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Smart Things To Do When The Yield Curve is Inverted

April 10, 2011 3 Comments

1. Banks normally come up with special term deposits with high interest rates.Now is a great time to book some fixed deposits.

2.Newly issued bonds tend to have higher coupon rates or deeper discounts.Now might be a good time to add some to your portfolio.

3.Older long term bonds you might have been coveting for a while might be available cheaper or at deeper discounts now.Maybe you should buy some now.

4.Stock markets might not be so buoyant now so investing short-term funds in bank term deposits which are offering equity like returns is a good idea.

5.Good stocks that you plan on holding for the long-term might be available cheaper.Why not buy them now?

6.Tax-saving FDs are likely to be very good options now.Do the math to check your pre-tax returns to see just how good they are. Read more of this post

Filed under Paper Assets, Theory Tagged with banks, bonds, Bulk Investments, bullion market, coupon rates, deep discount bonds, FDs, Fixed Deposits, Fixed Maturity Plans, FMPs, foreign currency denominated assets, foreign exchange, inverted yield curve, last quarter, long term bonds, MFs, Mutual Funds, NAVs, negative yield curve, Net Asset Values, postaday2011, pre-tax returns, RandomBlog2011, RD, RD Account, Recurring Deposit, retirement accounts, savings plan, SIPs, special term deposit rates high interest rates, special term depositshigh interest rates, stock markets, stocks, Systematic Investment Plans, tax-efficient, tax-saving FDs, tax-saving fixed deposits, trading opportunities, Uncertainity

Stock Market Joke

March 11, 2011 3 Comments

I found this joke here : http://globalshtf.wordpress.com/2011/03/11/you-have-to-love-capitalists/ Pretty apt considering what happened in our markets today.

You Have To Love Capitalists

“Large Earthquake destroys part of Japan”

“Hmm”

“People die” Read more of this post

Filed under Tidbits Tagged with Honda, Japan, joke, sell, sensex, stocks, Toyota

Dealing With The Shortcomings Of The Human Brain

February 21, 2011 2 Comments

Since we can’t overcome the tendency of the human brain to make mistakes while working through heuristics , here is a list of things we can do to reduce the effects of the shortcomings of the human brain.The more we can incorporate these points into our investing procedures and systems , the better the quality of our returns.The checklist is form Whitney Tilson’s ‘How to Avoid – and Profit From – Manias , Bubbles and Investor Irrationality’.

•Be humble–Avoid leverage, diversify, minimize trading

•Be patient

–Don’t try to get rich quick

–A watched stock never rises

–Tune out the noise

–Make sure time is on your side (stocks instead of options; no leverage)

•Get a partner

–someone you really trust –even if not at your firm Read more of this post

Filed under Paper Assets, Theory, Tool Kit Tagged with bearish, behavioural finance, circle of competence, contrary opinions, diversify, get rich quick, good business, heuristics, How To Avoid and Profit From Manias Bubbles and Investor Irrationality, leverage, randomness, regression to mean, Stock Share Investing, stocks, Whitney Tilson

Some Assumptions To Check Before Investing

February 19, 2011 4 Comments

The human brain is fascinating in the way it can use a rough form of inductive logic to help us make sense of our very complex world.But the human brain is not infalliable.Mental heuristics in the form of common sense,educated guesses,rules of thumb,intuitive judgments,etc.can help us find a good enough solution fast, when an exhaustive analysis is impractical.But at the same time such heuristics can lead us to over-generalize and make mistakes.Here is a checklist of some common traps to avoid falling into while investing:

Correlating GDP growth and market performance. High GDP growth rates don’t always translate into stockmarket outperformance. This may be due to three reasons—(a) unlisted companies may contribute to a large part of GDP growth; (b) while the listed companies’ net profit may grow, dilution of capital through periodic issuances will adversely affect earnings per share (EPS) and return-on-equity (RoE), thereby, impacting stock prices; and (c) the nature of stockmarkets, which serve as leading indicators, resulting in prices surging ahead well ahead of the actual GDP growth and, then, plateauing out for a long period once the growth actually materialises. Read more of this post

Filed under Paper Assets, Theory, Tool Kit Tagged with Assumptions, checklist, credit ratings, GDP Growth market Perfomance, great company great investment, Hueristics, Investing, ipo's, mutual fund size, Paper Assets, RandomBlog2011, sectoral perfomance, Securities Exchange Board of India SEBI, stocks, strong currency

Some Financial Thumb – Rules

February 18, 2011 2 Comments

Financial thumb-rules are rough guides for making sensible financial decisions .However they have their infirmities and so need to be used in the right context.Following are a few basic financial thumb-rules:

Pay yourself first rule: From any money you make, put away atleast 10% first before you pay any bills or debts or do anything else with the money i.e. make your investments the first obligation on your money.The general idea is that this money will start working for you by earning interest , gaining in capital value or giving you rents etc. and in time you will need to work less and less as your money starts working for you.
The emergency fund rule: Build a corpus equal to 3-6 months worth of expenses of your household.Life is uncertain and you never know when somebody might meet with an accident , fall sick , suffer losses in business , lose a job or suffer loses due to fires or natural calamities ,war, civil strife etc.The money is to take care of immediate expenses,provide a cushion to fall back on till you find your feet again and if necessary provide a small stake to start over again.The money needs to be kept in a safe place where there is no chance of loss of capital and where it can be withdrawn immediately and without hassles.
100 minus your age rule:This is a thumb-rule to determine how much of your paper assets should be in equities.The general idea is that as you grow older and wealthier you want less volatility and less risk of capital loss.Volatility might complicate withdrawls from the corpus in retirement and lost capital might not be so easily made up for later in life, after retirement.
The 10,5,3 rule : This rule states that you can on an average expect returns of 10% on equities,5% on bonds and 3% on liquid cash and cash-equivalent accounts in the long run.It’s important to remember this rule before reaching for that extra half percent that might lead to capital loss. Read more of this post