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The Privileges Of PE Investors


wealthymattersImagine an initial public offering of shares from company,promising an average 15% return after five years of listing if the market returns are not higher. The question that will arise is whether it is an equity issue or a bond issue. By any definition it could be inferred as a sale of fixed income security and not equity.

It is investment into securities with such properties that has been happening for years and masquerading as private equity. Last week the Reserve Bank of India yielded to the long pending demands of the foreign private equity investors that the central bank legitimize put and call options in an equity investment contract. But the industry is still unhappy.

The issue is that such derivative contracts are legal so long as there is no assured return. Private equity investors say that this puts them at a disadvantage. But isn’t every equity investor at the same disadvantage? Is it not risk taking that gives such out sized returns? Equity investments are the riskiest form of investment and one could lose to the last paisa. But there is also an opportunity to earn many times the principal investment. This is one reason why the Securities & Exchange Board of India insists on the disclaimer ‘equity investments are subject to market risk’ on any public communication about an IPO or a mutual fund scheme. If this is the kind of risk that the less financially literate take in equity investment, then private equity investors are indeed a privileged lot with the assurances of  the mandatory return clause.This is a way of guaranteeing risk free high returns. Read more of this post

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Private Equity Losses In India


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Edward Zajac – 94 year old investor


This is a story I came across in the Economic Times.It seems to be a reprint from Bloomberg.I have this story pinned to my notice board just to remind me how Dumb Money can become Smart Money.Here is a person who seems to have made good money without trying to become an expert at investing.He has accepted his lack of expertise and found a way to benefit from the expertise of the “smart money”.His method involves just looking at some basic facts before putting his money in a company.The skills required are really basic.The rest of his magic merely seems to be a result of compounding due to his Time in the Market and the wisdom that comes from experience.To follow him we don’t need to understand financial statements or master technical analysis.

 Buy & hold strategy not dead yet for 94-year-old investor

wealthymatters.comNEW YORK: Stick with stocks, says investor Edward Zajac. He should know. The 94-year-old has been trading for 72 years and said he’s made about $2.5 million.

“I am a live, open-hearted investor,” said Zajac. “I’m willing to hold that stock 5, 10 years, if I have to.” Zajac, who lives with his daughter in Henderson, Nevada, bought his first stock, Petroleum & Resources, in 1937 while attending the University of Illinois. He’s invested full-time since 1968, after retiring from installing computer systems to travel the US in a recreational vehicle with his wife. Read more of this post

The Dhandho Investor


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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

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