dhandho Principles that come pretty naturally to me to gain out of my speculative tendencies.This is a book I recommend for all investors like me who like value investing but can’t overcome the urge to speculate.
Here is a round up chapter-wise of what is found in the book:-
Chapter 1
Pabrai starts the book by discussing the term “dhandho“which is a Gujarati word meaning “business”. Gujarat is a western coastal state in India that has served as a hotbed for trade with Asia and Africa. The Patels are a community of particularly entrepreunerial Gujaratis whose entrepreneurial ventures led to them forming a dominant part of the East African economy by the early 1970s. When Asians were thrown out of Uganda in 1972 on the basis of their race, a flurry of Patel immigrants landed in Canada, England and the United States. Read more of this post
February 14, 2011 35 Comments
If you check lists of the best financial books of all time, you’re bound to find several that include The Millionaire Next Door: Surprising Secrets of America’s Wealthy. Written in 1996 by professors William Danko and Thomas Stanley, its main premise is that people who look rich may not be wealthy; they overspend — often on symbols of wealth — but actually have modest portfolios and, sometimes, big debts. On the other hand, many actual millionaires tend to live in middle-income neighbourhoods, drive economical cars, wear inexpensive watches, and buy suits off the rack.
Following are some of the gems of wisdom found in the book that the authors Danko and Stanley have gleaned from their thousands of surveys of millionaires.
#1: Income Does Not Equal Wealth
Yes, higher-income households tend to have more wealth than lower- and middle-income households. But the size of a paycheck explains only approximately 30% of the variation of wealth among households. What really matters is how much of the income is invested. On average, millionaires invest nearly 20% of their income.
Danko and Stanley even offer a “simple rule of thumb” formula for determining whether you have a net worth that is commensurate with your income:
Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by 10. This, less any inherited wealth, is what your net worth should be.
Those in the top quartile of wealth accumulation are prodigious accumulators of wealth (PAWs), according to Danko and Stanley. Those in the bottom quartile are under accumulators of wealth (UAWs).This formula also helps in sorting out the millionaires/millionaires-to-be(PAWs) and the millionaire-lookalikes(UAWs).Here is a calculator to do this calculation easily:https://wealthymatters.com/2011/01/17/am-i-wealthy-calculator/
#2: Work That Budget Read more of this post
February 12, 2011 7 Comments
‘Poor Charlie’s Almanack – The Wit and Wisdom of Charles T. Munger’ is a compilation of essays, memoirs, interviews, and speeches regarding Warren Buffett’s closest friend and business partner, Charles T. (Charlie) Munger , edited by Peter D.Kaufman.
Charlie Munger is an admirer of Benjamin Franklin,and the book’s title is a tribute to Franklin’s ‘Poor Richard’s Almanack.’
This is a big’ heavy coffee-table book with well over 500 pages.It’s pretty heavy reading and best left in the library.Reading the book cover to cover is only for serious Munger fans.
Thumbing through the book I figured that the only solid take-aways I could get without knocking myself out by tackling this formidable book were (1)Mungerisms,(2)The concepts to be mastered to apply the Multiple Mental Models to think better and (3)A checklist of investing principles. Read more of this post
February 9, 2011 30 Comments
The following is an excerpt from Seth Klarman’s ‘Margin of Safety.’I got around to reading this book based on the recommendations of one of the readers of this blog.Thank you Andy!I think the following is a nice way of making a distinction between stock market investment and speculation.BTW the book is pretty nice and I will blog more about it as and when I come across more interesting stuff.
To investors stocks represent fractional ownership of underlying businesses and bonds are loans to those businesses.Investors make buy and sell decisions on the basis of the current prices of securities compared with the perceived values of those securities. They transact when they think they know something that others don’t know, don’t care about, or prefer to ignore. They buy securities that appear to offer attractive return for the risk incurred and sell when the return no longer justifies the risk.Investors believe that over the long run security prices tend to reflect fundamental developments involving the underlying businesses. Investors in a stock thus expect to profit in at least one of three possible ways: from free cash flow generated by the underlying business, which eventually will be reflected in a higher share price or distributed as dividends; from an increase in the multiple that investors are willing to pay for the underlying business as reflected in a higher share price; or by a narrowing of the gap between share price and underlying business value.Speculators, by contrast, buy and sell securities based on whether they believe those securities will next rise or fall inprice. Their judgment regarding future price movements is based, not on fundamentals, but on a prediction of the behavior of others. They regard securities as pieces of paper to be swapped back and forth and are generally ignorant of or indifferentto investment fundamentals. They buy securities because they “act” well and sell when they don’t. Indeed, even if it were certain that the world would end tomorrow, it is likely that some speculators would continue to trade securities based on what they thought the market would do today.Speculators are obsessed with predicting-guessing-the direction of stock prices. Every morning on cable television,every afternoon on the stock market report, every weekend in Barron’s,every week in dozens of market newsletters, andwhenever businesspeople get together, there is rampant conjecture on where the market is heading. Many speculators attempt to predict the market direction by using technical analysis-past stock price fluctuations-as a guide. Technical analysis is based on the presumption that past share price meanderings,rather than underlying business value, hold the key to future stock prices. In reality, no one knows what the market will do;trying to predict it is a waste of time, and investing based upon that prediction is a speculative undertaking.
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