Financial Guru's Mantra

Benjamin Graham

Timeless Investing Quotes from The Intelligent Investor

To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework. (pg. ix)
The sillier the market’s behavior, the greater the opportunity for the business like investor. (pg. ix)
The intelligent investor is a realist who sells to optimists and buys from pessimists. (pg. xiii)
No matter how careful you are, the one risk no investor can ever eliminate is the risk of being wrong. Only by insisting on what Graham called the “margin of safety” – never overpaying, no matter how exciting an investment seems to be – can you minimize your odds of error. (pg. xiii)
By developing your discipline and courage, you can refuse to let other people’s mood swings govern your financial destiny. In the end, how your investments behave is much less important than how you behave. (pg. xiii)
The purpose of this book is to supply, in the form suitable for laymen, guidance in the adoption and execution of an investment policy. (pg. 1)
No statement is more true and better applicable to Wall Street than the famous warning of Santayana: “Those who do not remember the past are condemned to repeat it”. (pg. 1)
We have not known a single person who has consistently or lastingly make money by thus “following the market”. We do not hesitate to declare this approach is as fallacious as it is popular. (pg. 3)
The defensive (or passive) investor will place chief emphasis on the avoidance of serious mistakes or losses. His second aim will be freedom from effort, annoyance, and the need for making frequent decisions. (pg. 6)
The determining trait of the enterprising (or active, or aggressive) investor is his willingness to devote time and care to the selection of securities that are both sound and more attractive than the average. (pg. 6)
The investor’s chief problem – and even his worst enemy – is likely to be himself. (pg. 8)
For 99 issues out of 100 we could say that at some price they are cheap enough to buy and at some price they would be so dear that they would be sold. (pg. 8)
The distinction between investment and speculation in common stocks has always been a useful one and its disappearance is cause for concern. (pg. 20)
Never mingle your speculative and investment operations in the same account nor in any part of your thinking. (pg. 22)
To enjoy a reasonable chance for continued better than average results, the investor must follow policies which are (1) inherently sound and promising, and (2) not popular on Wall Street. (pg. 31)
Speculative stock movements are carried too far in both directions, frequently in the general market and at all times in at least some of the individual issues. (pg. 31)
An investor calculates what a stock is worth, based on the value of its businesses. (pg. 36)
A speculator gambles that a stock will go up in price because somebody else will pay even more for it. (pg. 36)
People who invest make money for themselves; people who speculate make money for their brokers. And that, in turn, is why Wall Street perennially downplays the durable virtues of investing and hypes the gaudy appeal of speculation. (pg. 36)
Confusing speculation with investment is always a mistake. (pg. 36)
The value of any investment is, and always must be, a function of the price you pay for it. (pg. 83)
The most striking thing about Graham’s discussion of how to allocate your assets between stocks and bonds is that he never mentions the word “age”. (pg. 102)
The beauty of periodic rebalancing is that it forces you to base your investing decisions on a simple, objective standard. (pg. 105)
We urge the beginner in security buying not to waste his efforts and his money in trying to beat the market. Let him study security values and initially test out his judgment on price versus value with the smallest possible sums. (pg. 120)
There is no reason to feel any shame in hiring someone to pick stocks or mutual funds for you. But there’s one responsibility that you must never delegate. You, and no one but you, must investigate whether an adviser is trustworthy and charges reasonable fees. (pg. 129)
Thousands of people have tried, and the evidence is clear: The more you trade, the less you keep. (pg. 149)
We define a bargain issue as one which, on the basis of facts established by analysis, appears to be worth considerably more that it is selling for. (pg. 166)
In an ideal world, the intelligent investor would hold stocks only when they are cheap and sell them when they become overpriced, then duck into the bunker of bonds and cash until stocks again become cheap enough to buy. (pg. 179)
In the financial markets, hindsight is forever 20/20, but foresight is legally blind. And thus, for most investors, market timing is a practical and emotional impossibility. (pg. 180)
A great company is not a great investment if you pay too much for the stock. (pg. 181)
The intelligent investor gets interested in big growth stocks not when they are at their most popular – but when something goes wrong. (pg. 183)
It is absurd to think that the general public can ever make money out of market forecasts. (pg. 190)
It should be remembered that a decline of 50% fully offsets a preceding advance of 100%. (pg. 192)
Even the intelligent investor is likely to need considerable will power to keep from following the crowd. (pg. 197)
Price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. (pg. 205)
The speculator’s primary interest lies in anticipating and profiting from market fluctuations. The investor’s primary interest lies in acquiring and holding suitable securities at suitable prices. (pg. 205)
Always remember that market quotations are there for convenience, either to be taken advantage of or to be ignored. (pg. 206)
Never buy a stock because it has gone up or sell one because it has gone down. (pg. 206)
The investor should be aware that even though safety of its principal and interest may be unquestioned, a long term bond could vary widely in market price in response to changes in interest rates. (pg. 207)
Nothing important on Wall Street can be counted on to occur exactly in the same way as it happened before. (pg. 208)
Mr. Market does not always price stocks the way an appraiser or a private buyer would value a business. Instead, when stocks are going up, he happily pays more than their objective value; and, when they are going down, he is desperate to dump them for less than their true worth. (pg. 213)
The intelligent investor shouldn’t ignore Mr. Market entirely. Instead, you should do business with him- but only to the extent that it serves your interests. (pg. 215)
Mr. Market’s job is to provide you with prices; your job is to decide whether it is to your advantage to act on them. You no not have to trade with hime just because he constantly begs you to. (pg. 215)
Investing isn’t about beating others at their game. It’s about controlling yourself at your own game. (pg. 219)
The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go. (pg. 220)
Only in the exceptional case, where the integrity and competence of the advisers have been thoroughly demonstrated, should the investor act upon the advice of others without understanding and approving the decision made. (pg. 271)
Before you place your financial future in the hands of an adviser, it’s imperative that you find someone who not only makes you comfortable but whose honesty is beyond reproach. (pg. 274)
If fees consume more than 1% of your assets annually, you should probably shop for another adviser. (pg. 277)
The ideal form of common stock analysis leads to a valuation of the issue which can be compared with the current price to determine whether or not the security is an attractive purchase. (pg. 288)
The only thing you should do with pro forma earnings is ignore them. (pg. 323)
High valuations entail high risks. (pg. 335)
Even defensive portfolios should be changed from time to time, especially if the securities purchased have an apparently excessive advance and can be replaced by issues much more reasonable priced. (pg. 360)
A defensive investor can always prosper by looking patiently and calmly through the wreckage of a bear market. (pg. 371)
The best values today are often found in the stocks that were once hot and have since gone cold. (pg. 371)
It’s nonsensical to derive a price/earnings ratio by dividing the known current price by unknown future earnings. (pg. 374)
Calculate a stock’s price/earnings ratio yourself, using Graham’s formula of current price divided by average earnings over the past three years. (pg. 374)
Avoid second-quality issues in making up a portfolio unless they are demonstrable bargains. (pg. 389)
To see how much a company is truly earning on the capital it deploys in its businesses, look beyond EPS to Return on Invested Capital (ROIC). (pg. 398)
Wall Street has a few prudent principles; the trouble is that they are always forgotten when they are most needed. (pg. 409)
Although there are good and bad companies, there is no such thing as a good stock; there are only good stock prices, which come and go. (pg. 473)
In the short run the market is a voting machine, but in the long run it is a weighing machine. (pg. 477)
The intelligent investor should recognize that market panics can create great prices for good companies and good prices for great companies. (pg. 483)
The secret of sound investment into three words: MARGIN OF SAFETY. (pg. 512)
The margin of safety is always dependent on the price paid. It will be large at one price, small at some higher price, nonexistent at some still higher price. (pg. 517)
There is a close logical connection between the concept of a safety margin and the principle of diversification. (pg. 518)
Diversification is an established tenet of conservative investment. (pg. 518)
It is our argument that a sufficiently low price can turn a security of mediocre quality into a sound investment opportunity — provided that the buyer is informed and experienced and he practices adequate diversification. For, if the price is low enough to create a substantial margin of safety, the security thereby meets our criterion of investment. (pg. 521)
Investment is most intelligent when it is most businesslike. (pg. 523)
Losing some money is an inevitable part of investing, and there’s nothing you can do to prevent it. But to be an intelligent investor, you must take responsibility for ensuring that you never lose most or all of your money. (pg. 526)
By refusing to pay too much for an investment, you minimize the chances that your wealth will ever disappear or suddenly be destroyed. (pg. 527)
Before you invest, you must ensure that you have realistically assessed your probability of being right and how you will react to the consequences of being wrong. (pg. 529)
Successful investing is about managing risk, not avoiding it. (pg. 535)
At heart, “uncertainty” and “investing” are synonyms. (pg. 535)
Without a saving faith in the future, no one would ever invest at all. To be an investor, you must be a believer in a better tomorrow. (pg. 535)

Buffet's Berkshire letters

Berkshire every year Buffet letters to shareholders - http://www.berkshirehathaway.com/letters/letters.html
Get Buffett's Berkshire letters (1957-2012) and Munger's Wesco letters (1983-2009) from here Safal Niveshak's dropbox
- https://www.dropbox.com/sh/8ll0wcnv7j4ltbb/MAwcXl28XJ
- http://www.berkshirehathaway.com/letters/letters.html
2014 letter analysis - http://thestockking.blogspot.in/2015/03/warren-buffetts-2014-letter-complete.html
Buffet Books - Video Lesssons
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Proff Sanjay Bakshi

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Life story of Sanjay Bakshi

http://arvindt.blogspot.in/2005/09/prof-called-sanjay-bakshi.html

Philip Fisher

Peter Lynch

Gems from One Up wall Street

Apart from Benjamin Graham’s The Intelligent Investor, there is no better book to get started for beginners than Peter Lynch’s One Up On Wall Street.

The easy-going and simplistic stock picking style discussed in this book brought Lynch great success in his profession as a fund manager at the US mutual fund company, Fidelity.

The best part about this book is that it’s low on number crunching but high on anecdotal stories. Moreover, readers are given a clear picture on how to get off to a good start in the stock market.

One Up On Wall Street offers insight into the mind of one of the greatest money managers of all times.

Lynch helps you discover that he is a normal guy (like you and me) who thinks rationally, believes in doing his own independent research on companies, asks plenty of questions, and gets caught off guard by the market at times, just like anyone else.

Anyone thinking about buying individual stocks must read this book before they ever make their first stock purchase.

While there are numerous lessons that Lynch dispels through this book, here are my personal “Top 10″ that really stand out. I have in fact benefited from incorporating each of these lessons in my personal investment philosophy.

I hope these also add to your investment arsenal. So let’s start right here.

Peter Lynch’s 10 investing gems

Understand the nature of the companies you own and the specific reasons for holding the stock.

A lot of people buy stocks with the mentality – “This stock is really going up!”

This reasoning of buying stocks has never worked in the long run. You might buy a stock that is going up in price, and you might make some money in the short run. But in the long run, this basis of buying stocks is going to suck you into a never ending whirlpool of losses.

A stock is just a share in a business. So it’s important to understand what is the kind of “business” that you are getting into. And then you must have specific reasons to buy and hold the stock (again, reasons that have less to do with how the stock price is doing and more to do with how the business is doing).

Consider the size of a company if you expect it to profit from a specific product.

You might say, “I love Maggi! In fact, everyone loves Maggi. So Nestle must be a very good stock!”

Let me ask you, “Great! But what if Maggi is just 1% of Nestle’s total sales, and the products that contribute the remaining 99% aren’t that great? Does Nestle still sound like a great investment just on the basis of one great product that contributes just 1% of its sales?”

Now what do you say?

See, companies selling products or services that everyone love or is talking about is worthy of “considering” as a potential investment.

But, as an investor, the greater task for you is to know how much of that great product or service means to the company. If it does not contribute meaningfully to the company’s sales and profits, it can’t be the core reason for buying that stock.

Be suspicious of companies with growth rates of 50-100% a year.

“Growth for the sake of growth is the ideology of the cancer cell,” goes a famous saying. In the same way, companies that are growing at rates of 50-100% annually must be looked at with suspicion.

One reason for this is that such growth cannot continue for long (for reasons like higher competition that might want to take a pie of this growth opportunity). The second reason is that if such a company still wants to push for higher growth for a few more years, it might have to infuse more capital in the business.

This could either mean stretching the balance sheet (by taking on debt) or diluting equity (by issuing new shares). Both these are bad omens for existing shareholders.

What is more, one year of slowdown in growth can come as a shock to the stock market, and might lead to a sharp fall in the stock price.

Distrust diversifications, which usually turn out to be diworsefications.

Experience suggests that most diversifications (acquisitions of companies in the same area or a different one altogether) are done to satisfy the egos of promoters, and not for real business reasons. And most of the diversifications end up as diworseifications.

So watch out for companies that are blazing guns in this space.

People get incredibly valuable fundamental information from their jobs that may not reach the professionals for months or even years.

Not many small investors appreciate this, but it is one of the best ways they can pick great stocks.

If I’m a banker, I know what makes up a bank’s balance sheet and I also know which banks are worth banking upon as investments.

Considering this, I would be a fool eyeing biotechnology or IT stocks, especially when I don’t understand the ABCs of these industries, but just go by what my broker or friend advises me.

Of course I might enhance my circle of competence and learn about these industries, but my first hunting ground must be ‘banking’.

Separate all stock tips from the tipper, even if the tipper is very smart, very rich and his or her last tip went up.

Even if I love my fund manager for his stellar track record in managing my money, toeing all his stock ideas without doing my own research would be fraught with extreme risks.

The stock he is recommending on CNBC might form just 0.001% of his total portfolio. I might be so enamored by his story on the stock, that I may buy it in bulk and it forms around 10% of my small portfolio.

Now when this stock crashes, the fund manager would appear smart for taking a very small risk with it. I might lose my shirt.

So the idea is to always do an independent research on a stock before you even think of buying it.

Invest in simple companies that appear dull, mundane, out of favour, and haven’t caught the street.

Such a company is rarely covered by stock analysts and bought by fund managers. So there is a great chance that the stock could be available at a great bargain.

Companies that have no debt can’t go bankrupt.

This is the most important lesson that you would remember (or forget) when it comes to identifying the right businesses for investment.

Companies that borrow money to grow their businesses might appear good (because they are ‘growing’).

But more often than not, such companies get so much intoxicated by the growth that they end up making a mess of their balance sheets, and in the process, destroying whatever shareholder wealth they created during “growth” years.

Look at realty and construction companies, and you won’t have to look anywhere else for such examples.

Devote at least an hour a week to investment research. Adding up your dividends and figuring your gains and losses doesn’t count.

I have been shouting this from the rooftop of Safal Niveshak all this time, but not many seem to hear. So now, let me tell you how much Peter Lynch believes in the power of “independent investment research” in the success of an investor.

Lynch suggests that you must invest at least as much time and effort in choosing a new stock as you would in choosing a new refrigerator.

When in doubt, tune in later.

Now this is where the emotional part about investing comes into play.

I have spent ten days researching a stock, and thankfully on the eleventh day, I find that it’s a great business and even available at a good discount to the intrinsic value. So it seems like a perfect “buy”.

Now, what in the world should stop me from buying this stock?

Well, here are some questions that must stop me from buying that stock (call it XYZ) instantly:

Am I biased towards XYZ just because I’ve spent ten days researching it?

Am I getting over-confident with my analysis?

Am I impressed by just the company’s recent performance?

Do I like the stock just because it has fallen in price?

Do I like it just because my friend advised it to me in the first place?

If the answer to any of these questions makes me uncomfortable, it’s an indication that I must sleep on the stock idea instead of buying the stock then.

There have been numerous instances where I have waited weeks or even months before committing money to a stock idea I liked.

As Peter Lynch says, “The key organ for investing is the stomach, not the brain.”

The 15-20 days after I complete my analysis on a stock help me know whether my stomach is ready to digest the stock even when the mind answers in the affirmative.

What do you say?

Peter Lynch: Making Money by Investing in "Fast Growers"

Source : Saral Gyan

“The investor of today does not profit from yesterday’s growth.” Warren Buffett

Most of us have relatives who like to fashion themselves as ‘stock-gurus’, with their stories revolving around how they ‘could have been’ millionaires now, if only they had held their nerves. The stock that comes up frequently in these conversations is Infosys. If you had invested Rs. 9,500 to buy 100 shares of Infosys in the IPO (that went undersubscribed in 1993), 12,800 shares (adjusted for bonus issues) worth sum of Rs. 3,15,26,400 would be in your kitty. But, is Infosys still the key to riches? As often repeated, past performance is no guarantee of future results. So, how does one find out the next ‘Infy’?

A Fast Grower is a small yet aggressive & nimble firm, which grows roughly at 20-25% a year. This is an investment category which can give investors a return of 10 to as much as 200 times the investment made by them. No doubt, it remains a favourite of Peter Lynch!

In 1950s, the Utility & Power Sector were the fast growers with twice the growth rates to that of the US GDP. As people got more power-hungry gadgets for themselves, the power bills ran through the roof & the power sector surged with booming demand. Post the Oil Shock in 70’s, cost of power generation became high with power tariffs going up; people learnt to conserve electricity. Demand, thus, fell and power sector witnessed a slowdown. Prior to it, similar decline was observed in the Steel Sector & Railroads. First, it was the Automobile Sector, and then the Steel, followed by Chemicals & Power Utility& now the IT Sector is showing signs of slowing down. Every time, people thought, rally in the fast growers of the age would never end, but it did end, with people losing money as well as their jobs. Those who thought differently like Walter Chrysler (founder of Chrysler Corporation), who took a pay cut and left the railroads to build new cars in the turn of the last century, became the next millionaires.

Three phases involved in their life cycles, are:

The Start-Up Phase: Majority of the companies either burn up all the cash or run out of ideas by the end of this phase. Maximum casualties have been observed here, making it one of the riskiest phases. However, maximum returns can be made from them, if one enters near the end of this phase.
Rapid Expansion Phase: The Company’s core proposition has worked now, with the strategy being replicated by expansion of product/service portfolio or consumer touch points.
Mature Phase: Growth slows down, either due to high debt or low cash, owing to the massive expansion witnessed in early stage. Fall in demand or legal restrictions might also contribute to faltering growth.

The trick is to track, which phase the organization is in, at the moment. If the firm is in late start-up phase with possibility of moving to rapid expansion phase, buy the stock when it is still cheap. Once firm’s earnings start falling with its products witnessing poor demand, it’s time to bid goodbye to the stock.

The key parameters involved in Peter Lynch’s ‘two minute drill’ are:

P/E Ratio: avoid stocks with excessively high P/E
Debt/Equity Ratio: should be low
Net Cash per Share: should be high
Dividend & Payout Ratio: should be adequate
Inventory levels: lower the better

Stay away from companies which are being actively tracked, followed & invested in by large institutional investors. News about buy back of shares or internal stakeholders increasing their stakes should be construed as positive.

Checks specific to Fast Growers:

The star product forms a majority of the company’s business.
Company’s success in more than one places to prove that expansion will work.
Still opportunity for penetration.
Stock is selling at its P/E ratio or near the growth rate.
Expansion is speeding up Or stable

One must judiciously walk the tightrope between the unquestioning belief that made the stock to be held for so long and the fear of the end from nose-diving prices due to a one-off bad year. The key is to always keep revisiting the story & ask some pertinent questions like ‘What would really keep them growing?’, ‘What is their next offering? or ‘Are their products & services still in vogue?’ It is here, that one must track the point of time when the phase 2 of the firm’s expansion comes to an end. This is usually the dead-end for organizations as success is difficult to be replicated. Unless, innovation happens, downfall is imminent & thus, an exit is necessary. P/E of these stocks is drummed up to unrealistically high levels by the madness of crowd towards the end. One must keep one’s eyes & ears open to signs, which mark the end of the road for these fast growers. A great case in point is Polaroid which had its P/E bid up to 50, only to be rendered obsolete later by new technologies.

A sure shot sign of a decline is a company which is everywhere! Such a company would simply find no place to expand any further. Sooner, rather than later, such a company would see its ‘Manhattans’ of earnings reduced to ‘plateaus’ of little or no growth, simply because no space is left to expand further.

The quarterly sales decline for existing stores.
New stores opening, though results are disappointing: weakening demand, over supply.
High level of attrition at the top level.
Company pitching heavily to institutional investors talking about what Peter Lynch calls ‘diversification’.
Stock trading at a P/E of 30 or more, when most optimistic estimates of earning growth are lower than 15-20%, thus, unable to justify the high price.

Fast Growers, which pay, are ephemeral & one misses them more often than not. It is a High Risk & High Gain Category of Stocks. One must remember along the classic risk & return principle, that when one loses, one loses big! So, if you are in the quest for magnificent returns, a Fast Grower can be your bet provided you know when to bid Goodbye!

Vijay Kedia

Motilal oswal Annual reports

http://www.motilaloswal.com/Financial-Services/Research/Thematic/Wealth-Creation-Study/-/45

Thirdave Funds letters reports

http://www.thirdave.com/reports/third-avenue-funds-letters-reports-archive/